Foreign Portfolio Investment - FPI

AAA

DEFINITION of 'Foreign Portfolio Investment - FPI'

Securities and other financial assets passively held by foreign investors. Foreign portfolio investment (FPI) does not provide the investor with direct ownership of financial assets, and thus no direct management of a company. This type of investment is relatively liquid, depending on the volatility of the market invested in. It is most commonly used by investors who do not want to manage a firm abroad.

INVESTOPEDIA EXPLAINS 'Foreign Portfolio Investment - FPI'

Foreign portfolio investment typically involves short-term positions in financial assets of international markets, and is similar to investing in domestic securities. FPI allows investors to take part in the profitability of firms operating abroad without having to directly manage their operations. This is a similar concept to trading domestically: most investors do not have the capital or expertise required to personally run the firms that they invest in.

Foreign portfolio investment differs from foreign direct investment (FDI), in which a domestic company runs a foreign firm. While FDI allows a company to maintain better control over the firm held abroad, it might make it more difficult to later sell the firm at a premium price. This is due to information asymmetry: the company that owns the firm has intimate knowledge of what might be wrong with the firm, while potential investors (especially foreign investors) do not.

The share of FDI in foreign equity flows is greater than FPI in developing countries compared to developed countries, but net FDI inflows tend to be more volatile in developing countries because it is more difficult to sell a directly-owned firm than a passively owned security.

RELATED TERMS
  1. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment ...
  2. Capital Flight

    A large-scale exodus of financial assets and capital from a nation ...
  3. Foreign Investment

    Flows of capital from one nation to another in exchange for significant ...
  4. Inward Investment

    The opposite of outward investment, an inward investment involves ...
  5. Foreign Investment Funds (FIF) ...

    A tariff imposed on Australian residents by their government ...
  6. Foreign Direct Investment - FDI

    An investment made by a company or entity based in one country, ...
RELATED FAQS
  1. How much of a diversified portfolio should be invested in the electronics sector?

    The electronics sector tracks closely with the broader market, making it a cyclical sector with average volatility. Electronics ... Read Full Answer >>
  2. What are some common questions an interviewer may ask during an interview for a position ...

    When interviewing for a job at an investment bank, a candidate is likely to answer questions about his career and education ... Read Full Answer >>
  3. What is the average annual return for the S&P 500?

    According to historical records, the average annual return for the S&P 500 since its inception in 1928 through 2014 is ... Read Full Answer >>
  4. What licenses and certifications do you need for a career in portfolio management?

    Traditionally, a career in portfolio management requires a certain level of education, professional licensing, on-the-job ... Read Full Answer >>
  5. How do waivers, reimbursements and recoupments affect a fund's expense ratio?

    Waivers, reimbursements and recoupments can initially serve to keep a fund's expense ratio lower than it would be otherwise. ... Read Full Answer >>
  6. Are investments in the drug sector appropriate for ethical investors?

    A number of aspects are factored for ethical investors considering the drug sector, such as animal testing or the type of ... Read Full Answer >>
Related Articles
  1. Insurance

    Investing Beyond Your Borders

    Investing abroad poses risks, but can also help you diversify. Discover ways to invest in foreign stocks.
  2. Investing Basics

    Broadening Your Portfolio's Borders

    Find out what type of international fund might suit your needs in gaining exposure to foreign markets.
  3. Investing Basics

    Investing in Foreign Stocks: ADRs and GDRs

    Depositary Receipts are easy ways to invest in foreign stocks, regardless of what part of the world you live in.
  4. Options & Futures

    Evaluating Country Risk For International Investing

    Investing overseas begins with determining the risk of the country's investment climate.
  5. Mutual Funds & ETFs

    Go International With Foreign Index Funds

    As global trade continues to expand and the world's economies grow, spice up your portfolio with these exciting opportunities.
  6. Mutual Funds & ETFs

    Protect Your Foreign Investments From Currency Risk

    Hedging against currency risk can add a level of safety to your offshore investments.
  7. Taxes

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
  8. Mutual Funds & ETFs

    Getting Into International Investing

    Diversifying can mean not only investing in various asset classes but also venturing beyond domestic exchanges.
  9. Fundamental Analysis

    An Introduction To The Indian Stock Market

    Emerging markets like India are fast becoming engines for future growth. Find out how to get in on the ground floor.
  10. Mutual Funds & ETFs

    Playing It Safe In Foreign Stock Markets

    Find out some of the lower-risk ways to invest in foreign markets.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center