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What is a Foreign Portfolio Investment (FPI)?

What is a Foreign Portfolio Investment (FPI)?

When foreigners purchase shares of domestic companies that represent less than 10% of the voting shares in the companies, and the investments are not those of company expansion or market penetration, but rather to add diversification to the foreigners’ investment portfolios, it is known as Foreign Portfolio Investment (FPI).

FPI is the passive investing that foreigners do in a domestic market. It is separate from investments that companies might make into joint ventures or purchase facilities or acquire controlling interest in a domestic company — all of those are active investing and are usually called Foreign Direct Investment (FDI). FPI can be done by individuals or institutional investors. Institutional investors might run a mutual fund or pension fund in another country.

The flow of FPI money is tracked by governments and international analysts for statistical purposes, notwithstanding any reporting requirements, and is sometimes called international portfolio flow. Because the investors have no vested interest in the foreign economy that they are investing in, as opposed to FDI in which the investors have something to loose by backing out of the country, FPI money can be very fickle and move quickly.

This can have significant effects on relatively small or weak economies or companies.

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Keywords: investing, international trade, Foreign Direct Investment (FDI), Foreign Institutional Investor (FII), portfolio flow, overseas,