FDI vs FPI
FDI
- Foreign Direct Investment (FDI) is the investment made by a person or a company in one country into businesses located in another country.
- Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets.
- FDI is an investment made in the form of equity capital, reinvested earnings or other direct capital by setting up an enterprise.
- FDI enables setting up of businesses; more businesses mean more jobs and capacity addition.
- In other words, FDI is a source of capital in the primary market and this capital gets converted into goods and services.
- The key to foreign direct investment is the element of control. Control represents the intent to actively manage and influence a foreign firm’s operations. This is the major differentiating factor between FDI and a passive foreign portfolio investment.
FPI
- Foreign Portfolio Investment (FPI) means investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.
- FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy.
Why is FDI preferred?
- FDI is considered a more stable form of foreign capital infusion as it brings in a certain expenditure that can’t be pulled out overnight.
- It creates jobs and can potentially aid economic growth.
- FPI, on the other hand, can come and go easily. Sudden withdrawal can create liquidity problems in the securities market and hit the foreign exchange rate of the country.
Why in News?
- Foreign investors have pulled out a massive Rs 22,000 crore from Indian equities so far this month, due to uncertainty surrounding the outcome of the Lok Sabha elections and outperformance of Chinese markets.
Subscribe
Login
0 Comments