FII and FDI : Definition, Explanation & important differences 1


Most Important Differences between FII and FDI

India has emerged as a tremendous economic power. One of the factors leading to it is the rise of investments from locals as well as foreign establishments and institutions. As more and more foreign countries are recognizing India’s economic status and growth potential, they are demonstrating their interest in Investing in India. Going through the investments in the stock market, we often come across the terms, FII and FDI. There investments are assumed to be positive for an economy. FII and FDI both are types of foriegn investors in a country’s economy, but there are some key differences between them:


Let’s start understanding more on FII and FDI with the meaning and main characteristics. FII stands for Foreign Institutional Investment, which refers to investments made by foreign institutional investors, such as mutual funds, hedge funds, pension funds, etc., in the securities markets of a country. FII is an essential source of capital in developing economies. Foreign investors can gain controlling ownership through methods such as merger/acquisition, share purchase, joint venture, or by incorporating a wholly-owned subsidiary. On the other hand, FDI stands for Foreign Direct Investment, which refers to investments made by foreign companies or individuals in a country’s physical assets, such as factories, real estate, etc.


Talking about the purpose of FII and FDI, The purpose of FII is primarily to make profits from the short-term fluctuations in the securities markets. In contrast, the purpose of FDI is to establish a long-term presence in a country’s economy by acquiring assets and building a business.

FIIs & FDIs in Indian Stock markets:

Let’s understand who are basically FII and FDI in Indian Stock Markets. FIIs may include foreign insurance companies, hedge funds, mutual funds, pension funds and investment banks. Furthermore, any foreign entity may invest in the Indian stock markets either directly. Similarly FDIs may include any corporation or organisation based and incorporated abroad that makes an investment in an Indian enterprise is known as FDI. eg HUL, P&G,  IBM, Accenture, walmart etc


FII investors mostly do not have control over the companies in which they invest, as they only invest in securities. However, FDI investors acquire control over the assets and operations of the companies they invest in.


FII investments are generally considered to be riskier than FDI investments, as they are subject to the volatility of the securities markets. FDI investments, on the other hand, are more stable and less prone to short-term fluctuations.

Impact on the economy:

Now let’s understand the FII and FDI impact on economy. FDI investments are generally seen as more beneficial to the economy of a country, as they bring in new capital, technology, and expertise, and create new jobs. FII investments, on the other hand, can be more volatile and may have a negative impact on the economy if they are withdrawn suddenly.

Top FIIs in Indian Markets

Government of Singapore, Europacific Growth Fund, Government Pension Global Fund, Vanguard Fund, etc

Top FDIs in Indian Markets

Singapore, Mauritius, USA, UAE, Netherland based companies, SBM Bank, HUL, P&G etc.

What is the significance of FII and DII data?

Importance of monitoring the impact of FII and DII on a daily basis. The FII and DII indicator tells investors about the liquidity and strength in the stock market. As a retail investor you can follow the footprint of FII and DII data and understand which security they are buying and selling etc. We can track the buy and sell activities of these knowledgeable & experienced investors for helping our investment decisions.
You can visit the following link FII/FPI & DII trading activity on NSE, BSE and MSEI

It is evident from the discussion above that FII and FDI both the two types of foreign investment are entirely distinct. Both have their advantages and disadvantages. However, foreign investment in the form of FDI, is regarded as superior to FII because it not only brings capital but also improves management, governance, technology transfer, and employment opportunities. FII and FDI are both crucial forms of investment for any Indian company and contributes to an economy’s growth. It also creates an attractive investment opportunity for foreign investors and gives a boost to the growth and development of the company ultimately benefiting the shareholders. However, investment in the form of FDI is preferred by Indian companies as it brings a lot more to the company than simply capital inflow as in the case of FIIs. Both FII & FDI support the developing economies and also their investments are indication for retail investors to follow.

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