Difference between FDI and FII
Table of Contents
I shall be telling you about the difference between FDI and FII so lets read. hope it will clear your doubt
FDI and FII both are related to finance or capital, as the FDI means and FII means Foreign Institutional Investment.
Foreign Direct Investments is refereed to the investment made, when a company makes an investment in other company mainly outside of its territory or country. Whereas Foreign Institutional Investment is refereed as the investment made by a single person or an institution in other country’s financial market.
I said financial market not a particular company. This is one of the difference between FDI and FII. Now I think the meaning has been made clear to you.
Let’s move further.
Now what is the purpose of the investment that is made. Obviously, In case of FDI outside company makes their investment to grow the investee (Company that is getting the investment) company and eventually they will earn more if the company does well and gains profit. FDI targets a specific company or a number of different or same company.
Whereas in case of FII, the person invest money in the country’s financial market which includes Share market etc. They doesn’t target a specific company or field.
What it brings
Now it is obvious that if you want to earn profit in a long run you will provide all your management resources and technology to the other company or enterprise so that’s exactly a FDI investment brings to the investee company. They provide their technology, management strategies evolved by experience to the other company. Also there is one more key point I want to include this investment usually brings Long term capital.
Whereas FII lacks all these characteristics as they are just investing their money in financial market. They don’t have to provide all these things and this capital is a Short term capital.
Ease of entering
As the heading suggests it is difficult for FDI into country, by the word difficult I mean it is quite a legal work. Earlier it was even not allowed but as the world is becoming a global family, Other companies (investing companies) can invest money or hold shares of a company.
Whereas it’s not that difficult for FII to enter into a country, it doesn’t mean no legal work is required but it is easy as compared to FDI and it is easy for FII to invest and withdraw their investment.
Effect of the investment
Foreign Direct Investment (FDI) increase the Gross Domestic Product (GDP) of a country and Foreign Institutional Investment (FII) contributes to the total capital of the entry. Also former helps to develop country’s infrastructure and incrase the Job opportunities whereas the latter doesn’t include these features.
Now you know that FDI brings a long term capital to the company, the parent company (investing company) will have more control over the company as it is their money put on stake. They will have seat in your managerial team.
In case of FII, the investing company or the individual doesn’t have any control.
Now you might be wondering which one is preferable am I right? FDI is preferable over FII because it brings a long term capital, increase GDP, provides employment opportunities which lacks Foreign Institutional Investment.
I hope you know the difference between FDI and FII. If you have any suggestion please leave it in the comment section below. I’d be happy to hear from you.
Thanks for reading