Foreign Portfolio Investment Upsc

Foreign Portfolio Investment

It is a grouping of assets such as bonds, stocks, and other cash equivalents. These investments are either held by investors directly or managed by financial professionals.

Also, it consists of securities and other financial assets passively held by foreign investors.

It is an investment made by a firm or individual in one country into business interests located in another country.

In terms of economics, it is funds entry into a nation where the foreigners deposit assets or money in a nation’s bank or purchase the stocks or bonds, etc.

These types of investments are made by individuals, companies, or even governments of other countries. FPI gives the individual, or companies or countries to diversify their investment portfolio and also gives them an international advantage.

For Foreign nations, FPI shows their nation’s capital account and is also good for their Balance of Payments (BoP).

FPI is very similar to the FDI (Foreign Direct Investment). But in FPI, the investor buys securities, bonds, stock, and other financial assets but does actively manage the investments or companies which issue them.

Simply, the investor does not have any control over the securities, stocks, or businesses. As an FPI is more liquid and comparatively has less risk over FDI.

The high liquidity nature of FPI makes it easier to sell and it also has a shorter time frame for its returns than the FDI.

Advantage of Foreign Portfolio Investment (FPI)

Portfolio Diversification

This gives the investors a wide range to their investments.

International Credit

It provides the investor with a bigger credit base as the investor has access to credit in a foreign nation where they have an investment in large quantities.

Larger market Access

Investors can access the markets which are less competitive and benefit from high returns. For example, the USA has a large market and has more competition, whereas India has a bigger market and has less competition.

Exchange rate benefits

If the investor’s local currency has less value than the countries where they are investing, then they can be benefited more.

Foreign Portfolio Investment in India

The Foreign Portfolio Investment in India was permitted by notification FEMA 20/2000-RB dated May 3, 2000. This notification as amended from time to time. FPI is permitted in almost all sectors.

As per NSDL data, in 2021 FPI is so far made a net investment of Rs 7575 crore. The finance ministry notes that India’s foreign exchange reserves surged to a record of $633.56 billion as of August 27, 2021.

Examples of Foreign Portfolio Investment include stocks, bonds, mutual funds, exchange-traded funds, global depositary receipts, etc.


* * All the Notes in this blog, are referred from Tamil Nadu State Board Books and Samacheer Kalvi Books. Kindly check with the original Tamil Nadu state board books and Ncert Books.