In business today, people use a lot of different related terms. Along with foreign direct investment (FDI), foreign indirect investment (FPI) is also a widely used concept today. So what is FPI capital and what advantages and disadvantages do they possess? All are learned in detail and specific right after the content of our article below!
1. What is FPI Capital?
In business, people use many different specialized terms to be able to express themselves in the best way. In which, FPI capital is no exception, when it comes to FPI, it will not be too strange for people doing business. But for the first-time listener, this is a new concept. So what exactly is FPI capital?
FPI is an abbreviation of the English phrase Foreign Portfolio Investment, translated into Vietnamese, which is roughly understood as foreign indirect investment. This is the term used when major asset purchases take place from abroad with the aim of making a profit. This form of investment will not be accompanied by previous professional and management activities.
The concept of capital FPI
FPI is an extremely popular form of investment today, it carries out activities of buying and selling securities or major foreign assets. All were acquired passively from foreign investors.
Objects to be able to make this form of investment are businesses, individuals or even government agencies that are also allowed to participate in these foreign investment activities. With this type of investment, businesses will be able to diversify investment policies as well as have the advantage of participating in international markets.
2. The benefits that FPI brings
Besides the question of what is FPI capital ? What benefits does this capital bring is a matter of interest and research by many people. Accordingly, this investment capital brings benefits to both investors and businesses using capital.
Benefits of FPI
- For investors: Bringing a relatively stable source of profit, minimizing risks to the maximum extent when the capital is dispersed in many different project sources.
- For businesses receiving capital: Helping students to be more active in the process of investing in items and using capital appropriately. The production and business sector develops and disperses the risks in investment activities through investment certificates, stocks and bonds that bring high profits.
3. What is the nature of FPI capital?
Because this is an investment originating from an investor who is not related to the operating system of the company. Therefore, the responsibility as well as the mandatory elements to the company is absent. But they only care about how much monthly profit they get? Are they moving in a positive direction?
What is the capital nature of FPI?
Therefore, this investment source will possess many different special characteristics. Therefore, we can mention some of the specific characteristics of this business form, which are:
3.1 Highly liquid FPI
For this nature, FPI investment capital will become a short-term investment. Because its main purpose is just to need a high profit rate and possible risks. On the other hand, they don’t need to care about the process or how the capital is used? Therefore, many investors have sold their securities to be able to “jump” to another market with higher profits.
This is also a special feature that only FPI indirect investment capital can do. This will limit the risks of investors and they look elsewhere with higher returns.
3.2 FPI is unstable
Why is it said that FPI capital is unstable? because it was affected by property 1. However, this instability will bring advantages when helping the market become more active, especially bringing many benefits to the capital users.
On the other hand, when talking about the advantage of instability, don’t forget to mention the risks that it brings. If the shift of capital from a place with a low rate of return to a place with a high rate of return will have a great impact on the financial system. Especially, it is extremely bad for a developing country like Vietnam.
3.3 FPI is reversible
As mentioned above, high or unstable liquidity has negative effects on the economy. During the financial crisis in Asia in the 20th century, the harmful effects of FPI inflow reversal were shown, moreover, it was extremely difficult or took a long time to fix.
Through the above sharing, you have learned what FPI capital is and the special properties of this form of investment. Through this, we can see that this is a source of capital that brings benefits to both the investor and the investee. Surely this is a very popular and extremely developed business form in the future.