Difference Between FDI and FII

What’s the Difference Between FDI and FII?

What’s the baisc Difference Between FDI and FII? Both FDI and FII is referred to investment in a foreign country. FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the markets of a foreign nation.

Meaning of FDI:

FDI stands for Foreign Direct Investment, a component of a country’s national financial accounts.
Foreign direct investment is the investment of foreign assets into domestic structures, equipment, and organizations.
It does not include foreign investment in the stock markets.
FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially “hot money” which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
FDI‘ Means Investment By Non-resident Entity/Person Resident Outside India In The Capital Of An Indian Company Under Schedule 1 Of Foreign Exchange Management (Transfer Or Issue Of Security By A Person Resident Outside India)

Meaning of FII:

Foreign Institutional Investment (FII)

FII denotes all those investors or investment companies that are not located within the territory of the country in which they are investing.
“SEBI’s definition of FIIs presently includes foreign pension funds, mutual funds, charitable/endowment/university funds etc. as well as asset management companies and other money managers operating on their behalf.”
Foreign Institutional Investor‘(FII) means an entity established or incorporated outside India which proposes to make investment in India and which is registered as a FII in accordance with the SEBI (FII) Regulations 1995.

In FII, firms only need to get registered in the stock exchange to make investments. But FDI is quite different from it as they invest in a foreign nation.

The Foreign Institutional Investor is also called as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In short, FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes nations to choose FDI’s more than then FIIs

FDI is more preferred to the FII as they are considered to be the most beneficial kind of foreign investment for the whole economy.

Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise.

The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practises and better management skills and even technology transfer.

Though the Foreign Institutional Investor helps in promoting good governance and improving accounting, it does not come out with any other benefits of the FDI.

While the FDI flows into the primary market, the FII flows into secondary market. While FIIs are short-term investments, the FDI’s are long term.

FDI and FII At a glance:

FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an investment made by an investor in the markets of a foreign nation.
FII can enter the stock market easily and also withdraw from it easily.
But FDI cannot enter and exit that easily.
Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability in general.
The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor.