CLASSIFICATION OF FOREIGN

INVESTMENT

ANUSREE PA
18BLA1060
 FOREIGN INVESTMENT
◦ Foreign investment is when a domestic investor decides to purchase ownership of an asset in a foreign country. It
involves cash flows moving from one country to another to execute the transaction. If the ownership stake is large
enough, the foreign investor may be able to influence the entity’s business strategy.

◦ FOREIGN INVESTMENT IN INDIA

◦ Foreign Investment in India is regulated in terms of clause (b) sub-section 6 and section 47 of the Foreign Exchange
Management Act, 1999 (FEMA) & the reversed regulations of the act amended from time to time.
 CLASSIFICATION

GREENFIELD

FDI
BROWNFIELD

FOREIGN
INVESTMENT FII

FPI GDR/ADR

OFFSHORE
FUNDS
 FOREIGN DIRECT INVESTMENT (FDI)

◦ It is the investment that gives the investor a control over investment

◦ Control need not be 100%
◦ It is the investment in physical or real assets of business.
◦ Investors face market risks.
◦ Examples Purchase of a company abroad, Starting a subsidiary company abroad.
 DEFENITION BY RBI

◦ According to RBI, Foreign Direct Investment (FDI) is the investment through capital
instruments by a person resident outside India.
a) In an unlisted Indian Company or
b) In 10 present or more of the post issue paid up equity capital on a fully diluted basis of a
listed Indian company.
FDI
FDI ON THE NATURE OF BUSINESS

HORIZONTAL VERTICAL

CONGLOMERATE PLATFORM
 FDI ON THE BASIS OF MOTIVE

STRATEGIC ASSET
RESOURCE SEEKING
SEEKING

MARKRT SEEKING EFFICIENCY SEEKING

 FDI ON THE BASIS OF ASSET

GREENFIELD BROWNFIELD
INVESTMENT INVESTMENT
FPI
 FOREIGN PORTFOLIO INVESTMENT (FPI)

◦ It is the investment in financial assets of foreign companies

◦ Investing capital to get return
◦ Investor has no control over investment
◦ Investment in secondary market
◦ Examples: investment in securities and mutual funds, deposits in commercial banks.
 DEFINITION BY RBI

◦ Foreign Portfolio Investment is any investment made by a person resident outside India in
capital instruments where such instrument is
a) Less that 10 present of the post issue paid up equal capital on a fully diluted basis of listed
Indian company or
b) Less than 10 present of the paid up value of each series of capital instruments of a listed
Indian company.
 FII

FPI
GDR/ADR

Offshore Funds
 FOREIGN INSTITUTIONAL INVESTMENT
(FII)
◦ Its is the portfolio investment made by foreign financial institutions such as investment banks,
mutual funds etc.
◦ In India, FII category does not exist now. A new class called Foreign Portfolio Investor has
created by merging FII, Sub accounts and QFI
◦ More than 10,000 Foreign Portfolio Investors registered with SEBI
◦ In India FII investment is permitted in primary and secondary market.
 DISTINCTION
FDI
◦ It is long term investment.
◦ Investment in physical assets .
◦ FI exercise some control over business.
◦ Aim is to increase enterprise capacity.
◦ Leads to technology transfer, access to markets and
management inputs.
◦ FDI flows into the primary market.
◦ Entry and exit is relatively difficult.
◦ FDI is eligible for profits of the company.
◦ Does not tend to be speculative.
◦ Direct impact on employment of labour and wages.
FII(FPI)
◦ It is short term investment.
◦ Investment in financial assets.
◦ FI have no control over business.
◦ Aim is to increase capital availability.
◦ FII results in only capital inflows.
◦ FII flows into the secondary market.
◦ Entry and exit is relatively easy.
◦ FII is eligible for capital gain from sale of securities.
◦ Always tends to be speculative
◦ No direct impact on employment of labour and wages
THANK YOU