BEWARE OF FAKE INSTITUTES WITH SIMILAR NAMES. blank    blank
banner

FDI VS FPI – WHICH ONE IS BETTER?



  May 30, 2024

FDI VS FPI – WHICH ONE IS BETTER?


OVERVIEW TABLE
Aspect Foreign Direct Investment (FDI) Foreign Portfolio Investment (FPI)
Definition Investment to establish a long-term commercial presence Investment in financial assets like stocks and bonds
Investment Nature Direct investment with control and management power Indirect investment without control
Investment Horizon Long-term Short-term
Forms Joint ventures, mergers and acquisitions, subsidiary companies Debt investments, equity investments, ETFs, mutual funds, REITs
Economic Impact Contributes to employment, technological development, and economic growth Impacts financial markets and liquidity
Risk and Volatility Higher risk due to long-term commitment and business involvement Subject to market volatility, easier entry and exit
Control and Ownership Provides control over business operations No control over business operations
Governmental Support Supported by initiatives like "Made in India", eased regulations in key sectors Significant fluctuations, influenced by market conditions
Examples Establishing a manufacturing plant or subsidiary in a foreign country Buying shares in a foreign companys stock market
Recent Trends India's FDI reached $84.84 billion in 2021 FPI inflows hit a record $36.5 billion in 2021

KEY DIFFERENCES

Investment Nature: FDI involves direct control and management, while FPI focuses on financial asset investments without control.

Investment Horizon: FDI is suited for long-term investments, while FPI allows for short-term gains and quick market exits.

Economic Impact: FDI contributes directly to economic growth and employment, whereas FPI primarily affects financial markets.

Risk and Volatility: FDI carries higher risks due to long-term commitments, while FPI offers more liquidity but is influenced by market volatility.

GOVERNMENTAL SUPPORT

To attract FDI, the Government of India has launched initiatives like the "Made in India" campaign and eased regulations in sectors like defense and oil refineries. Meanwhile, FPI in India has experienced significant fluctuations, with record inflows of $36.5 billion in 2021. The United Nations Conference on Trade and Development (UNCTAD) placed India seventh among the top 20 host economies for FDI in 2021, citing factors like India's expanding GDP, skilled workforce, strategic position, and favorable investment climate.

CONCLUSION

Choosing between FDI and FPI depends on an investor’s needs and goals. Key factors include control and ownership, investment horizon, risk tolerance, and the desired economic impact.


SRIRAM's


Share:
 

Get a call back

Fill the below form to get free counselling for UPSC Civil Services exam preparation

 
UPSC DAILY CURRENT AFFAIRS

 
CHANDRAYAAN-3: A YEAR of ACHIEVEMENTS
 
VIZHINJAM: INDIA’S FIRST DEEP-WATER TRANSSHIPMENT PORT
 
‘AANKH MICHOLI’
 
CHINA FACTOR IN INDIA-RUSSIA RELATIONS
 
CVF and climate finance negotiations
 
CBI JURISDICTION AND STATE CONSENT
 
Beej Utsavs (Seed Festivals)
 
SILK ROUTE THROUGH KALIMPONG AND SIKKIM
 
RHODODENDRON NIVEUM, THE STATE TREE OF SIKKIM
 
OPERATION DHANUSH NEAR LOC
 
French Revolution and India
 
RBI’S MONETARY POLICY STANCE
 
French Revolution and India
 
MUSLIM WOMEN UNDER SECTION 125 OF CRPC:
 
BASTILLE DAY