Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to…

Answer: (b) FII helps in increasing capital availability in general, while FDI only targets specific sectors

FII money is portfolio capital that goes into securities of companies across the market, so it adds to capital availability in general. FDI is a direct, long-term stake that is regulated sector by sector under the FDI policy, with caps, entry routes and prohibited sectors. Options (a) and (d) reverse the real difference, and option (c) misdescribes both, so (b) is the best answer.

• ✗ (a) This is reversed. In FDI, the direct investor seeks a strategic long-term relationship and a significant degree of influence in the management of the enterprise. That is why FDI, not FII, is associated with management skills and technology.
• ✓ (b) FIIs could invest in securities of companies across the market. FDI, by contrast, is governed by a sector-wise policy with sectoral caps, Automatic or Government approval routes, and prohibited sectors such as retail trading (except single-brand retailing). The word 'only' is loose, but this is the only option that states a real difference correctly.
• ✗ (c) FII is not confined to the primary market. SEBI's FII Regulations allowed FIIs to invest in securities in both the primary and secondary markets. FDI is an equity stake in an enterprise and is not limited to the secondary market.
• ✗ (d) FDI is the more stable form, because it is a strategic, long-term stake in an enterprise. FII money is portfolio investment in tradable securities and can be withdrawn quickly.

Remember · FDI is a lasting-interest, management-influencing investment regulated through sector-wise policy. FII (now FPI) is portfolio investment in securities across the market. FDI is more stable, FII more volatile.

Question: UPSC Civil Services (Preliminary) 2011, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). · Report an error