1. Presentation on FII
or FPI
Name – Aman yadav
Course – bsc physical science with computer
science
Roll no. – 24/45033
2. Understanding FII
& FPI:
• This presentation explores two key
types of foreign investments:
Foreign Institutional Investors (FII)
and Foreign Portfolio Investment
(FPI). Both contribute significantly to
financial market development and
economic progress. This guide is
designed to help beginners
understand what these terms mean,
their impact, differences, and how
they are regulated in India. Let’s dive
into the world of FII and FPI.
3. What is FII?
• Foreign Institutional Investors (FII) are large
institutions such as mutual funds, insurance
companies, and hedge funds that invest in the
financial markets of a country. These investors bring
in large amounts of capital from foreign countries,
typically investing in equities, debt, and other financial
instruments. FIIs are influential market participants
whose investments can significantly impact the
financial market. In India, FIIs are required to register
with the Securities and Exchange Board of India (SEBI)
before investing. Their entry into the market boosts
liquidity, increases investor confidence, and
contributes to overall market efficiency and
transparency.
4. What is FPI?
• Foreign Portfolio Investment (FPI) refers to
investment by individuals, institutions, or entities
from one country into the financial assets of
another country. Unlike FDI, FPI does not provide
the investor with direct control over the
businesses. FPI includes investments in stocks,
bonds, and other securities and is considered
more short-term and volatile. FPIs are easier to
enter and exit, making them attractive to global
investors seeking diversification and quick returns.
In India, FPI investors must comply with SEBI and
RBI guidelines. FPI is a broader term that includes
FIIs as well as other types of foreign investors.
5. Importance of FII and FPI
• FIIs and FPIs are crucial for the financial health of an economy. They bring in foreign
capital, enhance market liquidity, and help in the development of the domestic
financial system. By investing in the stock and bond markets, they provide companies
with access to funds, which aids in expansion and job creation. Their presence also
increases market efficiency and introduces global investment practices. Additionally,
foreign investments improve a country’s foreign exchange reserves, stabilize the
currency, and attract more international investors, creating a positive cycle of growth
and confidence in the financial markets.
6. Key Differences Between FII and FPI
• FII and FPI differ in several ways. FIIs refer specifically to large institutional investors,
whereas FPI encompasses all kinds of foreign investments in financial assets,
including those by individuals. FIIs typically involve more significant investments and
are considered part of FPI. The key differences lie in regulation, investment control,
and investor type. FIIs need to be registered and are more regulated. FPIs are
broader, more liquid, and can be more volatile due to frequent buying and selling.
Understanding these differences is essential for anyone studying financial markets
and foreign capital flows.
7. How FII and FPI
Works :
• FIIs and FPIs invest through various routes defined
by regulators. In India, they must comply with SEBI
and RBI norms. Investments are usually made in
equity markets (stocks), debt markets (government
and corporate bonds), and other financial
instruments. Investors choose markets based on
return potential, economic stability, and ease of
entry. Once invested, these funds can impact stock
prices, interest rates, and even policy decisions. A
large inflow of FPI boosts market sentiment, while
a sudden withdrawal can lead to a market crash.
Thus, monitoring these investments is essential for
policymakers and investors.
8. Benefits of FII and FPI :
• There are multiple benefits of foreign institutional and portfolio investments. Firstly,
they bring in much-needed foreign capital, which helps companies grow and
innovate. Secondly, they increase liquidity in the financial markets, making it easier to
buy and sell securities. Thirdly, they promote transparency and good governance, as
companies need to maintain investor confidence. Additionally, foreign investments
can help stabilize a country’s currency and balance of payments. They also integrate
the domestic economy with global markets, allowing for knowledge transfer, better
investment practices, and enhanced financial development.
9. Risks and Challenges :
• Despite their benefits, FIIs and FPIs pose certain
risks. These investments are highly sensitive to
global economic conditions, interest rates, and
geopolitical events. A sudden change in global
sentiment can lead to large outflows, causing
market volatility and currency depreciation. They
can also lead to asset bubbles if inflows are
excessive. Moreover, foreign investors may
withdraw at the first sign of instability, making the
economy vulnerable. Regulatory and policy
changes in India or abroad can also affect these
investments. Hence, while beneficial, FII and FPI
need to be managed carefully with robust policies
10. Regulation and Policy
In India :
• FII and FPI are regulated by SEBI (Securities and Exchange Board of India) and RBI
(Reserve Bank of India). SEBI oversees registration, reporting, and compliance for FIIs
and FPIs, ensuring transparency and investor protection. RBI monitors the foreign
exchange aspects of these investments. The government also plays a role in deciding
sectoral limits and permissible instruments for investment. Regulatory frameworks
aim to attract stable, long-term investments while preventing excessive volatility.
Periodic updates in policy are made to align with global standards and market needs,
creating a safe and attractive environment for foreign investors
11. Recent Trends in FII and FPI
• Recent years have seen fluctuating trends in FII and FPI flows in India. Global factors
like interest rate changes, inflation, and geopolitical tensions have influenced investor
behavior. In 2023, India witnessed strong FPI inflows due to robust economic
performance and favorable policies. However, during global crises like COVID-19 or
banking instability, outflows spiked. Trends also show increasing interest in Indian
debt markets, apart from equities. Tracking these patterns helps understand investor
confidence and economic outlook. It also helps policymakers take timely action to
manage volatility and support sustained investment growth.
12. • A good example of FPI influence was during the COVID-19 pandemic. In early 2020,
massive FPI outflows occurred as investors sought safer assets. This caused sharp
declines in stock prices and rupee value. However, by late 2020 and into 2021, FPIs
returned in large numbers due to economic recovery, low interest rates, and vaccine
rollouts. Indian stock markets surged, showing how foreign portfolio flows impact
market performance. This case shows the dual nature of FPI—while beneficial in good
times, they can add to market stress during global turmoil
13. Conclusion and Key Takeaways
• Foreign Institutional Investors and Foreign Portfolio Investments play a significant
role in shaping a country’s financial landscape. They bring capital, increase liquidity,
and connect domestic markets with global finance. However, they also bring risks of
volatility and dependency on external factors. Understanding how FIIs and FPIs
function is crucial for financial management. Regulation by SEBI and RBI ensures a
balanced approach. As India continues to grow, maintaining investor-friendly policies
while protecting economic stability will be key. Informed decision-making by both
regulators and investors will sustain the benefits of foreign investments.
