By V Shunmugam, the author is partner, MCQube
Sovereign wealth funds (SWF) from Gulf countries may reassess their global investments if the Iran war continues for long. India’s technology and infrastructure sectors have been prime destinations for such funds. V Shunmugam explains how SWFs identify and seek value and what India can do to continue attracting these funds
l How sovereign wealth funds invest & seek value
SOVEREIGN WEALTH FUNDS or SWFs are investment vehicles wholly owned by governments. Commodity-exporting countries deposit mineral or oil revenue into SWFs. Those with sustained trade surpluses or large foreign-exchange reserves use SWFs to invest excess reserves for better returns. Though many blend categories, SWFs are typically classified into five types :
n Savings funds — preserving wealth for future generations, e.g., Norway’s Pension Fund,
n Stabilisation funds — smoothening government budget swings from commodity price volatility; e.g., Chile’s Stabilisation Fund,
n Pension reserve funds — setting aside money for future obligations; e.g., Canada Pension Fund,
n Strategic development funds — investing in national economic projects; e.g., Temasek, focusing on key industries, and
n Reserve investment funds — reinvesting foreign exchange reserves for higher returns; e.g., Abu Dhabi Investment Authority.
SWFs have scale and patience. A typical SWF portfolio may allocate roughly one-third to equities, one-third to fixed income, and one-third to alternatives. Invesco (2025) reports that SWFs held 30% of assets in global stocks, 29% in bonds, with the balance in alternatives such as real estate, infrastructure, private equity, and “strategic” holdings. Since they face no immediate liquidity needs, they are willing to invest in projects with long payback periods and strategic benefits.
l How SWFs compare with pension funds
BOTH SWFs AND pension funds manage vast assets, but they differ in purpose. Pension funds (PF) collect retirement contributions and must pay out future pensions, so they operate under clearly defined liability schedules. This drives them toward assets that match those liabilities (e.g. bonds or stable income streams). SWFs manage national savings without fixed payouts. This grants them greater flexibility and patience. In practice, SWFs can allocate more to illiquid, high-growth assets like private equity or infrastructure.
l Tenure of SWF investments
SWFs REPORT INVESTMENT horizons well over 10 years on average. The holding period varies by asset class: SWFs keep public equity for 5–10 years, private equity or venture stakes for 5–8 years, and own infrastructure or real estate for 10–20 years. These long durations reflect that SWFs finance projects, such as highways or power plants, through their full lifecycles, benefiting from steady returns.
l Investment norms in India
SWFs are treated as foreign government accounts under the FDI regime. They can invest up to the sectoral cap under the automatic route. For equity markets, SWFs can register as Foreign Portfolio Investors (FPIs), subject to normal FPI limits. India’s regulations for fund structures also accommodate SWFs: they can invest via Category I Alternate Investment Funds (AIF) or serve as anchor investors in Infrastructure Investment Trust (InvIT)/ Real Estate Investment Trust (REIT). Sebi has recently broadened the definition of who qualifies as an institutional/ anchor investor in InvITs/REITs.
l How active are SWFs in India?
INDIA HAS BECOME a notable destination for SWFs/ PFs, especially in infrastructure and technology. Several SWFs have taken stakes in Indian airports, power generation, telecom towers, and renewables. According to official data, SWFs and pension funds invested nearly $5.7 billion in Indian companies in 2025. Assets under the custody of these funds in India were around $57 billion as of early 2026.
l Tax treatment of such investments
SECTION 10(23FE) OF the Income-Tax Act gives tax exemptions on dividends, interest, and long-term capital gains earned by notified SWFs/PFs from investments in specified infrastructure assets such as InvITs and AIFs. The exemption window, extended until March 2030, improves long-term project returns and has encouraged greater participation by global institutional investors. Canadian pension funds, which already have large investments in the infrastructure sector, have sought continued parity with SWFs under this framework and long-term policy certainty to ensure their investments generate stable, tax-efficient returns.
l How India can attract such funds
INDIA WILL REQUIRE trillions of dollars in patient capital to fund infrastructure, energy transition, and logistics. SWFs and pension funds are ideal partners due to their long-term investment focus. To attract these funds reliably, India should maintain stable tax benefits, ensure regulatory clarity and develop bankable platforms such as InvITs, PPPs, and infrastructure funds. Encouraging co-investment between international funds and domestic institutions can boost financing for highways, ports, power grids, and digital infrastructure.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.