Difference Between FPI and FDI

FPI and FDI both bring foreign capital into India, but they are treated differently under the foreign-investment framework.

• FPI generally means investment by a person resident outside India of less than 10% in the equity of a listed Indian company.
• FDI includes investment in an unlisted Indian company or 10% or more in a listed Indian company.
• FPI usually focuses on financial securities such as listed shares and permitted debt instruments.
• FDI generally represents a more direct economic interest in an Indian business.
• FPI investors generally do not seek operational control.
• FDI is subject to sectoral caps, entry routes, pricing rules, and other applicable conditions.
• If an FPI crosses the prescribed 10% limit, it may need to divest or reclassify the holding as FDI under applicable rules.

The simplest difference is ownership and involvement: FPI is portfolio investment, while FDI represents direct investment in the business.

Foreign Direct Investment, or FDI, is an investment made by an individual or company from one country into a business located in another country. It creates a direct business interest in the foreign market.

For example, a company may set up a manufacturing unit in another country, acquire a significant ownership stake in a foreign company, or establish a subsidiary there.

FDI usually involves a long-term commitment and greater involvement in the foreign business. Common ways of making an FDI include:

• Establishing a joint venture
• Completing a merger or acquisition
• Creating a subsidiary company

The exact structure must comply with sectoral caps, entry routes, pricing, reporting, and other applicable rules.

Source: Reserve Bank of India (RBI)

India recorded total FDI inflows of about ₹9.01 lakh crore (US$94.53 billion) in FY2025-26, compared with about ₹7.68 lakh crore (US$80.62 billion) in FY2024-25. This represents an increase of around 17%.

The FY2025-26 figure includes equity inflows, reinvested earnings, other capital, and equity capital of unincorporated bodies.

Disclaimer: FDI figures are provisional. Rupee conversions use an exchange rate of ₹95.30 per US$1 as of 10 September 2026, so converted values are approximate.

Foreign Portfolio Investment, or FPI, generally refers to foreign investment in permitted securities without crossing the prescribed direct-investment threshold.

Under RBI's foreign-investment framework, FPI in a listed Indian company is generally:

Less than 10% of the post-issue paid-up equity capital on a fully diluted basis for the FPI and its investor group.

FPIs can invest in permitted instruments according to SEBI and RBI rules.

These can include:

• listed equity shares,
• permitted debt securities,
• Government Securities, and
• other eligible market instruments.

FPI is generally associated with financial investment rather than direct operational participation in the investee company.

As of July 2026, Foreign Portfolio Investors continue to be governed by the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, as amended.

Sources:

• Reserve Bank of India (RBI)
• Securities and Exchange Board of India (SEBI)

Foreign portfolio investment in Indian equities has remained volatile in 2026.

In August 2026, FPIs invested around ₹29,543 crore (US$3.1 billion) in Indian equities. This was the highest monthly foreign equity inflow in nearly two years.

However, despite the August inflow, foreign investors had withdrawn around ₹2.34 lakh crore (US$24.6 billion) from Indian equities during 2026 up to the end of August.

This shows that FPI flows can change quickly depending on factors such as market conditions, corporate earnings, currency movements, interest rates, and global investor sentiment.

FDI and FPI both involve foreign investment, but they differ in their purpose, involvement, assets, and ease of entry and exit.

Note: The comparison is general in nature. Actual FDI and FPI classification, eligibility, ownership limits, and investment conditions depend on applicable regulations and the type of investment.

Simple example

Foreign Investor A buys:

5% of a listed Indian company

This can generally remain FPI, subject to applicable rules.

Foreign Investor B acquires:

12% of the same listed company

That level crosses the 10% threshold and can fall within the FDI framework.

So the distinction is not based only on whether the investor plans to stay for a few months or many years.

Sources:

• Reserve Bank of India (RBI)
• Securities and Exchange Board of India (SEBI)

FPI generally does not involve direct operational control, while FDI can create a stronger strategic or ownership interest in the business.

Consider two cases.

FPI example

A foreign investment fund buys a small percentage of shares in a listed Indian company.

Its main exposure comes from:

• changes in the share price,
• dividends, and
• other permitted financial returns.

It does not automatically become involved in running the company.

FDI example

A foreign company acquires a large strategic stake in an Indian business.

Depending on the transaction, it may gain:

• voting influence,
• board representation,
• strategic involvement, or
• a long-term business interest.

However, FDI should not be defined solely as “control”.

The regulatory classification also depends on the investment structure, listing status, ownership threshold, sector, and applicable foreign-investment rules.

FPI generally involves permitted financial securities, while FDI involves equity investment creating a direct investment interest in an Indian business.

FPI can include

Subject to applicable rules, FPIs may invest in instruments such as:

• listed equity,
• debt securities,
• Government Securities, and
• other permitted market instruments.

FDI generally involves

FDI typically involves investment in the equity instruments of an Indian company or permitted investment in an eligible business structure.

For example:

A foreign fund buying a small listed shareholding can fall under FPI.

A foreign company investing directly into an unlisted Indian subsidiary falls under FDI.

This is more precise than saying FDI always means “physical assets” and FPI always means “financial assets”.

Source: Reserve Bank of India (RBI)

Check the ownership structure and regulatory treatment first, rather than assuming FPI means short term and FDI means long term.

The cleanest way to understand the difference is:

FPI = portfolio exposure within the applicable FPI framework

FDI = direct foreign investment under the applicable FDI framework