What is the Difference Between FPI and FDI?

FPI and FDI are two primary approaches through which capital flows across borders, and both boost the economy and enhance foreign capital inflow, but they differ in control, risk, and intent. So, what is the difference between FPI and FDI? Here we will discuss.

What is FPI?

FPI or Foreign Portfolio Investment, which refers to investment that is made by a foreign investor in a country's financial assets, such as bonds, stocks, mutual funds, and other securities. So the FPI is generally passive and aims for the short-term financial return rather than strategic influences.

Example,

Here are the examples of FPI, consider that a U.S. hedge fund, which is buying 5% of Reliance Industries stock on the NSE, is a classic FPI with no control, just betting on the market gains.

Pros and Cons

Pros	Cons
They offer high liquidity. They have an easier entry and exit. Have diversified investments for foreign investors. Here, they boost capital markets.	They offer a volatile and sensitive market influence. Having a short term in nature. They do not create any direct employment or infrastructure

What is FDI?

FDI or Foreign Direct Investment involves a foreign entity investing directly in a business or productive assets in another country, typically acquiring significant ownership and control over operations. It is a long-term and strategic, that offers both capital and expertise to the host country.

Example,

Here are the examples of FDI, consider an MNC like Foxconn, which is setting up a manufacturing hub in India, as it’s not just about cheaper labour, it's about embedding itself within a new ecosystem.

Pros and Cons

Here are the Pros and cons of FDI:

Pros	Cons
They create jobs and foster skill development. They offer long-term stable capital. Here, they can boost GDP and economic development. Having a growth in industrial and infrastructure.	Having lower liquidity as compared to FPI. The entry process and approval take a long time. Here is the rise of foreign control over the domestic sector.

Key Differences Between FDI and FPI

Here are the key differences between FDI and FPI:

Feature	FDI	FPI
Nature of Investment	The direct ownership and control.	There is indirect, no control
Investor Role	The role is active as management participation.	The role is passive with no management involvement.
Entry/Exit	This is difficult to exit.	This is easy to enter and exit.
Economic Impact	The impact is on technology, jobs, and infrastructure.	The impact is on market liquidity, capital inflows.
Time Horizon	This is long-term	This short-term
Assets Invested In	Invested in physical/business assets.	Invested in financial assets (stocks, bonds, etc.)
Risk Profile	The risk is more stable	The risk is more volatile

Conclusion

In conclusion, the difference between FPI and FDI is crucial for understanding how foreign capital flows into a country, so while FDI brings in stable, long-term investment that can shape industries and infrastructure, on the other hand the FPI offers quick capital and liquidity to financial markets. So both of them play a vital role in the economic development. We hope this blog on What is the difference between FPI and FDI has been helpful to you.

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Saniya

I am a writer, and this sentence speaks louder than anything, I love to play with words because I have a passion for writing easy and good-quality content that reflects simplicity. Readers like content that is straightforward with simple language. My priority has always been to deliver content that connects with the reader.

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