Meaning Of Foreign Portfolio Investment

FPI is a common acronym that you may have seen in stock market news or business papers. What is FPI? Foreign portfolio investment, or FPI, is an investment in which investors have assets and securities that are not located in their country. These investments can include stocks, bonds and ETFs. mutual funds are also possible. This is one of the ways an investor can participate in a foreign economic system.

Experts closely monitor FPI because it is a measure of the performance of the stock market. FPI improves efficiency in stock markets and ensures that stock prices and value are equal.

Foreign investors are more likely to invest in emerging economies that have a higher potential for growth than their country. A favorable growth rate is another factor that can influence FPIs.

You should look at the economy and growth potential of any FPI you are considering investing in.

Who regulates FPI India?

The Securities and Exchange Board of India regulates foreign portfolio investment in India. FPI refers to India's investment groups, FIIs and QFIs (qualified foreign investor).

What is the difference between FPI & FDI?

You now know what FPI is, but you need to be aware of the differences between FPI (and another term for foreign investment), FDI.

FDI is a situation where a direct business interest has been established abroad. This could be, for example, a warehouse or manufacturing company.

- An FDI can lead to the transfer of resources, knowledge, and funds. It could also involve a joint venture or the establishment of a subsidiary.

- Foreign portfolio investments are bulkier and last longer than direct foreign investment.

Institutions or venture capital firms can take up foreign direct investments. Foreign portfolio investment refers to simply investing in assets or securities from another country.

FPI is a way to buy shares or bonds on foreign exchanges. FPI is liquid, and can be easily bought or sold.

FPI is for passive investors, whereas FDI involves active investors. FPI is not an investment, and it is only a form of short-term investment as compared to FDI.

Categories of (for investment into India)

FPI was previously divided on the basis their risk profiles into three groups.

- Category I or low-risk: This kind of FPI includes government/government-related establishments like central banks and international agencies among others. A sovereign wealth fund, or SWF, is an example of a fund that is owned by the state or its divisions.

- Category II, or moderate-risk: This covers mutual funds, insurance companies, banks, pension funds and other financial institutions.

- Category III, or high-risk: All foreign portfolio investments that do not fall within the first two categories are included in this category. These could include trusts, societies, endowments, trusts and others.

SEBI sought to simplify the norms and reclassify certain categories in a notification issued in the second quarter of 2019. Accordingly, FPIs will now fall under two categories. All entities and funds previously registered as Category III now fall under Category II. The Category I, however, is a mixture of both the older Category I and II.

Advantages of foreign portfolio investments ?

Foreign portfolio investments increase demand for stocks of companies and aid them in raising capital at low cost.

FPI would be a significant increase in the depth of secondary markets.

It helps investors add diversity to their investments and reap the benefits of diversification.

Investors may also benefit from changes in exchange rates.

Investors have the opportunity to invest in a larger market than their home market, but they may not always be as competitive. They also benefit from lower competition in foreign countries.

FPI has a huge advantage: It is liquid. This means that investors can be empowered to move quickly when they see good opportunities.

FPI can be a disadvantage in certain situations.

- For the country receiving FPI (ie, host), the unpredictability associated with such investments would indicate a shift in markets over short periods. This can lead to volatility.

The exchange rate could be affected by a sudden withdrawal from FPI. FPI can be risky in certain circumstances, such as when there is political instability within a country.

In conclusion

Foreign portfolio investments are made by people who want to diversify their portfolios and invest in bonds, shares, mutual funds, or other assets/securities from a foreign country. FPIs are usually higher in countries with high growth potential. FPI is important because it drives stock markets and increases liquidity in capital markets. Knowing what FPI is, you might consider investing in a foreign country to diversify your portfolio and take advantage of international credit and exchange rates.