Difference between FDI and FII
Basis |
FDI |
FII |
---|---|---|
Definition |
FDI is putting money directly into a business in another country, like buying part of a company or starting a new one. |
FII includes investing in the financial market of another country, without controlling the companies. |
Type of Investment |
It is long-lasting investments, like being part of managing a company or starting a new business. |
It is a short to medium-term investments in the financial instruments to gain from dividends, capital appreciation, interest income, etc. |
Control |
Investors get to make decisions in the business they put money into, as they acquire a substantial ownership stake in the company. |
Investors don’t control the businesses they invest in as they usually focuses on the financial market transactions. |
Effect on the Country |
Creates jobs and helps the country’s economy grow by bringing in new technology and skills, resulting in productivity growth. |
Provides liquidity to the financial market, enhance its efficiency, and increase the capital flow. |
Investment Channels |
Here direct investment is made in tangible assets like real estate, factories, technology, infrastructure, and acquisition of an existing business. |
Here investment is made through financial intermediaries like mutual funds, stock exchanges, depository receipts, and other market instruments. |
Government Regulations |
Certain regulations and restrictions are imposed by the Governments on FDI. It is done to protect national interests, ensure compliance with local laws, and control ownership in the strategic sectors. |
There are regulations for FII investments regarding governing capital flows, ownership limits, taxation, and foreign exchange controls. |
Why Invest? |
To be actively involved in a business abroad, often with a long-term plan. |
To make money quickly without being involved in how the business is run. |
Stability and Risk |
FDI is a more stable and less volatile investment. It is because FDI includes long-term commitments and strategic partnerships which are less effected by the short-term market fluctuations. |
FII investments are less stable and more volatile as they are most effected by the changing market sentiments, interest rates, economic conditions, and global risks. |
Difference between FDI and FII
Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are two primary forms of international investments, each with distinct characteristics, purposes, and economic impacts. Both FDI and FII are crucial for global economic integration and development, but their approaches, impacts, and objectives significantly differ. FDI is more about physical and long-term investments in foreign enterprises with control and management interests, often leading to direct economic benefits like job creation and infrastructure development. On the other hand, FII focuses on short-term financial investments, contributing to capital flow and market liquidity but with the potential for greater volatility and less direct impact on the real economy.
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