Details of foreign institutional investment?

Question

need differences btn FDI &FII, procedure of FII in INDIA. really need a complete detail

Answer 1

FDI stands fro Foreign Direct investment. As the name suggests, this represents the direct investment of foreign individuals and companies in companies running and operating in India.  Usually the Finance ministry puts a cap on this kind of investment in India.

FIIs are instiutional investments like the mutual funds, insurances, debt companies etc. which are operating from a foreign country but invest in the instruments present in India.

Answer 2

Foreign Institutional Investor (FII) is used to denote an investor - mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated.

FII investment is frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in.

In countries like India, statutory agencies like SEBI have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. FEMA norms includes maintenance of highly rated bonds(collateral) with security exchange.

Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor."[1] The FDI relationship, consists of a parent enterprise and a foreign affiliate which together form a transnational corporation (TNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. The UN defines control in this case as owning 10% or more of the ordinary shares or voting power of an incorporated firm or its equivalent for an unincorporated firm; lower ownership shares are known as portfolio investment.

History

In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around three-quarters of new FDI (including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now constituting over 20 percent of global GDP..

Types of FDI

By Direction

Inward

Inward foreign direct investment is when foreign capital is invested in local resources.

Inward FDI is encouraged by:

> Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions

> The thought is that the long term gain is worth short term loss of income

Inward FDI is restricted by:

> Ownership restraints or limits

> Differential performance requirements

Outward

Outward foreign direct investment, sometimes called "direct investment abroad", is when local capital is invested in foreign resources.

Outward FDI is encouraged by:

> Government-backed insurance to cover risk

Outward FDI is restricted by:

> Tax incentives or disincentives on firms that invest outside of the home country or on repatriated profits

> Subsidies for local businesses

By Target

Greenfield investment

    Main article: Greenfield investment

Direct investment in new facilities or the expansion of existing facilities. Greenfield investments are the primary target of a host nation’s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. The Organization for International Investment cites the benefits of greenfield investment (or insourcing) for regional and national economies to include increased employment (often at higher wages than domestic firms); investments in research and development; and additional capital investments. Criticism of the efficiencies obtained from greenfield investments include the loss of market share for competing domestic firms. Another criticism of greenfield investment is that profits are perceived to bypass local economies, and instead flow back entirely to the multinational's home economy. Critics contrast this to local industries whose profits are seen to flow back entirely into the domestic economy.

Mergers and Acquisitions

    Main article: Mergers and Acquisitions

Transfers of existing assets from local firms to foreign firms takes place; the primary type of FDI. Cross-border mergers occur when the assets and operation of firms from different countries are combined to establish a new legal entity. Cross-border acquisitions occur when the control of assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Unlike greenfield investment, acquisitions provide no long term benefits to the local economy-- even in most deals the owners of the local firm are paid in stock from the acquiring firm, meaning that the money from the sale could never reach the local economy. Nevertheless, mergers and acquisitions are a significant form of FDI and until around 1997, accounted for nearly 90% of the FDI flow into the United States. Mergers are the most common way for multinationals to do FDI.

Horizontal FDI

Investment in the same industry abroad as a firm operates in at home.

Vertical FDI

Backward Vertical FDI

Where an industry abroad provides inputs for a firm's domestic production process.

Forward Vertical FDI

Where an industry abroad sells the outputs of a firm's domestic production.

By Motive

FDI can also be categorized based on the motive behind the investment from the perspective of the investing firm:

Resource-Seeking

Investments which seek to acquire factors of production that are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home economy at all (e.g. cheap labor and natural resources). This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe.

Market-Seeking

Investments which aim at either penetrating new markets or maintaining existing ones. FDI of this kind may also be employed as defensive strategy;[2] it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one.[3] This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980’s by Accounting, Advertising and Law firms.[4]

Efficiency-Seeking

Investments which firms hope will increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm.[3]. Typically, this type of FDI is mostly widely practiced between developed economies; especially those within closely integrated markets (e.g. the EU).[3].

Strategic-Asset-Seeking

A tactical investment to prevent the loss of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it.

Answer 3

hi,

FII: foreign institutional investment: this is downe throgh open market.

FDI: the promoter of the company will directly sell his  stake to the foreign investors

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