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Consider the following statements regarding Foreign Portfolio Investments (FPIs):
- They are regulated by the Securities and Exchange Board of India (SEBI).
- They have a longer time frame for investment return than Foreign Direct Investments (FDIs).
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Most Upvoted Answer
Consider the following statements regarding Foreign Portfolio Investme...
Foreign Portfolio Investments (FPIs) are regulated by the Securities and Exchange Board of India (SEBI), and they have a shorter time frame for investment return compared to Foreign Direct Investments (FDIs).
Explanation:
Regulation by SEBI:
Foreign Portfolio Investments (FPIs) in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI is the regulatory body that oversees the functioning and operation of the securities market in India. FPIs are required to register with SEBI and comply with its regulations, including reporting requirements and investment limits. SEBI monitors and regulates FPI activity to ensure transparency, fair practices, and investor protection.
Time frame for investment return:
Foreign Portfolio Investments (FPIs) typically have a shorter time frame for investment return compared to Foreign Direct Investments (FDIs). FPIs involve investment in financial assets such as stocks, bonds, and other securities. These investments are generally more liquid and can be bought and sold quickly in the financial markets. FPI investors aim to earn short-term profits by capitalizing on market fluctuations and price movements.
On the other hand, Foreign Direct Investments (FDIs) involve long-term investments in physical assets such as factories, buildings, and infrastructure. FDIs are made with the intention of establishing a lasting presence and gaining control over the invested entity. FDIs usually have a longer time frame for investment return as they require significant capital commitments and involve establishing operations and generating profits over a longer period.
Therefore, the correct answer is option 'A' - Statement 1 only. FPIs are regulated by SEBI, but they have a shorter time frame for investment return compared to FDIs.
Explanation:
Regulation by SEBI:
Foreign Portfolio Investments (FPIs) in India are regulated by the Securities and Exchange Board of India (SEBI). SEBI is the regulatory body that oversees the functioning and operation of the securities market in India. FPIs are required to register with SEBI and comply with its regulations, including reporting requirements and investment limits. SEBI monitors and regulates FPI activity to ensure transparency, fair practices, and investor protection.
Time frame for investment return:
Foreign Portfolio Investments (FPIs) typically have a shorter time frame for investment return compared to Foreign Direct Investments (FDIs). FPIs involve investment in financial assets such as stocks, bonds, and other securities. These investments are generally more liquid and can be bought and sold quickly in the financial markets. FPI investors aim to earn short-term profits by capitalizing on market fluctuations and price movements.
On the other hand, Foreign Direct Investments (FDIs) involve long-term investments in physical assets such as factories, buildings, and infrastructure. FDIs are made with the intention of establishing a lasting presence and gaining control over the invested entity. FDIs usually have a longer time frame for investment return as they require significant capital commitments and involve establishing operations and generating profits over a longer period.
Therefore, the correct answer is option 'A' - Statement 1 only. FPIs are regulated by SEBI, but they have a shorter time frame for investment return compared to FDIs.
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Community Answer
Consider the following statements regarding Foreign Portfolio Investme...
The Securities and Exchange Board of India (SEBI) recently proposed allowing increased participation from NRIs and Overseas Citizens of India (OCIs) in the Indian securities market through the Foreign Portfolio Investor (FPI) route.
About Foreign Portfolio Investment (FPI):
- FPI refers to the purchase and holding of a wide array of foreign financial assets by investors seeking to invest in a country outside their own.
- Foreign portfolio investors have access to a range of investment instruments such as stocks, bonds, mutual funds, derivatives, fixed deposits, etc.
- FPI generally intends to invest money into the foreign country’s stock market to generate a quick return.
- Who regulates FPI in India?
- In India, foreign portfolio investment is regulated by the Securities and Exchange Board of India (SEBI).
- FPI in India refers to investment groups or FIIs (foreign institutional investors) and QFIs (qualified foreign investors).
- Advantages:
- It offers investors the freedom to diversify their portfolios internationally.
- A portfolio investor can also take advantage of exchange rate differences. Thus, an investor from an economically challenged country can invest heavily in a foreign country that has a much stronger currency, thereby making sizeable profits.
What is Foreign Direct Investment (FDI)?
- It is a category of cross-border investment in which an investor resident in one economy establishes a lasting interest in and a significant degree of influence over an enterprise resident in another economy.
- It is an ownership stake in a foreign company or project made by an investor, company, or government from another country.
- FDI is a key element in international economic integration because it creates stable and long-lasting links between economies.
FPI vs. FDI:
- FDI seeks an ownership stake in a foreign company or project made by an investor, company, or government from another country.
- FPI is a form of investment in the assets of a foreign enterprise, such as stocks or bonds. It does not offer any form of control over the entity and hence offers no ownership of the entity.
- Unlike FDIs, an FPI does not require any transfer of IP, technology, or know-how. There is no need to enter a joint venture with a partner company.
- FDI comprise significantly larger sums, and any tie-ups or operations tend to last longer than portfolio investments.
- Portfolio investments typically have a shorter time frame for investment return than direct investments.
- FDIs are usually the domain of major players in the industry, venture capital ecosystems, and investment branches of globally-recognised financial institutions. Most Financial Portfolio Investment examples include smaller players who invest in a foreign country’s assets and securities for short-term profits.
Hence only statement 1 is correct.
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Consider the following statements regarding Foreign Portfolio Investments (FPIs): They are regulated by the Securities and Exchange Board of India (SEBI). They have a longer time frame for investment return than Foreign Direct Investments (FDIs).Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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