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Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment (FPI)

Context:

Foreign portfolio investors have staged a remarkable comeback after pulling out a record Rs 61,973 crore from Indian equities in March 2020 dragging down the benchmark indices Sensex and Nifty by 23 %.

Foreign Portfolio Investment (FPI):

  • FPI is a form of investment wherein investors hold assets and securities outside their country.
  • The FPI investments could include stocks, bonds, exchange-traded funds (ETFs), or mutual funds.
  • The reason FPI is watched carefully by experts is that it is an indicator of the stock market’s performance.

Regulation of FPI in India:

  • In India, foreign portfolio investment is regulated by the Securities and Exchange Board of India (SEBI).
  • FPI in India refers to investment groups or FIIs (foreign institutional investors) and QFIs (qualified foreign investors).

Benefits of FPI in India:

  • The FPI enhances stock market efficiency and ensures that there is a balance between value and the price of a stock.
  • Foreign portfolio investments boost demand for the stock of companies and help them when it comes to raising capital at low costs.
  • The presence of FPI would mean a significant rise in the depth of the secondary market.
  • It helps an investor add more diversity to their investments and benefit from such a diversification.
  •  A huge advantage of FPI is that it is liquid, ensuring that the investor is empowered and can move fast when there are good opportunities.

Difference between FPI and FDI:

  • The FDI refers to a scenario when a direct business interest is established overseas.
  • An FDI could lead to the transfer of resources, knowledge, and funds and involves a joint venture or setting up a subsidiary. 
  • Foreign direct investment is more long-term and bulkier than foreign portfolio investment.
  • Foreign direct investments are taken up by institutions or venture capital companies whereas the foreign portfolio investment is merely investing in the securities or assets of another country.
  • The FDI is all about active investors whereas the FPI involves investors who are passive.

Source: Indian Express