What are the differences between a FDI and a FPI?

Podcast Duration: 06:12

Hi friends, and welcome to this podcast by Angel One.

Kya aapne indian markets ke beyond invest karne ki planning ki hai? If yes, toh aapne do acronyms, namely FPI, aur FDI - ke baare mein zaroor suna hoga. Aur doston, foreign investments plan kiye ho ya nahi, ye do words aapne newspaper mein to very regularly encounter kiye honge.

Have you ever wondered why that is? Ye isliye, kyunki foreign investments are regulated, aur SEBI jaisi influential governing bodies inko oversee karti hain.

Foreign investments ka process toh bahut interesting hai, aur aap jis perspective se dekhoge, usi perspective se aapko nai cheezen jaanne ko milengi. Ab aap foreign investment aur divesting ka process hi le lo, for example - is process mein payments international basis par settle hote hain. Ye currency pairs ke exchange rates ko affect karta hai, and so on.

But friends, let’s talk about this cool stuff soon. Lekin uske pehle, aaj ke podcast ke topic par baat kar lete hain. Cool?

Ok, so where were we? FPI and FDI, that’s right!

Let’s understand what these terms mean, aur fir dekhenge inke beech ke differences.

Doston FPI refers to foreign portfolio investment - isme, investors basically apne country ke markets ke baahar investment karte hain. Lekin, FPI ke through aap jin securities mein invest karoge, inki ownership aapke paas nahi hogi - atleast, not in the conventional sense.

Ok, so what does that mean?

FPI aapko apne investment ki passive ownership deta hai. So for example, FPI ke through aapne kisi company ke kaafi shares acquire kar liye. These shares are enough to give you control over the company’s decisions. Lekin fir bhi, aapka investment aapko ek controlling stake nahi dega, if it has been made through an FPI.

Ab baat karte hain FDI ke baare mein. Doston FDI, ya fir foreign direct investment is another way to invest in foreign markets. Lekin is tarah ke investments usually do teen tarah je investors karte hain. Ya toh in investors ki net worth bahut high hogi, ya fir ye companies ya institutions hongi. Aapke aur mere jaise retail investors ke liye FPIs make more sense.

Doston aap jis country mein foreign direct investment plan kar rahe ho, uske FDI rules and regulations bhi aapko follow karna padenge.

So what’s the big difference between FDI and FPI?

Jaante hain, in these 4 simple points.

Number 1 - FDIs ke through investors ko kisi company ya project par direct control hota hai. Iska matlab ye, ki foreign direct investment mein aap apne investment ko actively manage karoge, aur company ke day-to-day functionings mein directly participate karoge. Cool, right?

FPIs mein control ka concept hardly exists. While you can divest and invest in FPIs easily, FPIs don’t give you any control over your investments. So, log FPIs ke taraf usually growth ke perspective se attract hote hain.

Difference number 2 - Doston FDIs generally long term ke liye kiye jaate hain. Because aapke investment par aapka poora control hota hai, isse returns dekhne mein at least 6 mahine se 2 saal ka time frame lag sakta hai - lekin this is only the lower limit.

FPIs mein aap apne investments long term ke liye bhi hold kar sakte ho, aur short term ke liye bhi. Agar investors ki local economies extremely volatile state mein hon, toh they usually look to other markets in the short run.

So in one sentence - FDIs mein investments take time to pay off. Yahan par short term investment ka scene nahi hota, and FDIs therefore require heavy planning. Got it? Okay, then let’s move on.

Difference number 3 - So from the last point, aapne ye jaana, ki FDI investments long term investments consider kiye jaate hain. Isse closely tied hai liquidity ka concept - because FDIs are well planned by investors in advance inse associated liquidity bhi low hoti hai.

This makes sense for super-rich people.

Lekin retail investors ke liye liquidity is important. Unlike FDI, FPI investments are usually highly liquid - waise toh yeh market aur countries se differ karta hai, lekin FPI investments mein divesting is relatively easier. And if fact, aaj kal it’s so easy, ki investors kuch mouse clicks se FPI investments enter aur exit kar sakte hain. Therefore, FPIs are less risky than FDIs.

Does this sound cool to you? Then let’s check the last difference -

Number 4 - FDI investments are somewhat less volatile - because FDI investments are planned and associated with long term, inme investors frequently enter aur exit nahi karte. In fact, FDIs are more stable for this reason.

Lekin FPIs ke liye this is not true. Ek din mein foreign portfolios might see thousands of investments and divestments. Isse volatility increase hoti hai. That’s why, FPIs se divest karte hue exchange rates aur market conditions, dono ko hi track karna padta hai.

In differences se one thing is clear - agar aap super wealthy nahi ho, aur aap foreign investments karna chahte ho, toh FPIs are for you. But foreign portfolio investments require extensive knowledge of foreign economies, currencies and market conditions.

Toh doston, aapka kya vichar hai? Are you going to invest beyond BSE and NSE?

Whether your answer is yes or no, market knowledge is crucial for making smart investments. So visit our website www.angelone.in, and keep the learning going!

Until then, goodbye from Angel One, and happy investing!