Foreign portfolio investment (FPI)

Foreign Portfolio Investment:
  • FPI consists of securities and other financial assets passively held by foreign investors.
  • It does not provide investor with direct ownership of financial assets.
  • It is relatively liquid depending on volatility of the market.
  • In India, FPIs are allowed to invest in various debt market instruments such as government bonds, treasury bills, state development loans (SDLs) and corporate bonds, but with certain restrictions and limits.
  • FPI is part of country’s capital account and shown on its balance of payments (BOP).
Differences between FPI and FDI
  • FPI lets investor purchase stocks, bonds or other financial assets in foreign country.
  • In this case, investor does not actively manage investments or companies that issue investment.
  • It also does not have control over securities or business.
  • In contrast, FDI lets investor purchase direct business interest in foreign country.
  • The investor also controls his monetary investments and actively manages company into which he puts money.
  • FPI is more liquid and less risky than FDI.

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