What is the difference between FDI and FII?

Asked 16-Mar-2018
Viewed 816 times

1 Answer


What is the difference between FDI and FII?

Well, all the lengthy definitions are difficult to understand, I will tell you in a simple language that you can easily understand.  

Let us take an example to understand difference between FDI and FII.
There is a man who like a business of manufacturing auto parts of four wheeler. He feel it can bring fortune to him and can benefit him in creating personal wealth.
He can get his idea complete of creating wealth from auto parts industries in three ways-
a) Start a business from scratch- He can start an auto parts company by setting up a factory and then selling the production. He have to put lot of hard work before starting to make profits.
b) He can partner with a small auto parts manufacturer company to make it big- You partner with any existing auto parts company and make it so big that you create high profits and then create wealth.
c) Buy its shares- First two options are actually indulging into running a business and facing all challenges connected with running an enterprise. Best option is to buy shares of a auto parts company with good brand and production facilities. You have to just buy shares and keep. The Management of the company will work on your behalf and when they deliver higher and get better results, shares will go up and you can make profits .
Now, We’ll come to the actual topic,
What FDI( Foriegn direct investment) is that you understood in the point 1st and 2nd and
FII( Foriegn institutional investors) is depicted in the 3rd point. FII is also called foreign portfolio investors. 
FDI is a long term process as it is actually a process of running a business, Whereas FII are just opportunists and they can exit very fast. Government has however has given lot of income tax benefits to push FIIs to invest for long term like tax free income in case they retain their investment for a particular period of time.
FDI is more important for a country as it participates into actual progress of a country. But, it is said that FII are also required, as it gives impetus to equity market of a country and brings lot of new investments.
Hope it is answered.