Foreign direct investment (FDI) and foreign institutional investment (FII) are allowed to engage in very different types of transactions.
Foreign institutional investment (FII) and foreign direct investment (FDI) are the two types of foreign direct investment.
Foreign direct investment is a type of investment that involves direct production activities and is often medium to long-term. The majority of foreign institutional investment is made in financial markets and usually for a short period of time.
Foreign Direct Investment (FDI)
- Foreign Direct Investment (FDI)
- Foreign Institutional Investor (FII)
- FDI vs FII – Key Differences
- Frequently Asked Questions
Foreign direct investment, or FDI, refers to a foreign entity assuming control of a business in another country. Foreign Direct Investment is the term for this type of foreign investment. As a result, it differs from foreign portfolio investment due to the concept of direct control.
Foreign Institutional Investor (FII)
An investor or investment fund headquartered in a nation other than the one in which it is registered or has its headquarters is referred to as a FII. In India, the term “foreign institutional investors” refers to foreign investors who participate in Indian financial markets. Foreign Institutional Investor is what this term refers to.
FDI vs FII – Key Differences
Let’s compare the two investment strategies now that we’ve covered the definitions of FDI and FII. The following characteristics distinguish FDI from FII.
1. Exiting versus entering an investment
It is critical to consider whether an investment can be made and exited at any time. The process of entering and departing an FII is straightforward, and one can make substantial profits in a short period of time.
FDI investments, on the other hand, are more regulated and may require government clearance, which is why they are more difficult to enter and exit.
2. The ideal term for an investment
Another distinction between FDI and FII is the investment term. Long-term investors should consider foreign direct investments.
Long-term capital is brought to the organization by investing in it. FIIs, on the other hand, may appeal to investors seeking both immediate and long-term investment returns.
3. Investment type
The types of transactions that FDI and FII are permitted to engage in differ significantly. The primary focus of FII is on money transfers. Foreign direct investment, on the other hand, does more than just move money.
When an offshore firm invests in another country through FDI, it transmits its resources, technologies, technical know-how, talents, and strategy, among other things.
4. Economic consequences
Foreign direct investment has a significant impact on a country’s economy in two ways: it generates job possibilities and boosts the economic output of the invested company.
Furthermore, the investments contribute to the development of infrastructure in the country where they are produced, increasing the foreign country’s purchasing power. As a result, foreign direct investment helps to boost economic growth.
Foreign Direct Investment (FDI) and Foreign Direct Investment (FII) cannot be compared because FIIs only add capital to a country.
5. The investment target and control of the company
Foreign direct investment usually focuses on specific enterprises, with the goal of gaining management control. Because there is no specific target, the company has no control over FIIs.
Frequently Asked Questions
Which is more beneficial, FDI or FII?
FDI is focused on the primary market, whereas FII is focused on the secondary market. Because investors have the ability to sell and return the money invested by FII, it is referred to as Hot Money. Foreign direct investment (FDI) is thought to be significantly more useful than foreign direct investment (FII) since it is the most advantageous kind of foreign investment for the economy as a whole.
Is FDI the same as FII?
Foreign institutional investment (FII) and foreign direct investment (FDI) are the two types of foreign direct investment. Foreign direct investment is a type of investment that involves direct production activities and is often medium to long-term. The majority of foreign institutional investment is made in financial markets and usually for a short period of time.
How does foreign direct investment differ from outsourcing?
Technology transmission costs are higher for foreign direct investment, but input production distortion is lower by the affiliate supplier, whereas outsourcing has low technology transmission costs but high input production distortion by the arms length supplier.
What is an FII activity?
FIIs (Foreign Institutional Investors) and FPIs (Foreign Portfolio Investors) are investors based outside of India who participate in Indian financial markets. To engage in the Indian financial market, you must first contact the Securities and Exchange Board of India (SEBI).
Is it possible to invest in FII?
Pension funds, mutual funds, investment trusts, insurance firms, and reinsurance businesses are all considered investors in India. A pension fund’s application to register as an FII must be approved by the SEBI. Sub-accounts can be created for pension funds.