Banking Awareness Topic Wise - FDI &FPI

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 Banking Awareness Topic Wise - FDI &FPI

Foreign Direct Investment

 Foreign Direct Investment involves establishing a direct business interest in a foreign

country, such as buying or establishing a manufacturing business, building warehouses, or
buying buildings
 Due to the significantly higher level of investment required, foreign direct investment is
usually undertaken by multinational companies, large institutions, or venture capital firms.
 The investment may result in the transfers of funds, resources, technical know -how,
strategies, etc. There are several ways of making FDI i.e. creating a joint venture or
through merger and acquisition or by establishing a subsidiary company.

Foreign Portfolio Investment

 Foreign Portfolio Investment refers to investing in the financial assets of a foreign country,
such as stocks or bonds available on an exchange.
 It does not provide the investor with direct ownership of a company's assets and is
relatively liquid depending on the volatility of the market.
 Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an
overseas economy. FDI and FPI are both important sources of funding for most
economies.
 These include investments via equity instruments (stocks) or debt (bonds) of a foreign
enterprise which does not necessarily represent a long-term interest.

Difference Between FDI and FPI

Parameters FDI FPI

Definition FDI refers to the investment FPI refers to investing in the

made by foreign investors to financial assets of a foreign

obtain a substantial interest country, such as stocks or
in the enterprise located in a bonds available on an

different country. exchange.

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 Banking Awareness Topic Wise - FDI &FPI

Role of Investors Active Passive

Type Direct Investment Indirect Investment

Degree of Control High Very low

Term Long term Short term

Management of Projects Efficient Comparatively less efficient

Investment Done on Physical assets of Done on Financial assets of

the foreign country the foreign country

Entry & Exit Difficult Relatively Easy

Risks involved Stable Volatile

Leads to Transfer of funds, technology Capital inflows to the foreign

and other resources to the country

foreign country

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