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    Question

    An overseas institutional investor is looking to invest

    in a listed Indian company. According to the regulatory framework in India, what is the primary threshold that distinguishes Foreign Portfolio Investment (FPI) from Foreign Direct Investment (FDI)?
    A FDI involves a stake of 25% or more, while FPI is anything less than 25%. Correct Answer Incorrect Answer
    B If the investment is 10% or more of the post-issue paid-up equity capital, it is treated as FDI; if it is less than 10%, it is treated as FPI. Correct Answer Incorrect Answer
    C If the investment is 20% or more of the post-issue paid-up equity capital, it is treated as FDI; if it is less than 20%, it is treated as FPI. Correct Answer Incorrect Answer
    D FDI is only for unlisted companies, while FPI is only for listed companies. Correct Answer Incorrect Answer
    E FPI provides the investor with management control, while FDI is purely for passive financial returns. Correct Answer Incorrect Answer

    Solution

    FDI investment is stable and long-term in nature, and involves technology transfer or management participation. It is often called Hard to go money.   FPI is volatile, short-term, and involves buying/selling on the stock exchange. It is often called Hot Money because it can leave the country quickly during a crisis.   The Arvind Mayaram Committee established the golden rule for FPI and FDI investment threshold as: ·        Less than 10% will be portfolio investor (FPI) looking for short-term profits. ·        10% or more is direct investor (FDI) looking for long-term influence or control over the company.   Kindly note – while FDI can be in both listed or unlisted entity, FPI is only in listed entities. FDI is regulated by Rbi and DIPP (Ministry of Commerce), while FPI is regulated by SEBI.

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