June 23, 2018

Foreign portfolio investment (FPI)

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.