What exactly is a Sovereign Wealth Fund?

Sovereign Wealth Fund

What exactly is a Sovereign Wealth Fund? Just as there is a particular profit or quota of money reserved for investment purposes (either for shares, stock, etc.) in business organizations so also it is for a country as a whole.

As such, a country or nation set aside or reserve a particular amount of money which is gotten from different treasuries or assets for investment purposes in order to help the country’s economy and citizen. Such set-aside money is known as Sovereign Wealth Fund, and it is sovereign because it is owned by the State/ Country.

However, the question arises, where exactly does a nation get all these assets, treasures and reserves from? The funding for a sovereign wealth fund comes from the central bank reserves of a country, which differs from country to country. Countries with liquidity concerns limit investments to only very liquid public debt instruments.

Some countries have created SWFs to diversify their revenue streams. For example, Nigeria relies on oil exportation and Agriculture for its wealth.

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