Investors who invest in foreign portfolios are known as Foreign Portfolio Investors. It involves a collection of financial assets like fixed deposits, stocks, and mutual funds. All the investments are passively held by the investors.

Foreign Portfolios increase the volatility, which leads to increased risk. The reason behind investing in foreign markets is to diversify the portfolio and fetch some good returns on the investments. Foreign Portfolio Investment is a prominent investment alternative nowadays. From individuals, businesses to even Governments invest in Foreign Portfolios in India.

FPI is not to be confused with FDI (Foreign Direct Investment). In an FPI investors do not actively manage the investments or the companies that issue the investments. The investor has no direct control over the assets or the businesses. On the contrary in an FDI the investor purchases a direct business interest in a foreign country. This FDI investor controls their monetary investments and often actively manages the company into which they put money.

India has been attracting more than 50% of its FPI from three countries – US, Mauritius & Luxembourg. Out of Rs 44.62 lakh crore investment, US investors accounted for Rs 15.38 lakh crore, Mauritius Rs 5.29 lakh crore and Luxembourg Rs 3.74 lakh crore, according to data from National Securities Depository Ltd (NSDL). The liberal policies followed by the US Fed have facilitated such flow of funds to the emerging markets with India also benefiting.

– written and contributed by Divya Shetty.