Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) are two types of foreign investments that play significant roles in a country’s economy. They differ in their nature, objectives, and impact.
FDI involves investing in a foreign company to gain significant control or ownership, typically for long-term growth, while FII refers to investments made by foreign institutions in a country’s financial markets, usually for short-term gains. FDI is generally more stable and involves direct involvement in business operations, whereas FII focuses on financial assets like stocks and bonds without management control. FDI is governed by specific regulations that may require government approval, especially in sensitive sectors. FII is regulated by securities authorities, requiring registration to invest in financial markets.
FDI brings capital, technology, and job creation to the host economy. FII involves foreign institutions investing in a country’s secondary financial markets (stocks, bonds) for portfolio diversification and profit. The key differences lie in investment purpose, level of control, time horizon, type of assets, and economic impact.
Both FDI and FII are essential for economic development, but they serve different purposes and have distinct characteristics. Understanding these differences helps in formulating effective investment strategies and policies.
India witnessed a brutal and total withdrawal of foreign direct investment (FDI) in 2025. The net FDI plummeting by 96.5% to just $353 million, largely due to capital repatriation from high-profile IPOs and increased outward investments by Indian firms. This decline marks the lowest level of net FDI on record for India. Foreign investors withdrew approximately $49 billion during the fiscal year, reflecting a total lack of confidence in the investment climate and Indian economy.
In 2025, FIIs have withdrawn approximately ₹1.16 lakh crore (around USD 13.23 billion) from Indian equities, with significant sell-offs in sectors like IT, FMCG, and Power. This trend reflects a risk-averse stance among global investors amid various economic challenges. Conversely, some sectors like telecommunications, services, and chemicals have attracted FII interest.
Both FDIs and FIIs preferred to leave India in 2025 due to its changing economic, social, and political conditions that would not improve till 2030 says Praveen Dalal.