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Difference Between FDI and FII

India’s economic prowess has surged in recent decades, fuelled by investments from both domestic and foreign entities. As global nations acknowledge India’s economic standing and growth potential, their interest in investing in the country grows. 

Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII) are popular investment methods in India. Dive deep into the blog to learn the disparities between FDI and FII.

What is FDI?

FDI, or Foreign Direct Investment, refers to investing in a foreign country. It involves direct capital inflows from one country to another and is considered a catalyst for economic growth. Eligible FDI investors, according to the Reserve Bank of India, include individuals residing outside India, foreign corporations, and institutions. They can invest in unlisted Indian companies or hold 10% or more of the post-issue paid-up equity capital of listed Indian companies on a fully diluted basis.  

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What is FII?

Foreign Institutional Investments (FII) pertain to investments that can be done collectively in foreign assets. Institutional investors, like mutual funds, hedge funds, banks, and insurance providers, fall under this category. To invest, FIIs must register with the securities exchange board of the respective country. The presence of FIIs significantly impacts a nation’s economy. When foreign businesses invest in or divest from securities, it influences market trends. This causes an upward swing when investments are made and vice versa when withdrawals occur. 

What are the key differences between FDI and FII?

FDI and FII exhibit significant differences in their nature and impact:

1. Foreign Direct Investment (FDI) refers to investments made by companies in foreign entities. Foreign Institutional Investment (FII) involves institutional investors investing in a country’s financial market. 

2. Foreign Direct Investment (FDI) injects long-term capital into the company receiving the investment. Foreign Institutional Investment (FII) can bring both short-term and long-term capital to the host country.

3. FDI contributes to job creation, overall economic growth in the investee country, and infrastructural development, unlike FII. 

4. FDI targets specific companies, whereas FII does not have such targeted investments. 

5. FII allows for easy entry and exit into the stock market, thereby facilitating quick gains. Conversely, FDI involves more complex entry and exit processes. 

6. FDI entails the transfer of funds, resources, technology, strategies, and know-how, while FII primarily involves the transfer of funds. 

7. FDI enhances a country’s productivity, while FII primarily increases its capital. 

8. FDI allows for management control in the invested company, while FII does not provide such control. 


While both have pros and cons, FDI is generally regarded as superior to FII. FDI not only brings capital but also contributes to improved management, governance, technology transfer, and job creation. 


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