{"id":23542,"date":"2019-08-27T21:00:39","date_gmt":"2019-08-27T15:30:39","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=23542"},"modified":"2019-08-27T18:50:30","modified_gmt":"2019-08-27T13:20:30","slug":"fdi-vs-fpi","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/fdi-vs-fpi\/","title":{"rendered":"FDI vs. FPI \u2013 Read the Exhaustive Analysis of Foreign Investment"},"content":{"rendered":"
Foreign investments mean investment made in any entity of a foreign country. It involves a transaction of capital from one country to another country. Foreign investments play a vital role in the development of the economy for a country. Additionally, it is also considered a crucial factor in the development of international trade and commerce. The two major tools for placement of foreign investment are FDI and FPI. FDI stands for Foreign Direct Investment, and FPI stands for Foreign Portfolio Investment. It is interesting to analyze the FDI vs. FPI debate talking place form a long time in the investment industry.<\/p>\n\n\n\n
Foreign investments via FDI and FPI are also crucial to boost\nthe economic growth and employment opportunities to the host country. It also\nhelps to reduce the economic disparity between different countries.\nInstitutions, corporations, and individuals can undertake these investments. The\nterms FPI and FDI sound similar but they represent two different concepts of\nforeign investment. <\/p>\n\n\n\n
Meaning of FDI<\/strong><\/h2>\n\n\n\n
FDI or Foreign Direct Investment involves anchoring a direct\nbusiness interest in a foreign-based country, such as investing in the\nestablishment of a manufacturing plant, the building of storage facilities or\nbuying of long term business assets. FDI is similar to establishing a business\nin the Investor’s home country for them. <\/p>\n\n\n\n
FDI aims to establish a long term business relationship with the host economy. The more extended period of the investment cycle is supplemented with a higher amount of investment capital. Given that the nature of investment needs a huge inflow of money, it is generally undertaken by Multinational companies, large corporate organizations, state owner organizations, venture capital organizations. <\/p>\n\n\n\n
FDI establishes a relation of ownership and control for the investors in the Firm they invested.<\/div>\n\n\n\n
Channels of Foreign Direct Investment- FDI can be placed\nin many ways. They are entering into a joint venture with an entity of the host\ncountry, through merger or acquisition with a pre-existing entity in the host\ncountry or establishing a subsidiary company in a host country.<\/p>\n\n\n\n
Benefits of FDI<\/strong><\/h2>\n\n\n\n
The major benefit of FDI is that it is undertaken with a long\nterm investment view. This perception of investors helps to grow the host economy\nin the long term. The prolonged period of investment helps in employment\ncreation and infrastructure of the economy. Additionally, it also helps in making\na concrete channel of investment for the investors.<\/p>\n\n\n\n
Another major advantage of FDI is that it allows the investors\nto establish direct control in the business invested. The investors have a say\nin the management of the business as well as in the establishment of policies\nand strategies after acquiring certain prescribed equity. <\/p>\n\n\n\n
FDI is non- fluctuating in nature, and investment is made to create a stable investment contribution.<\/p>\n\n\n\n
Disadvantages of FDI<\/strong><\/h3>\n\n\n\n
The nature of Investment via FDI is such that of creating a\nbusiness just like in one’s own country. It requires a huge capital investment.\nAdditionally, the investment is typical of a longer period. All these factors\nmake it very difficult to liquidate the investment made under the FDI route.<\/p>\n\n\n\n
The only approach to overcome this disadvantage is that the\ninvestors follow the ‘going concern’ strategy for their business interests. The\nassumption is to make the business profitable in operational activities and\ncontinue to run the business for an uninterrupted period.<\/p>\n\n\n\n
The FDI investment involves more risk and more commitment\ntowards the business. The investors need to have more responsibilities in FDI\nmode of direct investment.<\/p>\n\n\n\n
Meaning of FPI <\/strong><\/h3>\n\n\n\n
<\/p>\n\n\n\n
Another vital tool of foreign investment is FPI. FPI stands for Foreign Portfolio Investment. This type of investment involves investment in the financial assets (Equity or Debt securities) of a business entity located in a foreign land. The financial assets, such as shares and bonds, act as tools of investment and are purchased via a stock exchange. This type of investment possesses opposite characteristics than that in FDI. This mode of investment is seen as less favorable for the host country as it involves short term investment.<\/p>\n\n\n\n
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Such term investments are seen as tools to make money in a\nshort span of time. These investments do not contribute to the development of\nbusiness entities and infrastructure in the long term. The foreign investors\naim to sell their stake once it starts to yield a favorable return for them.\nFPI investors often go for investment instruments that are highly liquid in\nnature. <\/p>\n\n\n\n
FPI is short term investments and does not provide control or\nmanagement rights to the investors.<\/p>\n\n\n\n
![\"Foreign](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/landing-page-concept_23-2147776353.jpg\")
<\/figure><\/div>\n\n\n\n![\"FDI](\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2019\/08\/global-economy-money-business-design_24877-52246.jpg\")
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