What is a Foreign Portfolio Investment?

Podcast Duration: 05:59

Hello friends, and welcome to this podcast by Angel Broking.

Have you ever wanted to travel outside India? During the lockdown travel ho ya na ho, you can definitely invest and trade outside the indian markets. Want to know how? Then check out how Nisha made a very smart investment move this year.

Nisha pichle 10 years se stock markets mein invest kar rahi hai. As a result, usko market ke ups aur downs ko handle karne mein kaafi experience hai. Lekin, 2020 ke first quarter ke baad jab uske portfolio par returns girne lage, toh usne divest karne ka plan kiya.

Investment ki nayi opportunities identify karne ke liye Nisha ne newspapers ke business pages par zyada time spend karna shuru kar diya.

Recently, she noticed ki US ke markets mein pandemic ke baad new growth report ho rahi hai. Consistent upward trend dekhte hue, Nisha decided to invest in the US markets. Nisha ne ab tak foreing investments nahi kiye the.

So she went online, and started searching for ways to invest in a foreign market.

Are you curious too? Toh chaliye jaante hain ki foreign markets mein kaise karen invest, through foreign portfolio investment.

Pehle ye baat samajh len - to invest in foreign markets, investors ke paas usually do options hote hain - foreign portfolio investment - ya fir, FPI, aur foreign direct investment - also referred to as FDI. Dono mein significant difference hai.

Do you know what the difference is, friends? Nahi?

No problem, let’s find out.

Foreign portfolio investment ya fir FPI ke zariye aap aise securities aur financial assets mein invest karte ho, jo koi aur investor kisi foreign country mein hold kiye hue hai. That was a mouthful, wasn't it?

Toh let’s look at this in simpler terms, with an example.

Maan lijiye ki Nisha ki tarah aap bhi US markets mein invest karne ka decision lete ho. Aapne S&P aur Nasdaq ko kuch samay closely follow kiya, aur aap S&P 500 index fund ke 1000 units mein invest karna chahte ho. If you make this investment through an FPI, toh in units mein invest karke bhi aap iske owner nahi ban sakte - matlab ye, ki wo 1000 units of the index funds won’t belong to you.

Toh agar aapko ownership nahi milti toh foreign portfolio investment mein aapke aur mere jaise investor ke liye kya fayda?

Let’s look at some benefits of foreign protfolio investments - then you will also understand why Nisha wanted to expand her reach beyond the indian stock market.

Aur doston, don’t get confused - foreing portfolio investment works both ways - Indian markets mein badhiya opportunities identify karne par foreign investors also invest in Indian markets - for example, in index funds, stocks, currencies, etc.

India mein Securities and Exchange Board of India, ya fir SEBI is responsible for regulating FPIs.

India mein FPIs teen tiers mein classify hote hain, based on risk.

Are doston hum benefits discuss karna toh bhool hi gaye. Let’s see why investors make use of FPIs.

Pehla benefit - FPIs aapko apne country ke markets ke beyond exposure dete hain. So if the markets in your country are going down while those of other countries are showing strong growth, you can make use of FPIs. Generally, investors FPIs mein tab interest dikhaate hain, when their markets are showing mediocre return rates.

Second benefit - Foreign investment ka ek aur tareeka hai - FDI, ya fir foreign direct investment. Lekin this is not suitable for retail investors, kyunki isme investments liquidate karne inta simple nahi hota. So if you are a retail investor, FPIs offer an accessible way to other markets.

Third benefit: Diversification can be achieved by mixing a bunch of stocks from the same exchange. Lekin, diversification can be done better - with FPIs, aap apne paise kai markets mein invest kar sakte ho. Cool, isn’t it? Even if an entire economy is performing poorly, the rest of portfolio still remains safe.

Fourth benefit: Foreign Portfolio Investment mein you will also want to follow exchange rates - ye investor ke liye benefit hai ya loss, ye toh situationally decide hota hai. Lekin, when divesting from FPIs, exchange rates can be an added source of returns. That’s why, keeping the overall economy of the foreign market you invest in can’t be stressed enough.

And lastly, fifth benefit - FPIs are highly liquid - toh agar aap kisi point par divest karna chahte ho, for whatever reason - maybe aapne apne home markets mein koi nai opportunity identify ki. Maybe your forecasts indicate that the peak of your investment has been achieved - no matter what the reason, FPIs are usually highly liquid.

And why did I say, ‘usually’? Kyunki the liquidity of FPIs also depends on the underlying markets - ab aap toh jaante hi ho, some markets are more liquid than others. This also affects how your FPIs behave when you invest in them.

Aur friends, lastly - FDIs are an alternative for investors looking beyond their markets’ borders. Lekin FDIs usually ultra high net worth wale investors ya fir institutional investors ke liye ideal hote hain, retail investors ke liye nahi. SO if you are looking to invest in foreign markets, foreign portfolio investments aapke liye ek achchi choice ho sakti hai.

And as we say this about every investment vehicle - apne paise invest karne ke pehle adequate research karna bahut zaroori hai. FPIs ke case mein ye point lightly na lein - agar aap CHinese markets mein invest kar rahe ho, toh China ki business news, politics, economics sab kuch ko closely follow karna zaroori hai, hai ki nahi dost?

So friends, that’s all we had from today’s podcast.

Aur knowledge ke liye don’t forget to visit our website www.angelbroking.com.

Milte hain agle podcast mein. Tab tak ke liye goodbye from Angel Broking, and happy investing!