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Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question last year

What is Foreign Direct Investment?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

Foreign Direct Investment (FDI) is when persons/companies who/which are non-Indian, invest in Indian companies. Thus, through FDI, the investors become the shareholders in Indian companies and usually have stake that will give them controlling power of the company.

FDI can be done in many ways – popular of which are through acquiring of shares and merger and acquisition. Also important to know is that there are two ‘routes’ of FDI, namely, Automatic Route (does not require RBI or CG approval) and the Government Route (requires the approvals for those not covered under the automatic route).

Foreign Investors become shareholders of a sizeable stake, and the reason they are investing is because they want  good returns. This means they’ll be very much interested in the working of the company, so that their money earns returns.  

They’ll also be active shareholders, board members and ensure the company is utilizing its resources properly and towards the growth of the company, increasing turnover and ultimately profits. To ensure the company gets the best resources to produce best results – the FDI investors may also bring with them management personnel, advanced technology, new system of work and management of the company etc.

A foreign direct investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company. However, FDIs are distinguished from portfolio investments in which an investor merely purchases equities of foreign-based companies.