What is Foreign Direct Investment (FDI)?
What is Foreign Portfolio Investment (FPI)?
- FDI involves establishing a direct business interest in a foreign country, while FPI refers to investing in financial assets such as stocks or bonds in a foreign country.
- FDI usually aims to take control of the company in which investment is made whereas FPI aims to reap profits by investing in shares and bonds of the invested entity without taking part in management of the company.
- FPI can enter the stock market easily and also withdraw from it easily. For this reason FPI is also known as hot money, as the investors have the liberty to sell it and take it back. But FDI cannot enter and exit that easily. This difference is what makes nations prefer FDIs more than FPIs as FDIs are more stable.
- In India, according to the SEBI (FPI) Regulations, 2014, a particular foreign institutional investor is allowed to invest upto 10% of the paid up capital of a company, which implies that any investment above 10% will be construed as FDI.
Why in News?
- According to the latest official data, FDI in India grew by 13% to a record of $49.97 billion in the 2019-20 financial year. The country had received an FDI of $44.36 billion during April-March 2018-19.
- The sectors which attracted maximum foreign inflows during 2019-20 include services ($7.85 billion), computer software and hardware ($7.67 billion), telecommunications ($4.44 billion), trading ($4.57 billion), automobile ($2.82 billion), construction ($2 billion), and chemicals ($1 billion).
- Singapore emerged as the largest source of FDI in India during the last fiscal with $14.67 billion investments.
- It was followed by Mauritius, the Netherlands, the U.S., Caymen Islands, Japan, and France.