FDI and FII Decoded
Today we try to clear the concept of FDI and FII. We resist ourselves to indulge in details and so present here only the main concepts. We are sure it will clear your doubts regarding these concepts.
# Any investment flowing from one country into another is called Foreign Investment.
# Indian Govt. Classified Foreign Investment in four types;
1. FDI (Foreign Direct Investment)
2. FII (Foreign Institutional Investment)
3. NRI (Non-Resident Indian)
4. PIO (Person of Indian Origin)
What world says about FDI?
A foreign direct investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation’s stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.
What world says about FII?
FII’ An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds.
Let’s break these concepts in D2G ways;
# Both FDI and FII are related to Foreign Investment.
# In FDI, Company (Parent) makes an investment in a foreign country.
# In FII, An Investor make an investment in the market of Foreign Country.
# In FII companies only need to get registered on the Stock Exchange to make investments.
# The Foreign Institutional Investor is also known as HOT MONEY.
Reason to be called Hot Money: As the investors have the liberty to sell it and take it back. In Layman Language, After selling your product collect your money and go to your country.
# But in FDI, It is not possible.
# In simple words, FII can enter the stock market easily and also withdraw from it easily. But FDI can’t let enter or exit easily. That’s why the majority of nations choose FDI over FII.
# FDI only targets a specific Enterprise. It’s AIM is to increase:
1. Capacity;
2. Productivity and
3. Change in the Management Control.
# FDI is more stable than FII; FDI brings capital, good governance practices and better management skill and even technology transfer.
# FII helps only in promoting Good Governance and improving Accounting.
# FDI flows in Primary Market. -> Long Term.
# FII flows in Secondary Market. -> Short Term.
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