FDI and FPI are both necessary for the development of the economy. But both the FDI and FPI plays different roles and activities when coming to economic growth as they both need capital requirements, foreign resources, foreign investors and they both have separate ways of implying their activities. Lets know briefly about the FDI and FPI and their differences.
FDI:
FDI refers to Foreign direct investment. The term foreign direct investment itself defines that it means when any person or any company of a country makes investment in another company of another country it would be called as foreign direct investment. If in any company the investment of the foreign company is more than 10% it would be called as FDI. In the event of transfer of ownership of any existing or future FDI in any entity in India, directly or indirectly results the beneficial ownership falling with the restriction will also require government approval.
There are several routes for approving the arrival of investment in India.
Under the automatic route the non-resident investor all the Indian company does not require any approval from Government of India for the investment. Under the government pre approval of the Government of India is required proposals for foreign investment under government rule for considered by the respective administrative department.
FPI:
The term FPI refers to Foreign portfolio investment. When any person or a company from one country invest in another company from another country it would be called as FDI while coming to FPI the current financial assets and securities held by the person or investor in another country.
If any investment is less than 10% we call it as FPI by foreigner. Investment in listed company is FPI is respect of amount.
Difference between FDI and FPI:
| FDI | FPI |
|---|---|
| When a company situated in one country makes investment in a company situated in Abroad | When foreign companies make investment in stock market of a country. |
| It brings long term capital | It brings long term and short term capital |
| Funds, Resources, Technology, Services etc., | Only funds |
| Increase country's GDP growth | Increase capital of country. |
| Target specific company | No specific target investment flows into the financial market |
| If investment in any company is more than 10% we call it as FDI by foreign companies | If any investment is less than 10% we call it FPI by foreigner. |
| Investment in any unlisted company is FDI irrespective of amount | Investment in listed company is FPI irrespective of amount |
Conclusion:
In simple terms foreign direct investment means when any person of a country invest in another company of another country it would be called as foreign direct investment while coming to the foreign portfolio investment the securities and current financial assets hold by the investor in another company in other country it would be called as the foreign portfolio investment. Foreign direct investment is only made in a specific company but foreign portfolio investment has no specific target.
For further reading about Difference between GDP and GNP click here.
