- Foreign Direct Investment (FDI):
- Investment through ‘capital instruments’ by a non-resident.
- In an unlisted Indian company.
- Or, 10% or more of equity capital of a listed Indian company.
- Generally happens through primary market, bringing new capital.
- Foreign investor gets involved in active management (appoints Board of Directors).
- Long-term and stable investment.
- Foreign Portfolio Investment (FPI):
- Investment through ‘capital instruments’ by a non-resident.
- Less than 10% of equity capital of a listed Indian company.
- Can also invest in government securities and corporate bonds (debt).
- Generally happens through secondary market, changing ownership hands.
- Foreign investors usually do not get involved in management.
- Generally short-term and can lead to exchange rate volatility.
| Feature | Foreign Direct Investment (FDI) | Foreign Portfolio Investment (FPI) |
|---|---|---|
| Ownership Stake | ≥ 10% in listed, or any in unlisted company | < 10% in listed company |
| Market Entry | Generally primary market | Generally secondary market |
| Capital Flow | New capital to the company | Ownership change, new capital may not flow to company |
| Management Involvement | Active management, decision-making | Generally no involvement |
| Investment Horizon | Long-term | Short-term |
| Stability | More stable | Less stable, can cause volatility |