Distinguish between Foreign Direct Investment and Portfolio Investment.

Difference between Foreign Direct Investment and Portfolio Investment.

Foreign Direct Investment (FDI).

  • Meaning: Foreign direct investment refers to investment in a foreign country, where the investor retains control over the investment.
  • Form: Foreign direct investment may take the form of starting a subsidiary acquiring a stake in an existing firm or starting a joint venture in the foreign country.
  • Control: Foreign direct investments and management of the firms concerned normally go together.
  • Period: Foreign direct investments are governed by long-term considerations.
  • Liquidity: These investments cannot be easily liquidated.
  • Factors affecting decision: Long-term political stability, government policy, industrial and economic prospects etc. influence FDI decision.
  • Sensitive: FDI are not much sensitive.
  • Promotion: Direct investors have direct responsibility with the promotion and management of the enterprise.

Portfolio Investment

  • Meaning: Portfolio investment refers to the investment in a foreign country, where the investor acquires a sort of property interest only.
  • Form: Portfolio investment may take the form of buying equities, bonds or other securities abroad.
  • Control: The-investor uses his capital in order to get a return on it, but has not much control over the use of the capital.
  • Period: Portfolio investments are governed by short-term gains.
  • Liquidity: These investments can be easily liquidated.
  • Factors affecting decision: Liquidity and profitability influence the decision of portfolio investment.
  • Sensitive: Portfolio investments are much more sensitive than FDIs.
  • Promotion: Portfolio investors do not have such direct involvement with the promotion and management.
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