FDI and FPI are basically monetary investments coming from one country to another country. One can say international investment. Although the basic purpose of both FDI and FPI is to invest internationally, they differ from each other in numerous ways.
Keep reading this article and learn about the top differences between FDI and FPI.
Content:
FDI Meaning
FDI full form is Foreign Direct Investment. If we break down the abbreviation, these investments are made by large institutions and MNCs from different countries for the purpose of business expansion or establishing new infrastructure in a foreign country.
Investments can be done in numerous ways, some of which are stated below:
- Joint Ventures: Joint venture is when 2 or more companies unite and work collectively with their resources for a particular product or project. We can understand this by referring to the examples shared below.
- Mergers and Acquisitions: Merger is when two companies combine and become a single legal entity. Acquisition is when one company buys another company and takes over the operations and resources.
To know more about Mergers and Acquisitions, read this article!
- Establishing a Subsidiary company: This happens when a company decides to open its own subsidiary branch in a different country. This requires a good amount of time and investment as the company will be building an establishment from scratch. This also opens a lot of employment opportunities.
We have a lot of examples of these happening in our country. A few notable mentions are-
- Walmart (U.S.A.) acquiring a 77% stake in Flipkart (India).
- Maruti (India) and Suzuki (Japan) coming together to build the biggest automobile brand in India, Maruti Suzuki.
- Vodafone (U.K.) and Idea (India) merged together to become the largest telecom operator in India.
FPI Meaning
FPI full form is Foreign Portfolio Investment. These are investments made in financial assets like shares or bonds of a different country. It is basically done with the purpose of generating a good return on investment. These investments can be made by an individual or any large financial institution from a foreign country is called FPI.
If you are wondering what a portfolio is, then read our blog on What is a portfolio in Stock Market?
FDI vs FPI
Check out the difference between FDI and FPI below:
| Factors | FDI (Foreign Direct Investment) | FPI (Foreign Portfolio Investment) |
| Definition | FDI refers to the direct investments made in a foreign country to serve the motive of business expansion, establishing new infrastructure and making long term investments in that country’s economy. | This is an investment made in the financial assets of a foreign county like buying shares or bonds in the Stock market. It is basically done with the motive of generating a good return to the investment done in the stock market. |
| Type | Direct investments | Indirect investment |
| Term | Long-term Investment | Both short-term and long-term Investment |
| Roles | Active investor | Passive investor |
| Investments | Physical assets | Financial assets |
| Risks | Stable performance | Volatile in nature |
| Motive | Business expansion, opening subsidiary branches | Generating a good return to the investment |
| Degree of control | High control over assets | Low control over assets |
| Doorway | Difficult | Easy |
Hopefully this article has helped you understand the functions of FDI and FPI, you might as well be wondering what is FII what is the difference between FDI and FII if so here’s our blog on the difference between FDI and FII.
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:
