Thursday, February 3, 2011

What is FDI & FII?

The nature of foreign investment coming into the country is changing rapidly. Foreign investment comes in two ways. Foreign companies often establish factories in India. They remit monies for this purpose. This is called Foreign Direct Investment (FDI) because the investment is made directly by the principal. Control over the Indian factory rests with the foreign principal.

The foreign principal decides what goods will be produced, at what price they will be sold, whether the manager will be an Indian or an expatriate, whether the profits will be reinvested or repatriated to the foreign headquarters, etc.

The other way in which foreign investment comes is through Indian share markets. These investors are called Foreign Institutional Investors (FII). They earn by buying and selling shares when the prices are low and high respectively. They also earn some monies by the way of dividends. The control over the company in which money is invested remains with the Indian owners.


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