FPI vs FII vs FDI: What is difference between categories of foreign investors

If you are confused by personal finance terms, jargon and calculations, here’s a series to simplify and deconstruct these for you.

Foreign Portfolio Investor(FPI)

These are individuals or entities who invest in the financial assets of another country. The instruments can include stocks, mutual funds, bonds, exchange-traded funds and government securities. The investors do not have any ownership rights or control over the company and its management. The FPIs in India are regulated by the Securities and Exchange Board of India (SEBI) under the Foreign Exchange Management Act (FEMA).

Foreign Institutional Investor(FII)

These are institutions, not individuals, that invest in the financial assets of another country. These include mutual funds, pension funds, hedge funds, insurance companies, sovereign wealth funds, foreign central banks, among others. They also invest in instruments like stocks, mutual funds and government securities, but are not involved in the management or ownership of the companies they invest in.

These are also regulated by the SEBI and monitored by the Reserve Bank of India (RBI). They legally fall under the FPI framework and are considered its sub-category. Hence, all FIIs are FPIs, but all foreign portfolio investors are not foreign institutional investors.

Foreign Direct Investment(FDI)

This refers to the investments made by foreign entities in the physical assets of a country. These can include infrastructure, industries, businesses and other projects.

It is typically a long-term investment aimed at securing control of the management in the project in which the investment is being made. The investing entity brings capital, technology, skills and know-how to the company it has invested in and is involved in its day-to-day operations.

These are regulated by the Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, and monitored by the RBI under FEMA.