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FDI v/s FII

CA Paresh Kothari (Service) (233 Points)

06 December 2007

Can anybody reply to me in regard to what is the difference between FDI & FII?

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7 Replies

Dinesh (Article) (109 Points)
Replied 06 December 2007

FDI stands for foreign direct investment and FII stands for foreign institutional investment. In FDI someone direct invest in foreign securities with his own name. on other hand in FII institute like bankers invest their fund or people invest their money through banks . FII looking for long term investment and a huge amount invest by institute . FDI investor are smaller than FII and they invest as a short term investment. for FDI sebi registration is compulsory for every investor but on other hand with FII invest every investor need not to register himself with sebi only institute registration are compulsory. an another point is considerable is that FII is a direct way to invest in foreign and FDI is a indirect way to invest in foreign. GOOD LUCK PLEASE MATCH THIS INFORMATION WITH YOUR STUDY MATERIAL AND THINK ABOUT THESE POINTS

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CA Paresh Kothari (Service) (233 Points)
Replied 06 December 2007

I think the reply not quite correct. FDI is not considered to be in Securities.It has something to do with sectors. If at all FDI has to be linked withs ecurities, How much FDI can be made in particular securities and How much FII investment can be made in Securities? Kindly reply with examples that will clarify more

Bhavesh (Chartered Accountant) (39 Points)
Replied 11 December 2007

Foreign Institutional Investor (FII) is used to denote an investor - mostly of the form of an institution or entity, which invests money in the financial markets of a country different from the one where in the institution or entity was originally incorporated.FII investment is frequently referred to as hot money for the reason that it can leave the country at the same speed at which it comes in. There are statutory agencies like SEBI which have prescribed norms to register FIIs and also to regulate such investments flowing in through FIIs. There are also norms in FEMA for FII investment. In FEMA, there is ceiling limits on investments by FIIs. The Reserve Bank of India monitors the ceilings on FII investments in Indian companies on a daily basis. Investment by FIIs is regulated under SEBI (FII) Regulations, 1995 and Regulation 5(2) of FEMA Notification No.20 dated May 3, 2000. FIIs include Asset Management Companies, Pension Funds, Mutual Funds, and Investment Trusts as Nominee Companies, Incorporated / Institutional Portfolio Managers or their Power of Attorney holders, University Funds, Endowment Foundations, Charitable Trusts and Charitable Societies. SEBI acts as the nodal point in the registration of FIIs. The Reserve Bank of India has granted General Permission to SEBI Registered FIIs to invest in India under the Portfolio Investment Scheme (PIS). Investment by individual FIIs cannot exceed 10% of paid up capital. Investment by foreign registered as sub accounts of FII cannot exceed 5% of paid up capital. All FIIs and their sub-accounts taken together cannot acquire more than 24% of the paid up capital of an Indian Company. An Indian Company can raise the 24% ceiling to the Sectoral Cap / Statutory Ceiling, as applicable, by passing a resolution by its Board of Directors followed by passing a Special Resolution. Foreign direct investment (FDI) is defined as "investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Foreign direct investment (FDI) is the movement of capital across national frontiers in a manner that grants the investor control over the acquired asset. Inward foreign direct investment is when foreign capital is invested in local resources. Outward foreign direct investment is called "direct investment abroad" when local capital is invested in foreign resources. Under FDI, the investors is in position to control or influence the policies of the company in which investment is done while in FIIs, the investors are not in position to control or influence the policies of the company in which the investment is done. As per FEMA norms, there are two routes of FDI investment – Automatic route & Government Route (means where prior Government approval is required) 1) FDI under Automatic Route FDI up to 100% is allowed under the automatic route in all activities/sectors except the following which require prior approval of the Government: i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are attracted. ii) where more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale sector. iii) FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval either by the Government or the Reserve Bank of India. iv) The investors are only required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors. 2) FDI under Government Route FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance. The sectors & ceiling limits for foreign direct investment is decided by the Government under FEMA. The sectors where FDI is not allowed in India even under the Automatic Route as well as Government Route are Retail Trading (except single brand product retailing), Atomic Energy, Lottery Business, Gambling and Betting, Business of Chit Fund, Nidhi Company, Agricultural or plantation activities, Housing and Real Estate business(except development of townships, construction of residential/commercial premises, roads or bridges), Trading in Transferable Development Rights (TDRs). Please Note: The above information should not be taken as any form of advise and should not be relied upon without independent verification. There are chances of errors or omissions & kindly check up the limits or any changes in the above mentioned provisions of FEMA & SEBI.

(Guest)

Dear Sir,

Just wanted to confirm whether an FII registered with SEBI can come through FDI?

We await for your response.

Best Regards,

Prachi Doshi

(Guest)

Yes, FIIs may invest directly in a listed / unlisted Indian Company under the FDI Route i.e. invest directly in a company instead of purchasing shares from the stock echange. However, this shall not exceed 10% by one FII and 24% by all FIIs taken together. Futher, this limit may be increased upto the sectoral cap applicable ot the company provided the company passes a special resolution in this regard. Certain pricing guidelines also apply.

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(Guest)

WELL PLZ NOTE .MR DINESH .FDI IS FOR LONG TERM N FII IS FOR SHORT TERM PERIOD .

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 25 November 2009

Hi All

Investment comes to India basically in 4 ways

FDI FII FVCI NRI/OCB /OTHER

(1) FDI comes through 5 routes

1Wholly owened subsidiary(WOS)-- Forming a new company/ 100pc Taking Over an existing co

2 Join Venture(JV)-- Forming a company by Joint participation by Indian(s)/acquaring less than 100 pc share of existing one where other participant is Indian Resident (s) only

3 Branch Office

4 Project Ofice

5 Liasion office

FOR FIRST 2 FDI (WOS & JV) ,INVESTMENT INVOLVING UP TO RS 600 CR. FIPB APROVAL & BEYOND RS 600 CR CCEA APROVAL IS REQUIRED.HOWEVERWHER INVESTMENTS DONE BY AN NRI/OCB (OVERSEASE CORPO. BODY OF WHICH 60% ARE NRI /INDIAN ORIGIN) APROVAL OF SIA IS REQUIRE WHO IN TURN TAKE 2ND CLEARANCE FROM FIPB/CCEA. PRE & POST INCORPORATION REPORTING (NOT APROVAL) + YRLY REPORTING REQUIRED TO RBI.

HOWEVER IF THE INVESTMENT FALL UNDER AUTOMATIC ROUTE OR DO NOT EXCEED THE SECTORIAL CAPITAL NO SUCH APROVAL REQUIRED FROM SUCH AUTHORITIES UNLESS THE SPECIFIC SECTORWISE GUIDELINE PRESCRIBES NECESSARY APROVAL . HOWEVER REPORTING TO RBI IS MADE WHEATHER OR NOT IT FALL UNDER APROVAL / AUTOMATIC ROUTE.

SOME SECTORS REQUIRED NECESSARY INDUSTRIAL LICENSING

FOR LAST 3 FDI (LIASION / BRANCH /PROJECT) RBI IS THE SOLE BODY TO APROVE THESE. THERE IS NO APROVAL REQUIRED FROM FIPB/CCEA/SIA.THERE IS NO AUTO MATIC AS SUCH.THESE APROVALS FOR SHORT PERIOD OF TIME (EX. LIASION OFF CAN BE ALLOWED FOR 3 YR ONLY & WITH A SPECIFIC APROVAL 3 YR MORE.)

HOWEVER IN PRACTICE FOR INVESTMENTS FROM SPECIFIED COUNTRIES (RBI CAUTION LIST COUNTRIES ) THE APPLICATION GOES TO MINISTRY OF FINANCE / EXTERNAL AFFAIRS/ CORPORATE AFFIRS / SECTOR SPECIFC MINISTIRES LIKE STEEL , COAL ETC

(2)IN CONTRARY FII INVESTMENT COMES FOR PORTFOLIO INVESTMENTS ONLY (LIKE LISTED SHARES ,MF , MONEY MRKT INSTRUMENTS ETC. NO PVT PLACEMENT ALLWED.SEBI APROVAL IS COMPULSORY)

(3)FVCI (FOREIGN VENTUIRE CAPITAL COMPANY)- FOR INVESTMENTS IN PVT PLACEMENTS /PVT EQUITY OR RELATED INSTRUMENTS. SEBI APROVAL IS MUST & DUAL APROVAL FROM RBI IN SOME CASES.THERE IS SOME ADITONAL GUIDELINES TO ADHERE IN SECTOR SPECIFIC.

(4)NRI/OCB/OTHER INVESTMENTS REQUIRE APROVAL FROM AUTHORITIES ON SPECIFIC CASES & ALSO THERE IS LOCK IN PERIOD FOR REPATRIATION IN SOME CASES

PERIODICAL REPORTING REQUIRED TO RBI/SEBI OR OTHER AUTHORITIES

ADDITION TO THESE GUIDELINES SECTORIAL SPECIFIC GUIDELINES TO BE COMPLIED/SATISHFIED (FOR INVESTMENT/FORMATION OF INSURANCE/TELECOM COMPANY IRDA/MINISTRI OF COMUNICATION GUIDELINES TO ADHERE)

RGRDS