FOREIGN PORTFOLIO INVESTMENT (FPI) - ECONOMY
News: FPI buying in Indian shares falls in
first half of August
What's
in the news?
● Foreign
portfolio investors’ (FPIs) purchases of Indian shares fell to a five-month low
in the first half of August, amid declines in domestic and global equities due
to rising interest rate concerns in the U.S. and worries over China’s economy.
Foreign
Portfolio Investment (FPI):
● Investing
in assets and securities outside of one’s nation is known as foreign portfolio
investment or FPI.
● Stocks, bonds, exchange-traded funds
(ETFs), and mutual funds are a few examples of these
investments.
● One
way for an investor to participate in a foreign economy is through this.
● Portfolio
investments are sometimes seen less favourably than direct investments since
they may be quickly sold off and are thus seen as a short-term attempt to gain
money rather than a long-term investment in the economy.
Benefits:
1.
Diversification:
● Reducing
the risk associated with investing in a single country or region.
2.
Higher Returns:
● Can
tap into the growth potential of foreign economies and take advantage of
favourable market conditions.
3.
Liquidity:
● Portfolio
assets can be bought and sold more easily, allowing investors to react quickly
to market changes.
4.
Economic Development:
● Contributes
to the economic development of recipient countries by attracting foreign
capital, stimulating investment, fostering competition.
Challenges:
● Political
and Economic Risks
● Liquidity
Constraints
● Market
Volatility
● Currency
Risk
● Regulatory
Changes
● Legal
and Compliance
● Lack
of Information.
|
Foreign Direct Investment (FDI) |
Foreign Portfolio Investment (FPI) |
|
●
Foreign Direct Investment (FDI) is an investment
made by a foreign company or an individual in a foreign country with the
intention of establishing a long-term business interest. ●
The investor acquires a controlling interest in a
foreign company by purchasing at least 10% of the company's shares.
|
●
Foreign Portfolio Investment (FPI) is an investment
made by foreign investors in foreign securities, such as stocks, bonds, and
other financial assets. ●
Unlike FDI, FPI does not involve the acquisition of
a controlling interest in the company. ●
FPI is a short-term investment, with investors
buying and selling securities based on short-term market trends. |