Q. Consider the following statements regarding Foreign Portfolio Investment (FPI):
1. FPIs are short term investments and volatile in nature.
2. Portfolio investment does not offer control over the business entity in which the investment is made.
Which of the statements above given is/are correct?

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C
Notes:

Foreign portfolio investment (FPI) refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.  

  • This type of investment is at times viewed less favorably than direct investment because portfolio investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term investment in the economy.  
  • Portfolio investment typically has a shorter time frame for investment return than direct investment.  
  • As with any equity investment, foreign portfolio investors usually expect to quickly realize a profit on their investments.  
  • Unlike direct investment, portfolio investment does not offer control over the business entity in which the investment is made. 

Source: TMH Ramesh Singh