Difference between FDI and FII

Key difference: FDI stands for Foreign Direct Investment, which means the investment made by a company or individual entity into an entity or a company based in another country. FII is the abbreviation for Foreign Institutional Investor, which means the investment made by an investor or an investment fund of one country, into the financial markets of another country.

FDI is a very important concept, in regard to governments and world economy. The term FDI, short for Foreign Direct Investment, stands for an investment made by an individual entity or a company in a country that is not its own. FDI’s can be facilitated by setting up a subsidiary or an associate company in a foreign country, by acquiring shares of an overseas company, or through entering into a merger or a joint venture. Entities performing FDI have a considerable amount of control and influence over the management of the company that is being invested in. The accepted international threshold for making a Foreign Direct Investment is to own at least 10% or more of the voting stock, or the ordinary shares of the company invested in. An example of foreign direct investment would be a Canadian company setting up a joint venture to develop a mineral deposit in Chile.

FII is an abbreviated term for Foreign Institutional Investor. It means the investment made by an individual investor or an investment fund, into the financial markets of another nation. Organizations like hedge funds, insurance companies, pension funds and mutual funds can be called as institutional investors. The term FII is mainly used in India to denote the foreign companies investing in its financial markets. For such an investment to take place in India, the investor must first be registered with SEBI (Securities and Exchange Board of India). The Indian government regularly practices the policy of limiting FII ownership in Indian companies. India has also announced in its annual fiscal budget of the year 2013-14 that it shall act inline with the international practice of classifying FDI and FII according to their respective stakes in a particular stock. That is, foreign investors with less than 10% stake in a particular stock will be considered as FII, and more than 10% stake will be treated as FDI.

Comparison between FDI and FII:

 

FDI

FII

Meaning

The investment made by a company or individual entity into an entity or a company based in another country.

The investment made by an investor or an investment fund into the financial markets of another nation.

Abbreviation for

Foreign Direct Investment

Foreign International Investor

Investment made by

Setting up a subsidiary company in the foreign country, acquiring shares of an overseas company, performing a merger, entering into a joint venture.

The hedge funds, insurance companies, pension funds and mutual funds of one country into another.

International threshold of owning stock

More than 10%, or at least 10%.

Less than 10%.

Image Courtesy: sezinindia.com, topnews.in

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