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  • Foreign Investments - FDI VS. FPI VS. FII

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    Foreign direct investment (FDI) involves directly investing in another country by establishing subsidiaries or joint ventures. In contrast, foreign portfolio investment (FPI) involves purchasing financial assets like stocks and bonds. While both provide capital, FDI provides ownership and management rights as well as long-term commitment, whereas FPI only provides ownership of financial assets and allows for short-term investment horizons. Of the two, FDI is more important for economic development because it represents a more permanent investment through establishing productive assets and local operations that create employment.

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    Foreign Investments - FDI VS. FPI VS. FII(1)

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    Foreign direct investment (FDI) involves directly investing in another country by establishing subsidiaries or joint ventures. In contrast, foreign portfolio investment (FPI) involves purchasing financial assets like stocks and bonds. While both provide capital, FDI provides ownership and management rights as well as long-term commitment, whereas FPI only provides ownership of financial assets and allows for short-term investment horizons. Of the two, FDI is more important for economic development because it represents a more permanent investment through establishing productive assets and local operations that create employment.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    249 views3 pages

    Foreign Investments - FDI VS. FPI VS. FII

    Uploaded by

    Stan lee
    Foreign direct investment (FDI) involves directly investing in another country by establishing subsidiaries or joint ventures. In contrast, foreign portfolio investment (FPI) involves purchasing financial assets like stocks and bonds. While both provide capital, FDI provides ownership and management rights as well as long-term commitment, whereas FPI only provides ownership of financial assets and allows for short-term investment horizons. Of the two, FDI is more important for economic development because it represents a more permanent investment through establishing productive assets and local operations that create employment.

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    © All Rights Reserved
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    Foreign Investments – FDI VS.

    FPI
    VS. FII
    By Shubhra - January 6, 2016

    For a developing country like India, the total capital requirements cannot be
    met with internal sources alone, so foreign investments become an important
    part in supplying capital. The two most common foreign investments are FDI
    and FPI.

    Foreign Direct Investment (FDI) as the name suggests is investing directly in


    another country. A foreign company which is based in some other country like
    France invests in India either by setting up a wholly owned subsidiary or
    getting into a joint venture with some company based in India and then
    conducts its business in India.

    Examples: Various software companies like IBM India which is initially based in
    Unites States but has opened its subsidiaries in different part of India, Maruti
    Suzuki is yet another example in which Suzuki of Japan had joint ventured with
    Maruti Udyog Ltd. SBI life insurance is a joint venture life insurance company
    between State Bank of India (SBI) and BNP Paribas Assurance of France and
    there are many other examples.

    Foreign Portfolio Investment (FPI) is similar to FDI in a way that this is also
    direct investment but investment in only financial assets such as stocks, bonds
    etc. of a company located in another country. In contrast to FDI, a portfolio
    investment is an investment made by an investor who is not involved in the
    management and day-to-day business of a company.

    Example: Any foreign company invests in the shares of Infosys (based in


    India).

    Foreign Institutional Investor (FII) is an investor of group of investors who


    bring FPIs. Institutional investors include hedge funds, insurance companies,
    pension funds and mutual funds. They participate in the secondary market of
    economy. To participate in the market of India, FIIs must register themselves
    with Securities and Exchange Board of India (SEBI).

    FDI versus FPI

    FDI FPI

    Investment in productive assets (whose Investment in financial assets


    value increase over time) like plant and like stocks, bonds, mutual
    machinery for a business funds, etc.

    Investment gives investors


    Investment gives investores ownership
    only ownership right and not
    right as well as management right
    management right

    Not involved in decision


    Engage in decision making of a firm
    making

    Investors can plan for long


    Investors enter a country with long-term
    but often have short-term
    approach
    plans

    So investors cannot depart from the Investors can easily depart


    country easily from the country

    Investment is greater than 10% Investment is less than 10%

    Out of FDI and FPI, FDI is most important for any economy because it is a type
    of permanent investment in the economy. Like IBM India has its branches in
    India, it cannot easily shut its business from India because it has set up a
    whole infrastructure in India, IBM will itself go into great losses. Also setting up
    subsidiaries give employment to people of India. While in FPI, the investors can
    exit a nation easily whenever they want.

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