FOREIGN PORTFOLIO INVESTMENT

Subject: Economics

Context: Foreign portfolio investors (FPIs) have been making record investments in Indian equities the last few weeks taking their exposure to a lifetime high of about ₹1.5-lakh crore in the eight months into the current fiscal year.

Concept:

• Foreign portfolio investment (FPI) consists of securities and other financial assets passively held by foreign investors. It includes both individuals and foreign institutional investors.
• It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
• FPI is part of a country’s capital account and is shown on its Balance of Payments (BOP).
• The BOP measures the amount of money flowing from one country to other countries over one monetary year.
• The investor does not actively manage the investments through FPIs, he does not have control over the securities or the business.
• The investor’s goal is to create a quick return on his money.
• FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy.
• FPI is more liquid and less risky than Foreign Direct Investment (FDI).
• A Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. FDI lets an investor purchase a direct business interest in a foreign country.
• FPI and FDI are both important sources of funding for most economies. Foreign capital can be used to develop infrastructure, set up manufacturing facilities and service hubs, and invest in other productive assets such as machinery and equipment, which contributes to economic growth and stimulates employment.
• Securities and Exchange Board of India (SEBI) brought new FPI Regulations, 2019, replacing the erstwhile FPI Regulations of 2014.