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Foreign Institutional Investment (FII)
Context
Foreign Institutional Investment (FII) outflows from India’s equity markets have been occurring as investors book profits, indicating strong returns from Indian investments.
What is Foreign Institutional Investment (FII)?
- FII refers to investments made by foreign entities or institutions (such as hedge funds, pension funds, or mutual funds) in Indian financial markets, particularly in stocks (equity markets).
- These investments are made by non-resident entities seeking to earn returns from the growth and performance of the Indian economy.
- FIIs directly impact the stock/securities marketof the country, its exchange rate and inflation.
- The Indian stock market allows for easy entry and exit of foreign capital, which makes FIIs a critical part of the Indian financial ecosystem.
- Nature of FIIs: FIIs are typically large institutional investors, such as mutual funds, pension funds, and hedge funds, that pool large sums of money to invest in stocks, bonds, and other financial instruments.
- FIIs tend to move large amounts of capital in and out of markets, which makes their impact on the stock market significant.
- All FIIs in India must register with the Securities and Exchange Board of India(SEBI) to participate in the market.
- Difference between FDI and FII:
- "FDI" refers to "foreign direct investment," which is the investment made into a foreign country, usually an investment in a foreign company.
- "FII" refers to "foreign institutional investor," which is a person or institution that invests in a foreign market, usually the stock market of another country.
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