Definition of FDI<br /> Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin.<br /> The parent enterprise through its foreign direct investment effort seeks to exercise substantial “Control” over the foreign affiliate company.<br /> Exp. - An American company taking a majority stake in a company in India.<br />
Modes of FDI<br />1) By Direction <br /><ul><li> Inward
Outward </li></ul> 2) By Target <br /><ul><li> Mergers and Acquisitions
Efficiency-Seeking </li></li></ul><li>FDI Investment Schemes<br />Available Financial Instruments<br />Equity Shares, Compulsorily Convertible Preference Shares and compulsorily Convertible Debentures.<br /> Not Available to Investors who are<br /> Citizens of Pakistan OR Entities of Pakistan <br /> Available with approval of FIPB (AP (DIR) No.22 dt.19/12/2007)<br /> To Citizens & Entities of Bangladesh <br />
Factors Affecting FDI<br /><ul><li>Financial incentives (Funds from local Government)
Fiscal incentives (Exemption from import duties)
Indirect incentives (Provides land and other resources)
Investing in India – Entry Routes<br />Investing in India<br />Automatic Route<br />Prior Permission<br />(FIPB)<br />General rule<br />No prior permission <br />required<br />Only information to the <br />Reserve Bank of India <br />within 15 days of inflow/<br />Issue of shares <br />By exception<br />Prior Government <br />Approval needed<br />Decision generally <br />Within 4-6 weeks<br />
Agricultural or plantation activities of Agriculture </li></ul> (excluding Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisiculture and Cultivation of Vegetables, Mushrooms etc., under controlled conditions and services related to agro and allied sectors) and Plantations other than Tea Plantations)<br />
Foreign Institutional Investor<br />An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. <br /> Institutional investors include <br /><ul><li>hedge funds,
Charitable Trusts / Charitable Societies </li></li></ul><li>Parameters on which SEBI decides FII applicants’ eligibility<br /><ul><li>Applicant’s track record, professional competence, financial soundness, experience, </li></ul> general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) <br /><ul><li>whether the applicant is registered with and</li></ul> regulated by an appropriate Foreign Regulatory <br /> Authority in the same capacity in which the application is filed with SEBI<br /><ul><li>Whether the applicant is a fit & proper person. </li></li></ul><li>Indian stock Market<br />
Relation among Exchange Rate, Sensex, FII<br />
Foreign Institutional Investor<br /><ul><li>Foreign Institutional Investors can individually purchase up to 10% and collectively up to 24% of the paid up share capital of any company.
This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing Board or shareholder resolution.
FIIs can purchase shares through open offer/ private placement/ stock exchange.
shares purchased by FII through stock exchange can’t be sold through a private arrangement. </li></li></ul><li>Positives and Negatives of FII<br />Advantages<br /><ul><li>Unavailability of Corporate Debt
Large Availability of Capital</li></ul>Disadvantages<br />Problem of inflation<br />Reduces flexibility of Policy makers<br />Hot Money<br />False representation of Economy<br />Can’t be used for long term<br />Problems for small investors<br />
Differences..<br />FDI<br /><ul><li>FDI is when a foreign company brings capital into a company or economy to set up a production or some other facility.
FDI gives some CONTROL in operation of foreign company to the foreign company </li></ul>FII<br /><ul><li>FII is when a foreign company buys equity in any company through stock market.
FII does not give any control in operation of foreign company</li></li></ul><li>Contd…<br />FDI<br /><ul><li>FDI involves in direct production activity and is long term in nature.
It enables a degree of control in the company.
FDI brings long term capital.</li></ul>FII<br /><ul><li>FII is mostly the short term investment mostly in financial market.
It does not involve in degree of control in the company.
FII brings short term capital.</li></li></ul><li>