Foreign Institutional Investor (FII)

Concept of Foreign Institutional Investor

As the suggests, Foreign Institutional Investors (FII) are those investment companies that are located outside the nation in which they are investing. The term ‘FII’ is commonly used in the financial sector as they are foreign investors, who invest in the financial markets of a specific company. The investment made by foreign institutional investors is often referred to as ‘hot money’ because it enters and leaves the country at an equal speed.

Thus, FII is the investors generally in form of an entity or institutions that invest in financial markets of another country from their place of origin. Investments made by African be classified into the following categories:

  1. Mutual Funds,
  2. Pension Funds,
  3. University Funds,
  4. Charitable Trusts or Charitable Societies.
  5. Insurance or reinsurance companies,
  6. Banks,
  7. Investment Trust,
  8. Endowment, and
  9. Other foundations

There are various entities willing to invest on behalf of broad-based funds. Some of these entities eligible to invest as FII include:

  1. Institutional Portfolio Managers,
  2. Asset Management Companies,
  3. Power of Attorney Holders, and
  4. Trustees.

Fast-faced growing economies like India are one of the attractive destinations for investment in the eyes of FII. Financial markets of such nations are expected to witness prospective growth in future and hence, they attract more attention of foreign investors. Such attractive market provides lucrative return opportunities for the investors, and for this reason, there is an increase in the number of such investors in India and other similar nations.

Advantages of Foreign Institutional Investor

  1. Reduction of Tax
  2. Protection of Assets.
  3. Confidentiality and security.
  4. Diversification of Investment.

Disadvantages of Foreign Institutional Investor

  1. Tax laws are Tightening.
  2. Problems of Inflation.
  3. Problems for small Investor.
  4. Adverse Impact on Exports.