Concept: Special Purpose Vehicles (SPV)
Topic: Governance
Category: Government policies and interventions
Related News: Hindu, Feb 9
CNA mentions:  1(Feb 9)

Special Purpose Vehicles UPSC

Special Purpose Vehicle is an important concept in the economics segment of the UPSC civil services exam. It is a term frequently seen in the newspapers. It is important for UPSC aspirants to familiarise themselves with terms commonly seen in the newspapers. It helps to understand the concept behind the news and additionally, helps in the UPSC prelims as well.

A Special Purpose Vehicle (SPV) is a legal entity that is formed for a well-defined, sole and narrow purpose. It is generally a company formed to fulfill one or a group of narrow objectives by its promoters. SPVs are generally formed to isolate a company’s assets or activities. The activities or assets are distanced into the new entity, i.e., the SPV and so investors or lenders feel more comfortable. It is basically a means to separate the risk and free up capital. The SPVs and the sponsoring company (sometimes the parent company) are insured against the risk of bankruptcy.

SPVs are also used to securitize loans or any other receivables. Other uses of SPVs include circumventing certain regulatory constraints, maintaining the confidentiality of intellectual property, property investing especially in countries that have different tax rates for property sale gains and capital gains.

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