Pod Insights Finshots Daily Can LIC be India’s sovereign wealth fund? About this episode In today’s episode on 24th November 2025, we look at why India doesn’t have a sovereign wealth fund*, why some people think Life Insurance Corporation of India (LIC) already behaves like one, and why the truth is a lot trickier.
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Transcript 0:00 Speaker 00 Hello folks, you're tuned into Finshots Daily. In today's episode, we look at why India doesn't have a sovereign wealth fund, why some people think Life Insurance Corporation of India, that's LIC, already behaves like one, and why the truth is a lot trickier.
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0:57 Speaker 00 Okay, before you jump in and say, "Hey Finshots, India does have a sovereign wealth fund, it's called the National Investment and Infrastructure Fund, that's NIIF", let's politely pause you right there. Because yes, you're right, but only partially. NIIF was set up in 2015 as India's first sovereign anchored fund, with the government putting in an initial seed. Now, for the uninitiated, sovereign wealth funds are basically giant investment pools owned by governments. They're funded by foreign currency reserves or other government surpluses and are managed separately from the money used to run day-to-day government operations. But NIIF is a bit different. Think of it as a quasi-sovereign wealth vehicle that's been tailored for India's own needs.
1:41 Speaker 00 Instead of primarily chasing foreign acquisitions, the fund is mainly designed to invest in domestic infrastructure, like roads, ports, renewables, logistics, the works basically. Today, NIIF manages about five billion dollars across its funds. And here's something else you should know. The government owns forty-nine percent of NIIF's funds. The majority, fifty-one percent, comes from institutional investors. We're talking names like HDFC, Axis Bank, ICICI Bank, And global giants like ADI, Themyscic and international pension funds. So in spirit, NIIF behaves less like a traditional SWF, which typically deploys state surplus globally and more like a capital mobilizing platform for India's infrastructure story.
2:26 Speaker 00 Which is why the Indian government recently floated an ambitious plan to create a fifty billion dollar Baharit Sovereign Wealth Fund. A move that would place India alongside Singapore, Norway, the UAE and other economies that deploy national savings into global markets and strengthen geopolitical influence. This announcement immediately set off debates. Where would the capital come from? Would it be fiscally prudent? And given India's persistent trade deficit, does the country even generate the kind of surplus dollars that usually fund such investment vehicles? But this got a lot of people thinking. If India wants a powerful state-backed investment engine, why not use a giant it already has?
3:05 Speaker 00 Unlike many nations, India has LIC, a financial colossus with a current AUM of over fifty lakh crore rupees and growing. LIC already invests in government bonds, equities, PSUs and even infrastructure bonds. Whenever the government needs a reliable anchor for an IPO, a backstop for a struggling bank or a stabilizer during market stress, LIC often steps in. So LIC undeniably displays the traits of a sovereign investor. It has a massive capital base and the scale to take concentrated bets precisely the traits and SWF needs. Countries like Singapore and Malaysia use state-owned investment firms to shape national industrial strategy. On the surface, the logic fits.
3:48 Speaker 00 If they can do it, why can't LIC? Well, it's because LIC's foundation is built on a completely different premise. You see, as we mentioned earlier, sovereign wealth funds are generally funded by national surpluses such as oil windfalls, export profits, fiscal savings or excess foreign reserves. They deploy a country's excess capital into productive assets. The risks they take are the state's responsibility and if something goes wrong, the cost eventually lands with the government, not individual citizens. LIC by contrast. Runs on policyholder money. Every rupee comes from families buying term insurance, retirement plans and products for their long-term savings.
4:28 Speaker 00 LIC's core mandate is fiduciary, protect capital, deliver stable returns and honor claims. Its job is not nation-building gambles or strategic state purchases that may or may not put off. And this is where attention creeps in. Whenever the government nudges LIC to rescue a company, support disinvestment or soak up PSC equity, LIC starts behaving like a de facto sovereign wealth fund, albeit without the transparency safeguards or autonomy that actual SWFs are built on. That poses two significant risks. Number one, structural mismatch. SWFs invest globally to generate foreign exchange income. India, however, has a widening trade deficit and has no meaningful surplus USD to deploy abroad.
5:12 Speaker 00 LIC isn't designed to fill that gap. Its investments are predominantly domestic because its liabilities are domestic too. Moreover, the regulations governing an insurance company's use of policyholder premiums for investments are pretty strict. As per the Insurance Act nineteen thirty-eight and its amendments, no insurer should invest, directly or indirectly, the funds of the policyholder outside India. There is a list of the approved investments by the RDI, I will link it in the description for you to see. However, exceptions such as rupee-denominated bonds issued by multilateral bodies or incubators are allowed on a case-by-case basis, subject to explicit conditions.
5:52 Speaker 00 These also require approval from the RDI, the RBI and compliance with FEMA, that's Foreign Exchange Management Act. This makes it all the more difficult for LIC to invest in global instruments. And second concern is part governance. SWFs publish clear investment charters and detailed performance metrics. LIC, especially when executing decisions aligned with government priorities, remain opaque. If policyholder funds are used to support sensitive projects, it becomes difficult to judge whether those moves are financially sound or a case of mission drift. Now, just to be clear, LIC already does all this to some extent, but within the country. Heavyweight and can absolutely co-invest in national priorities, but that doesn't make it a sovereign wealth fund.
6:35 Speaker 00 It makes it a large insurance company being stretched beyond its native design. Because at the end of the day, LIC's first duty is to policyholders that must stay intact. Its governance, risk frameworks, and investment criteria should remain insulated from external demands. If LIC ever participates in projects, it must do so under disclosed frameworks with risk caps. Then, we must build a dedicated SWF separately. This would require funding coming in from the right places, not insurance premiums, and India has three such sources. The first is asset monetization. The government owns airports, highways, ports, pipelines, mining rights, land banks, stakes in PSUs, and large pools of brownfield infrastructure that already generates stable cash flows.
7:19 Speaker 00 The Department of Investment and Public Asset Management is already in the business of selling or leasing these assets through disinvestment and monetization pipelines. Instead of pushing all proceeds directly into the annual budget, instead of pushing all proceeds directly into the annual budget, a portion of these earnings could be channeled into a sovereign fund. Singapore Bill Thamasik uses this exact model. The second source is foreign reserves, which today stands close to $700 billion. Many countries carve out a small surplus slice to deploy abroad through their SWFs. Even a cautious allocation of one to two percent of our reserves could seed an investable corpus without compromising RBI mandates. The third source is future fiscal surpluses. As the tax base widens and the deficit narrows,
8:04 Speaker 00 we could earmark a portion of its future windfall revenues such as telecom spectrum receipts, strategic PSC stake sales, or the divestment of non-core government companies for the fund instead of folding everything into annual spending. Norway's fund, for instance, started with oil money but today uses its tax and licensing fees from oil companies to back its global investment book. A fund built on these foundations could be structurally different from LIC or any other domestic institution. It would be free to invest wherever it sees fit. From Silicon Valley tech to African infrastructure, Southeast Asian ports, energy assets, and venture. Capital as well as stakes in domestic and global companies. It would be guided by an independent investment charter that prioritizes returns,
8:48 Speaker 00 diversification and future economic security over short term political pressure. The bottom line is this, LIC can support national priorities but it can't replace a sovereign wealth fund. Its capital belongs to policyholders and shareholders and not the state. And until India has the surpluses to build an actual SWF, LIC must remain exactly what people signed up for. A safe, stable institution that protects lives, not an investment fund wearing an insurance company's badge. All right, folks, I will see you tomorrow. Until then, have a marvelous Monday.
9:21 Speaker 00 Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected] . Until next time.
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