Investment plays a crucial role in shaping economies and facilitating growth. Two prominent types of investments are Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). In this article, we will explore their definitions, characteristics, and their impact on economies.
| Aspect | Foreign Direct Investment (FDI) | Foreign Portfolio Investment (FPI) |
|---|---|---|
| Definition | Investment to establish a long-term commercial presence | Investment in financial assets like stocks and bonds |
| Investment Nature | Direct investment with control and management power | Indirect investment without control |
| Investment Horizon | Long-term | Short-term |
| Forms | Joint ventures, mergers and acquisitions, subsidiary companies | Debt investments, equity investments, ETFs, mutual funds, REITs |
| Economic Impact | Contributes to employment, technological development, and economic growth | Impacts financial markets and liquidity |
| Risk and Volatility | Higher risk due to long-term commitment and business involvement | Subject to market volatility, easier entry and exit |
| Control and Ownership | Provides control over business operations | No control over business operations |
| Governmental Support | Supported by initiatives like "Made in India", eased regulations in key sectors | Significant fluctuations, influenced by market conditions |
| Examples | Establishing a manufacturing plant or subsidiary in a foreign country | Buying shares in a foreign company's stock market |
| Recent Trends | India's FDI reached $84.84 billion in 2021 | FPI inflows hit a record $36.5 billion in 2021 |
Kutos : AI Assistant!
