Foreign Portfolio Investment

Subject – Economy

Context – FPIs catch IPO bug, invest ₹36,577 cr via primary route

Concept –

It consists of securities and other financial assets passively held by foreign investors.
It does not provide the investor with direct ownership of financial assets and is relatively liquid depending on the volatility of the market.
It is part of a country’s capital account and is shown on its Balance of Payments (BOP).
Its 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.
It is more liquid and less risky than Foreign Direct Investment (FDI).
Examples of FPIs include stocks, bonds, mutual funds, exchange traded funds, American Depositary Receipts (ADRs), and Global Depositary Receipts (GDRs).

Foreign Direct Investment (FDI)

It is an investment made by a firm or individual in one country into business interests located in another country.
It lets an investor purchase a direct business interest in a foreign country.
It is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an Economy.
Example: Investors can make FDI in a number of ways. Some common ones include establishing a subsidiary in another country, acquiring or merging with an existing foreign company, or starting a joint venture partnership with a foreign company.