In the economy of any nation, two different terms are usually heard which are FDI and FII. these are also mostly discussed among the investors forums. It is important to understand the main differences between these two in order to understand the growth of any economy. And if you are active investors exploring the most popular investment opportunities, understanding these two terms plays an important roles in taking a proper decision.
FDI stands for foreign direct Investment
FII stands for Foreign Institutional investors.
So both FDI and FII are foreign investments to a country. If you are a foreign national or a foreign company, and if you are investing in another country, then the investment will be categorized as either FDI or FII. And we will understand this in respect of Investing in India by a foreign national or a foreign company.
If you are following the recent stock market movements( During November- December 2020), you will be observed that the stock market is continuously rising and creating new high every week. For example, Nifty50 has reached created multiple new high breaking its own high each week. On careful observation, you will find that the increase is due to a large amount of investment that is coming into India. A lot of foreign investors are investing in Indian stock markets and because of which there is a constant rise. This investment in the stock exchanges in India is termed an FII.
And also recently during the pandemic ( April 2020 – August 2020), if you are following the news, in addition to the news of increasing covid19 cases, one news popped up in the news every alternate week. That is the Investments that are coming into Reliance JIO. Started from the investment by Facebook in Reliance JIO, there are a bunch of foreign companies announcing huge investment in Reliance JIO according to regulatory approvals. This investment of a foreign company or an individual is an Indian company directly is termed as FDI.
Foreign Direct Investment
Foreign Direct Investments, abbreviated as FDIs are those investments which are made by an establishment or company situated offshore. Through FDI, the investing company may establish its business operations in a foreign land or even make an international acquisition.
Foreign Institutional Investor
Also known as FIIs, Foreign Institutional Investors, FIIs can be individual investors, investment funds or assets which are invested in a foreign country, outside of the territory in which the investing company is registered or headquartered. FIIs typically belong to varying financial and non-financial sectors, including banks, mutual fund houses, infrastructure companies, etc.
Difference Between FDI and FII – FDI vs FII
Foreign Direct Investment (FDI)
Foreign Institutional Investor (FII)
Entering and exiting
Foreign direct investment involves a lot of regulation for entering and also exiting is difficult when compared to FII
FII though has regulation is easy to enter as they can directly invest stock markets and exited from the stock markets.
Usually the investment period is very long. FDI will ensure that there is a long term investment coming into the country
FII is usually short term and mostly removed when there are profits. Most of the times investors invest when the market is at discount and immediately when they shave some profits.
Impact on Economy
FDI is good for the economy as it indicates that the foreign company believe that the economy will grow in the long term.
FII will indicate that there is a short term increase in the growth in comparison to the other economies across the globe. But as it is easy for an FII to exit, when there is a large exit of FII, the stock markets will crash.
Target for the investment
FDI usually comes not only as a Capital investment but also involves the transfer of technology by a foreign company and also involves other help from the foreign company. It also gives the foreign company control over the indian company
FII usually not interested in the control of the company but to make short term profit and exit as soon as possible.
FDI vs FII
While making any investment, you should check whether it is accessible to both, enter and exit it. It is quite easy to enter and exit an FII, and also make a significant amount of money in a short span. However, FDI investments are more controlled and may also need government approvals, which is why they are quite difficult to enter or exit.
FDI will usually aimed at a long term investment opportunities. In cases few FDI will stay for few decades to come. where as investors who are interested in both short term profit and long term profits will invest as FII.