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.
- 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.