What is the Difference Between FPI and FII?

India is a developing country and its capital needs cannot be met by its own resources. India's foreign investments are crucial in supplying capital. The Indian stock exchange can be driven by both domestic and foreign investments. The political and economic situation of the country can have an impact on them. Foreign direct investments (FDI), and foreign portfolio investments (FPI) are the most popular methods of capital supply to the country. Here's the difference between FDI, FII, and FPI.

What's FDI vs FII vs FPI ??

Retail investors are now investing in foreign investment types. They should be aware of the subtle differences between FDI, FII, and FPI.

FDI means that foreign investors directly invest in the productive assets of another country.

FPI and the FII are not different. Foreign institutional investors (FII), are one investor in a group that brings in foreign portfolio investment. They are therefore one and the same. These include investing in financial assets such as bonds or stocks from another country.

There are many differences between portfolio investments from institutions and FDI. However, there are some commonalities. A country with a higher FPI level can experience greater market volatility and turmoil in relation to currency during uncertain times. These are international pension funds, insurance companies, hedge funds and mutual funds that invest in Indian equities. They participate in India's secondary market. To be eligible to participate in India's secondary market, FIIs need to get themselves vetted and certified by SEBI (the Securities and Exchange Board of India).

Features of FPI vs. FII

Below are some differences between foreign institutional and direct investments.

1. Type of asset

FDIs invest in productive assets such as machinery and plants to support their businesses. These assets increase in value over time. Foreign institutional investors invest their money in financial assets such as bonds, mutual funds, or stocks of the country. These financial assets can increase or decrease in value depending on the company that manages them, as well as economic and political consensus.

2. Investment Tenure for FDI vs FII vs FPI

Foreign directors investors are more inclined to invest in FDI over a longer period of time. From the planning stage to project implementation, it can take 6 months to several years. Foreign portfolio investments of FIIs have a shorter investment horizon. Although FIIs can be invested over the long-term, their investment horizons are still very small, particularly when the local economy is in turmoil. The third factor that differentiates FDI, FII and FPI from each other is liquidity.

3. Liquidity of FDI vs FII vs FPI Investments

FDI investors cannot withdraw as easily as FII portfolio investors due to the length of their investment horizon. FDI assets may be more liquid and larger than FII portfolio investment. Having insufficient liquidity can reduce the investor's buying power and increase the risk. This is why investors should prepare for long periods of time before investing in FDI assets.

Portfolio investments in FII are highly liquid and widely traded. FPI investors have the option to exit their investments with just a few mouse clicks. These types of investments are less time-consuming and can be more volatile because they are highly liquid. It is important to consider how liquid an asset is. This is both a function of its liquidity and how traded it is. FPI can be more stable than FDI, especially if a country is trying to attract foreign investment.

4. Control Exercised in FPI vs. FII

Investors who are interested in FDI have a greater degree of control than those who invest directly in FIIs. FDI investors generally actively participate in managing their investments. Investors from FDI can take control of their investments in one of two ways. They may do so through joint ventures, or by owning domestic businesses. FII investors are more likely to hold passive positions in their investments. FIIs can be considered passive investors as they are not involved in any of the day-today operations or strategic planning that domestic companies require.