FDI or foreign direct investment is frequently confused with the term FII or Foreign Institutional Investment in light of the fact that both are the types of investment made in abroad. FDI is made to secure controlling proprietorship in any enterprise however FII has a tendency to invest into the stock market. Much of the time, the FDI is given more preference over the FII in light of the fact that it advantages the entire economy. There are prominent contrasts in FDI and FII which has been exhibited in this article. Another concept named FPI is also confused with FDI and FII. This article concentrates on the difference between FDI, FII and FPI.

FDI

FDI, commonly known as foreign direct investment, is defined as an investment made by any organization or any entity based in one nation, into an organization or entity based in another nation. It is the investment which contrasts considerably from indirect investments, for example, portfolio streams, where institutions present in abroad put resources into equities recorded on a country’s stock exchange. Those entities which make direct ventures commonly have a noteworthy level of impact and control over the organization into which the venture is made.

FII

FII is the abbreviation of Foreign Institutional Investor. It can be defined as the investors that put their cash to invest in the resources of the nation located in abroad. It is an instrument for profiting for the speculators. Institutional speculators are organizations that put cash in the budgetary markets in the nation based outside the financial specialist nation. To make any investment, it is necessary to get registered with securities exchange board of respective nation. It incorporates mutual funds, banks, hedge funds, insurance companies etc. FII assumes an exceptionally significant part in any nation’s economy.

FPI

FPI is the abbreviation used for Foreign Portfolio Investment. It is a grouping of assets like stocks, bonds and cash equivalents. These portfolio investments are directly made by an investor or managed by financial professionals. It means entry of funds into foreign country where foreigners deposit money in a country’s bank or deal in country’s stock and bond markets.

FDI vs. FII vs. FPI

Here are the some contrasts between FDI, FII and FPI.

Meaning

When any organization in one nation makes an investment in any organization in abroad, it is mostly called as foreign direct investment or FDI.

When any organization in abroad make investment in the market related to stock of a nation then this investor is called foreign institutional investor or FII.

When money is deposited by a foreigner in a country’s bank and purchases regarding stock and bond markets are made then it is called as Foreign Portfolio Investment or FPI.

Brings

Foreign direct investment brings long term capital in the company where investment is made by other company.

Foreign institutional investor brings short or long term capital in the nation.

FPI is a way to diversify investment portfolio with an international advantage.

Access or leave

Foreign direct investment does not give an easy access or exit to the stock market.

FII gives an easier access to stock market and also allow an investor to leave the stock market.

FPI consists of securities and financial assets that are passively held by foreign investor. The foreign investor is a direct part of the stock market of host country.

Transfer

In foreign direct investment, transfer of technologies, funds, strategies or resources is done.

In FII, only funds are transferred through this institution.

In FPI, securities, financial assets and stocks are transferred by the foreign investor.

Economic growth

Foreign direct investment helps to increase the job opportunities in the country which leads to increase in living standard of people, also develops the infrastructure of the investee country and all of this helps in the economic growth so FDI plays its role in economic growth of the country.

Foreign institutional investor does not play any part in the economic growth of country.

FPI is a source of investment capital. It is referred to as ‘hot money’ because of its tendency to cut out of an economy at first signs of trouble.

Making money

Foreign direct investment does not give an easy way in making money quickly as it includes complex procedures.

FII allows the investor to make money quickly from the stock market.

Results

By having foreign direct investment, there is the increase in productivity, job opportunities and eventually it helps to increase the economic growth of the country.

The main consequence of FII is that there is an increase in capital of country.

Target

Foreign direct investment targets any specific company for investment.

FII never targets any specific company.

FPI doesn’t target any specific company. It invests in assets like stocks and securities.

Control

Through FDI, there is the administration control in company.

FII does not help to get such kind of control in company.

Conclusion

From the above article we come to know that FDI is the investment of one company into another in abroad whereas FII is the investment of foreign company in stock market of any country. In FDI it is not easy to enter and leave but in case of FII, it is easy. FDI brings long term capital whereas FII brings both i.e. short and long term capital. In FDI, we can transfer funds, strategies, technologies etc but in FII, we can only transfer the funds. FDI has its part in economic growth but FII don’t. FDI mostly target a specific company and have an administration control but this is not the case in FII. FPI is a kind of investment capital and has much higher degree of volatility than FDI and FII. Which is better in your opinion?