FDI (Foreign Direct Investment) & FII (Foreign Institutional Investors)

Foreign Direct Investment - When a company makes a long term investment in a foreign country by either setting up the subsidiary company or working in association over there and getting involved in business process of buying, producing and selling in that foreign country. Examples - Amazon, Walmart, Bajaj Allianz, Citibank, Glaxosmith kline, Ikea, Starbucks.

Foreign Institutional Investors - It is an entity or institution which makes investment in a foreign country by getting registered in the stock exchange of foreign market to trade in securities. Examples - Europacific Growth Fund, Abudhabi Investment Authority, Govt. Pension Fund Global.

Foreign companies invest in India to take advantage of relatively lower wages, cheaper production, new potential customers, special investment privileges such as tax exemption, interest rate arbitrage, tapping growth potential market.

There are benefits associated with host countries inviting foreign investments like employment generation, capital flow, foreign exchange, new technology, skill & knowledge transfer.

When FIIs invests in large in Indian Stock Market, value of rupee appreciates and the balance of payment improves. On the other hand, when FIIs withdraw money, value of rupee depreciates and balance of payment weakens.

Difference between FDI and FII is depicted in the image below :-