19-01-2013, 01:11 PM
Foreign institutional investment
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Both FDI and FII is related 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.
What is FDI & FII
Foreign Direct Investment (FDI):
FDI stands for Foreign Direct Investment, a component of a country's national financial accounts.
Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations.
It does not include foreign investment into 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.
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 Investors
FIIs can individually purchase upto 10% and collectively upto 24% of the paid-up share capital of an Indian company
This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing a board resolution/shareholder resolution
FIIs can purchase shares through open offers/private placement/stock exchange
Shares purchased by FII through stock exchange cannot be sold through a private arrangement
Proprietary funds, foreign individuals and foreign corporates can register as a sub- account and invest through the FII. Separate limits of 10% / 5% is available for the sub-accounts
FIIs can raise money through participatory notes or offshore derivative instruments for investment in the underlying Indian securities
FIIs in addition to investment under the FII route can invest under FDI route
Investment in Indian Companies by FIIs/NRIs/PIOs
Foreign Institutional Investors (FIIs), Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India
SUMMARY
1. 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.
2. FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily.
3. Foreign Direct Investment targets a specific enterprise. The FII increasing capital availability in general.
4. The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor