FPI & DII

FPI & DII

Subject: Economics

Context:  FPI ownership in NSE-listed companies hit a five-year high of 22.74 per cent at the end of December 2020, up from 21.51 per cent as on September 30, 2020.

Concept:

Foreign Portfolio Investments

• Foreign portfolio investment (FPI) refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.
• This type of investment is at times viewed less favorably than direct investment because portfolio investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term investment in the economy.
• Portfolio investments typically have a shorter time frame for investment return than direct investments.
• As securities are easily traded, the liquidity of portfolio investments makes them much easier to sell than direct investments. With any equity investment, foreign portfolio investors usually expect to quickly realize a profit on their investments.
• Portfolio investments are more accessible for the average investor than direct investments because they require much less investment capital and research.
• Examples of foreign portfolio investments include stocks, bonds, mutual funds, exchange traded funds, American depositary receipts (ADRs), and global depositary receipts (GDRs).

Domestic Institutional Investors

• Domestic institutional investors are those institutional investors which undertake investment in securities and other financial assets of the country they are based in.
• Institutional investment is defined to be the investment done by institutions or organizations such as banks, insurance companies, mutual fund houses, etc in the financial or real assets of a country.
• Simply stated, domestic institutional investors use pooled funds to trade in securities and assets of their country.
• These investment decisions are influenced by various domestic economic as well as political trends.
• In addition to the foreign institutional investors, the domestic institutional investors also affect the net investment flows into the economy.