Difference between FDI and FII

FDI and FII both terms are used in the context of foreign exchange investment by the foreigners into the country; however there are many differences between the two. Let’s look at some of the difference between FDI and FII –

1. Full form of FDI is Foreign Direct Investment while full form of FII is Foreign Institutional Investor.
2. FDI is done by the companies by either buying a company in the country in which it want to start its operations or setting up its own plant for manufacturing whereas FII invest into the stock market of the country and hence do not need to buy any firm or set up any plant in the country.
3. While FDI is concentrated to one sector only so if a company is doing foreign direct investment in retail sector than it will concentrate only on retail operations and other operations like distribution, logistics etc.., are left to domestic companies whereas in case of FII there is no such restriction as they tend to invest across all the listed companies in the stock market.
4. While FDI is long term in nature as the company doing foreign direct investment come into the country for long period of time whereas FII is short term in nature because foreign institutional investor tends to rotate their money across many countries and that is the reason why this type of money is also called hot money.
5. FDI apart from bringing the foreign exchange also results in increase in employment opportunities, tax revenue for the government, technological advancement etc.., whereas FII does not offer these advantages on the contrary due to FII in the event of global financial meltdown can result in volatility in the domestic stock market and in extreme cases can even lead to currency destabilization.