UPSC CSE Prelims
Question 53
Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two ?
View correct answer and explanation
Correct answer: B
Correct Option: B
Explanation: FDI generally entails a lasting controlling or influential interest in a particular enterprise, whereas FII/portfolio investment supplies market capital without management control.
Option-wise Analysis:
A: Incorrect - Management and technology transfer are more typical of FDI, not FII.
B: Correct - FII broadens securities-market capital, while FDI enters identifiable enterprises or activities.
C: Incorrect - FDI is not restricted to secondary markets; FIIs can invest in primary and secondary securities.
D: Incorrect - Portfolio investment is often more reversible and volatile than FDI.
Review Note: “FDI only targets specific sectors” is imprecise; the essential distinction is lasting management influence versus portfolio investment.