The stock market falls continuously, so there are protests among investors. The main reason for this is to communicate this to foreign investors. Actually, every day there is news and along with it data that today FPI has withdrawn so many crores of rupees from the stock market that some people also call them FII. Now the confusion is over what is FPI and FII, and what is the difference between the two? And why is it an important part of the Indian stock market?
Actually, before understanding FPI and FII, let us tell you a little about FDI and the picture will automatically become clear.
Foreign direct investment (FDI) is called (foreign direct investment) in Hindi. FDI is a way to invest in any country. This means that buying a stake in a foreign company or institution or starting a business in another country is called FDI. Any country promotes foreign investment for economic progress. There are also large scale foreign investments in India and they are increasing continuously.
What is FII or FPI?
If we look at the rules from Indian perspective, when a foreign investor buys more than 10 per cent stake in a company, then it is called FDI, i.e. under FDI it is mandatory to buy more than 10 per cent stake. Apart from this, when a company sets up a manufacturing unit in our country, it is also under FDI. But if a foreign investor buys less than 10 per cent or up to 10 per cent stake in a company, then it is called FPI.
Now does everyone know if this is FPI? FPI is called Foreign Portfolio Investment, in Indian market every day people withdraw money by selling shares, they are FPI, some people also call them Foreign Institutional Investors (FII). Actually, 10 years ago i.e. before 2014, foreign investors used to invest in the Indian market in two ways: FII and QFI. QFI is known as Qualified Foreign Investment.
FII got permission to invest in India in 1994, while QFI got permission in 2011. But in 2014, SEBI merged FII and QFI and converted it into FPI. That means FII is now just a colloquialism, actually it is called FPI, and only it can invest in the Indian stock market.
– FIIs cannot invest more than 10 percent in the capital of any company. FIIs cannot invest in unlisted companies. Foreign institutional investors are registered outside the country where they invest. Institutional investors are especially involved in hedge funds, insurance companies, pension funds and mutual funds.
Officially, a foreign investor who owns up to 10 per cent stake in the Indian stock market or any company is called Foreign Portfolio Investment (FPI). FPI refers to investments made by individuals or institutions of one country in financial assets such as stocks, bonds or mutual funds of another country.
Where can FPI invest?
stock: Investors buy shares of foreign companies and reap the benefit of dividends and capital gains as the company’s share price rises.
Stock Mutual Fund: Instead of buying stocks directly, investors can choose to invest in stock-based mutual funds that have a diversified portfolio of foreign stocks.
Exchange Traded Funds (ETFs): These are funds that track specific indices or sectors and can be traded on stock exchanges. Foreign investors can purchase ETFs that give them exposure to foreign stock markets.
Additionally, they invest in government bonds, corporate bonds and fixed income mutual funds in the form of debt securities. You can also invest in treasury bills, commercial paper, certificates of deposit, real estate investment trusts (REITs), derivatives, commodity-linked investments, sovereign wealth funds (SWFs), hedge funds, and private equity.
Currently, foreign investors invest in India in two ways: FPI and FDI. If we talk about the difference between the two, under FDI the foreign investor wants to have significant influence or control over the company. While in FPI the investment is made solely to obtain profitability, it has nothing to do with the management of the company.
Some special things related to FPI:
FPI is a common way of investing in the foreign economy.
It does not grant direct ownership of any company’s assets to the foreign investor.
FPI investment drives demand for company shares.
There is no shortage of liquidity thanks to the FPI investment.
FPIs invest with the short term in mind.
FPIs can move funds in and out of the country quickly depending on interest rates or political developments.
If we talk about losses, excessive withdrawal from FPI can create an atmosphere of instability in the market, as is currently happening in the Indian market, due to which a drop is observed.
Who regulates FPI in India?
SEBI regulates foreign portfolio investment in India. Any FPI needs to obtain permission from SEBI before investing in the Indian market i.e. the FPI needs to be registered with SEBI.
It is noteworthy that after liberalization, foreign investment plays an important role in the growth of the Indian economy. Although FIEs play a vital role in any economy, they are generally large companies and organizations such as banks, mutual fund houses and other similar institutions, which invest huge sums of money in the Indian investment market.
