FII vs FDI : Which is better

Foreign institutional investors (FIIs) are those institutional investors which invest in the assets belonging to a different country other than that where these organizations are based.

These are the big companies such as investment banks, mutual funds etc, who invest considerable amount of money in the Indian markets. With the buying of securities by these big players, markets tend to move upward and vice-versa. They exert strong influence on the total inflows coming into the economy. (Economic Times)

A Foreign Direct Investment ( FDI ) is a controlling ownership in a business enterprise in one country by an entity based in another country. (Investopedia )

We are living in era of Globalisation where any economy is not remain untouched. Nowadays economic news are not difficult to find. They are everywhere. Nifty and Sensex are in everyday news. Many times these terms are in news. Let’s see what are them one by one.

FIIs FIIs are the big investors who invest worldwide. They are always in search for more return. Wherever they find big returns, they invest big chunk of money. That money is most of the time is in dollars as $ is a currency of global transaction. It is good for the economy like India. We are fighting with fiscal deficit which is very bad for our currency . In this situation FIIs are playing big role. There are some bad effect also. Investment made by FIIs is HOT MONEY. It is so unpredictable that when the investor will find more attractive place and when he sell his investment. It is more bad when we realise that most of the time, it is impossible to make long lived assets from this money but investors are expecting ‘more’ on investment. It means for giving return, the wealth generated in host economy is syncing. Which is sad picture. Another bad effect of this investment is exchange rate will be volatile because of FIIs. It is possible with hot money that it leave host economy all of sudden. And as most of time, FIIs are investing in shares of listed company, it is not impossible that economy will see sudden fall in the market price and in that indices like sensex and nifty also. It affect the faith on the capital market. But capital markets are medium of growth. They are the source of capital for long term also and peoples forget that because of FIIs. In short, FIIs are good source for dollars but increase volatility in exchange rates and capital market indices.

FDI Foreign Direct Investment. Some days before there was big issue with FDI in retail. One reason is writing this post is that also. FIIs are not interested to run the business. They are interested to make profit. This is big difference in between the two. FDIs are not thinking about one or two year. These investors are investing for long term. Investments made by this persons are also huge, but most of the time it is in real economy. Not like shares which hardly affect life in great extent in country like India. They invest for betterment for infrastructure. For setup of business. They are actual owners of the business running it from overseas. They have bigger effect on economy as the investment made by them generate employment. And directly indirectly they increase governments tax revenue also. They utilise and develop the undeveloped resource in host with their own technology. Its so good. But yes there are some issues with it also. FDIs are the institution or the individual who know how to succeed. They did it in their own economy, so they know how to handle it successfully. They come up with huge capital and developed technology. Most of the time it is impossible for small competitors to compet with them. It makes monopoly, not in one but in to other economies worldwide. There are many issues with it. But it is undeniable fact that the technology was develop worldwide is because of this peoples. Mobile phone came up because of Vodafone. Google, Apple, Facebook, Samsung gives us better technology. Companies like AIG help to develop insurance sector worldwide. Suzuki, BMW,Audi change identity of bikes and cars. But nobody says nothing about them. What happened with Walmart is bad and we lost a chance to make better for our future. Want to close this post with mentioning the name of first big try in Indian retail sector made by Indian entrepreneur, which is a big failure and a case study in this sector… SUBHIKSHA…

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me analystashu@gmail.com or @androidashu & @InsideFinanc on twitter