Difference Between FDI and FII

Difference Between FDI and FII – Do They Help in a Country’s Economic Growth?

FDI stands for Foreign Direct Investment, which means investing in a country other than your home country. It involves direct capital inflows from one country to another. FII stands for Foreign Institutional Investors, these are large companies and institutions that invest in overseas countries’ financial markets.

FDI, FPI, and FII are three terms discussed concerning the foreign investment arena. They may seem to be similar on its face but are fundamentally different. While the internet is filled with articles explaining the difference between FDI and FII, decoding the ‘what’ and ‘how’ of FII is tricky. Because the information available lacks clarity.

So, we took up this endeavor of investigating the matter and finding out what is what. Here’s our humble attempt to do so. We have tried to put our words in as simple a manner as possible.

Content:

What is FDI?

FDI stands for Foreign Direct Investment, which means investing in a country other than your home country. It involves direct capital inflows from one country to another. FDI is generally seen as an accelerator for economic growth.

You must be wondering who all are eligible to be a Foreign Direct Investor!

As per the Reserve bank of India:

Foreign Direct Investment (FDI) can be made by a person resident outside India, foreign corporations, and institutions in the following ways.

  • in an unlisted Indian company;
  • in 10 percent or more of the post-issue paid-up equity capital on a fully diluted basis of a listed Indian company.

Read more about FDI by clicking here.

What is FII?

FII stands for Foreign Institutional Investors, these are large companies and institutions that invest in overseas countries’ financial markets. It refers to foreign entities investing in the nation’s financial markets.

FII examples are hedge funds, insurance companies, investment banks, and mutual funds. FII is an essential source of capital in developing economies.

FDI vs FII – Foreign Direct Investment vs Foreign Institutional Investors

Considering the crucial factors, below is the difference between FDI and FII for your easy understanding.

FactorsFIIFDI
MeaningWhen an investment is made by foreign companies in a non-native country’s stock market, then it is known as FII.When a company situated in one country invests in a company located abroad, it is known as FDI.
Investment’s Entry and ExitEasy.Difficult.
What does it bring?Long/Short term capital.Long-term capital.
Transfer ofFunds only.Funds, resources, technology, strategies, know-how, etc.
Economic GrowthYes.Yes.
OutcomesIncrease in the capital of the country.Increase in the country’s Gross Domestic Product (GDP).
TargetNo such target, investment flows into the financial market.Investment is made in a specific company.
Control over a companyIn FII, the investors can invest in foreign countries’ financial markets without any managerial hold over a company.Investors have higher control over the company and are involved in the management.

We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:

Market What is Primary Market?
Difference between IPO and FPO
Bull vs Bear Market
Trading What is Online Trading?
What is Algo Trading?
Investment What is Bonus Share?
What is Valuation of Shares?
What is Corporate Action?
Analysis Stock Market Analysis
Individual Topics What are CTT & STT Charges?
India Vix
Difference between FDI and FII
Account What is Trading Account
What is Demat Account

FAQ(Frequently Asked Questions)

Which is Better, FDI or FII?

Technically looking, FDI is the investment made in the Primary Markets of the country, and FII is the investment made in the Secondary Market of the country. From the development point of view, FDI is more favorable than FII for a country’s economic growth.

Quick Summary

  • FDI, FPI, and FII are terms generally used while discussing foreign investment. 
  • FDI (foreign direct investment) is nothing but investing in a country other than the home country, which involves direct capital inflows from one country to another.
  • FII (foreign institutional investors) are large companies and institutions that invest in the nation’s financial markets.
  • Difference between FDI and FII: Entry and exit in FII are easy and difficult with FDI.
  • Investment in FII is in the form of funds only, while in FDI, it could be in any form, such as funds, resources, technology, etc. 

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