FDI versus FII

Definition

Two channels of foreign investment: Foreign Direct Investment (FDI) is a lasting investment with management control in an enterprise, while Foreign Institutional Investment (FII, now broadly FPI) is short-term portfolio investment in financial securities.

Key points

• FDI involves a lasting interest and a degree of control or influence over management; it is long-term and harder to withdraw.
• FII or FPI is investment in securities (shares, bonds); it is short-term and can exit quickly.
• FDI is often called "stable" or "patient" capital; FPI is called "hot money" because of its volatility.
• FDI typically brings technology, jobs, and managerial expertise; FPI mainly brings liquidity to markets.
• Both are recorded in the capital account of the Balance of Payments.

Why it matters for CAPF

The FDI-versus-FII distinction (control versus portfolio, stable versus hot money) is a recurring external-sector economy item.

Common confusion

FDI (lasting control, an enterprise) versus FII/FPI (short-term securities, no control); "patient capital" versus "hot money".

Parent note

external sector trade and bop