Foreign Institutional Investment commonly abbreviated as FII is an investor or investment fund registered in a different country other than the one it is investing. In most cases, FII refers to an institution organized outside India for the sole purpose of making investments in the Indian Securities Market. FII includes overseas pension funds, university funds, charitable societies, nominee company bank, institutional portfolio just to mention a few. An FII can opt to invest their own funds or simply invest on behalf of overseas clients who must be registered with SEBI.
The role of FII in developing domestic firms and improving India’s financial conditions cannot go undetected. This is because it has greatly contributed to the growth of many firms thanks to the numerous advantages that it brings. Some of the advantages which FII brings to domestic firms in India are explained below.
Foreign Institutional Investors are tasked with the responsibility of ensuring a smooth and free flow of information in all angles. Through this action, domestic firms are able to keep pace with their competitors who are well-off. This is made possible since they have access to information regarding the entire market i.e. what is needed and how to carry out their business.
Enhance the flow of Equity Capital
Every firm whether large or small needs to have enough finances in order to compete on the same playing field with competitors. However, poor capital flow means that some firms will lack enough funds to conduct their businesses. It is at this point that FII comes into consideration as they play a keep role in enhancing the flow of equity capital. This action tends to give domestic firms a lifeline as they are able to get any resources that they may need.
Improved Corporate Governance
Corporate governance of any institution is very important as it helps in balancing the interest of a company’s stakeholders i.e. Suppliers, financiers, customers, shareholders and management. The corporate governance of domestic firms has increased immensely thanks to FII. Now firms can be able to meet all their goals since stakeholders are now working together as compared to the previous years.
Managing Uncertainty and Controlling Risk
Every industry has some challenges which the firms must deal with if they are to get maximum profits. However, managing all the risks is sometimes difficult especially when the firm lacks experts. Fortunately, FII has helped in controlling risks and managing uncertainties which would have otherwise occurred. Thanks to FII, domestic firms can now be able to handle risks even before they occur. This has a positive impact when it comes to the development of domestic firms.
Foreign Institutional Investment – Domestic firms are usually subjected to numerous challenges that make it hard for them to compete with firms from other countries. Fortunately, FII has eased the issues faced by these firms since they bring new techniques and solutions. It is now only a matter of time before domestic firms start flourishing just like overseas firms.