Foreign investors can be classified in terms of their nature of investment. Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) are the two major types of foreign investment into India.
What is FPI?
Foreign Portfolio Investment (FPI) is an investment by non-residents in Indian securities, including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. The class of investors who make an investment in these securities are known as Foreign Portfolio Investors.
Who is a Foreign Portfolio Investor (FPI)?
Foreign Portfolio Investors (FPIs) are those foreign investors making an investment in Indian financial assets, including shares, bonds, debentures etc. FPIs includes investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and subaccounts etc. FPI includes all investment categories which makes portfolio investment including FII, small investors included under QFI and miscellaneous investment entities.
FPI = FIIs + QFIs and other small investors.
What is FII?
An important type of Foreign Portfolio Investors is the Foreign Institutional Investors or FIIs. The FIIs comprises institutions like Pension Funds, Mutual Funds, Insurance Companies etc. They are a part of the broad FPI category. Significance of the FIIs is that they are big investors as they are institutions like mutual funds, insurance companies etc.
FII’s uniqueness is their size – they are big entities and are well-regulated. FPI is the superset as it includes FII.
FII’s investment value will be quite high as they are big entities. On the other hand, small investors and individuals under the QFI category cannot match FII in terms of the size of the investment. So, when we hear about foreign investment in the share market, it is the FIIs who often steals our attention.
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