FPI vs FDI: notes for bank exams

At a glance

Foreign money enters Indian companies in two broad ways. Foreign direct investment (FDI) is a long-term stake that usually brings some say in management; foreign portfolio investment (FPI) is a financial holding in shares or bonds that can be bought and sold quickly. In listed companies, the line between them is a 10% stake.

Key facts

Dividing line: a foreign investor holding less than 10% of a listed Indian company's paid-up equity is an FPI; 10% or more counts as FDI
FPI regulator: SEBI, under the SEBI (Foreign Portfolio Investors) Regulations, 2019
FPI categories: two (Category I and Category II) since the 2019 Regulations; the earlier Category III was dropped
FPI registration: granted by a Designated Depository Participant (DDP) on SEBI's behalf
FDI policy-maker: DPIIT (Department for Promotion of Industry and Internal Trade), Ministry of Commerce and Industry
FDI routes: automatic route (no prior approval) and government route (prior approval needed)
Land-border countries: FDI from countries sharing a land border with India needs government approval (Press Note 3, 17 April 2020)
Depositories that track FPI flows: NSDL and CDSL
FPI net equity outflow, October 2026 (month to date, 26 Oct report): ₹48,056 crore
FPI equity outflow, 2026 so far: about ₹3.08 lakh crore, the highest for any year

How it works

Feature	FPI	FDI
Stake in a listed company	Below 10%	10% or more
Aim	Financial return	Lasting interest, often control
Ease of exit	Quick ("hot money")	Slow, tied to the business
Rules set by	SEBI (registration), RBI/FEMA	DPIIT policy, FEMA rules, RBI reporting
Effect on rupee	Sharp swings when flows reverse	Stable, long-term inflow

FPI categories. Category I covers lower-risk, well-regulated investors such as government-related investors, central banks, pension funds, university funds, banks, insurers and regulated asset managers. Category II covers the rest that are eligible, such as endowments, foundations and other funds.

FDI routes. Under the automatic route, the investor only reports to the RBI after the money comes in. Under the government route, approval is needed first. Most sectors allow up to 100% FDI; some have caps, and a few are prohibited outright, including lottery and gambling, chit funds, Nidhi companies, atomic energy, trading in transferable development rights, and manufacture of cigarettes and other tobacco products.

Crossing 10%. If an FPI's holding goes past 10%, it must either sell the excess or have it reclassified as FDI. An RBI framework of 11 November 2024 allows reclassification only in sectors open to FDI, with the investee company's consent and within FDI caps and entry routes.

Recent developments

26 Oct 2026: FPIs had made net sales of ₹48,056 crore of Indian equities in October (exchange-only selling about ₹53,337 crore, partly offset by about ₹5,281 crore put into IPOs). Total 2026 outflow reached about ₹3.08 lakh crore, a record. Analysts cited crude above $110, US Treasury yields near 5% and a rupee close to ₹95 per dollar.

Exam traps

The 10% line is for a single investor's stake in a listed company; do not confuse it with sectoral FDI caps such as those in insurance or defence.
SEBI registers FPIs, but it does not set FDI policy — that is DPIIT's job.
FPIs are now in two categories, not three (Category III ended with the 2019 Regulations).
Automatic route still requires reporting to the RBI; it only removes the need for prior approval.
Heavy FPI selling weakens the rupee and can drain forex reserves when the RBI steps in; FDI is the more stable flow.

Quick check

Q: A US fund buys 12% of a listed Indian company. FPI or FDI? A: FDI (10% or more).
Q: Which regulations govern FPIs? A: The SEBI (Foreign Portfolio Investors) Regulations, 2019.
Q: Which department frames India's FDI policy? A: DPIIT, Ministry of Commerce and Industry.

FPI vs FDI