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Write A Note On FDI and FII and Their Importance

FDI involves a company directly investing in or acquiring business assets in another country. FDI is different from FPI, which is an indirect investment through holding shares without ownership or control. There are two main ways for FDI: cross-border M&A and building new foreign factories. FDI is important because it leads to economic development, new projects, competition, job creation, and employment in host countries. FII refers to institutional investors investing in another country where they are not based. FIIs play an important role by investing large sums, influencing market trends, and preferring equity over debt. Their investments enhance capital flows, competition, financial innovation, and improve capital markets through professional management.

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102 views2 pages

Write A Note On FDI and FII and Their Importance

FDI involves a company directly investing in or acquiring business assets in another country. FDI is different from FPI, which is an indirect investment through holding shares without ownership or control. There are two main ways for FDI: cross-border M&A and building new foreign factories. FDI is important because it leads to economic development, new projects, competition, job creation, and employment in host countries. FII refers to institutional investors investing in another country where they are not based. FIIs play an important role by investing large sums, influencing market trends, and preferring equity over debt. Their investments enhance capital flows, competition, financial innovation, and improve capital markets through professional management.

Uploaded by

vishal sinha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Write a note on FDI and FII and their importance

Foreign direct investment (FDI)

A foreign direct investment (FDI) is an investment made by a company or an individual in one country
into business interests situated in another country. FDI takes place when an investor establishes foreign
business operations or acquires foreign business assets in a foreign company.

FDI (Foreign Direct Investment) is different from FPI (Foreign Portfolio Investment) which means
holding of shares and other financial assets by foreign investors without any controlling, management or
ownership rights over the company; FPI is a indirect investment whereas FDI is direct.

There are 2 primary ways to invest in FDI:

 Cross border M&A (Mergers & Acquisitions) which means buying controlling stake in a foreign
company (Brownfield Investment)

 Extending company’s operations to foreign and begin building new factories & offices from
scratch (Greenfield investment)

Top reasons to invest in foreign companies are:

1. Tap into new markets

2. Skilled labor

3. Cut down costs

4. Other strategic profit making decisions

Importance of Foreign Direct Investment

 Increased FDI implies rise in economic development because of increased capital and increased
tax returns for the host country.
 New projects are channelized to hike development by FDI investment in host countries.
 Tough competition leads to highest efficiency and productivity levels in host country.
 FDI results in specialization of skills and creation of new jobs.
 FDI also generates employment opportunities created by different entities, for local countries.
Foreign institutional investors (FII)

Foreign institutional investors (FIIs) are those institutional investors which invest in the assets belonging
to a different country other than that where these organizations are based. an investor or investment
fund investing in a country outside of the one in which it is registered or headquartered. The term foreign
institutional investor is probably most commonly used in India, where it refers to outside entities
investing in the nation's financial markets.

 Foreign institutional investors play a very important role in any economy. These are the big companies
such as investment banks, mutual funds etc, who invest considerable amount of money in the Indian
markets. With the buying of securities by these big players, markets trend to move upward and vice-versa.
They exert strong influence on the total inflows coming into the economy.

Importance of FII’s

 FII’s will enhance the flow of capital into the country


 These investors generally prefer equity over debt. So this will also help maintain and even improve
the capital structures of the companies they are investing in.
 They have a positive effect on the competition in the financial markets
 FII help with the financial innovation of capital markets
 These institutions are professionally managed by asset managers and analysts. They generally
improve the capital markets of the country.

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