Foreign Institutional Investor refers to an investor or an investment fund , which is registered in a foreign country as distinct from its country of operations. The institutional investors deal in hedge funds, mutual funds and pension funds. In India they come under some statutory regulations.
More on Foreign Institutional Investors
A Foreign Institutional Investor is essentially an investing agent who is not domiciled in its country of operation. Since this investing agent or agency belongs to a foreign country it is subjected to a host of regulatory compliances in its country of operation. The extent of regulations imposed depends on the economic policy followed in the country of operation.
The law of the land sets different investment guidelines for different countries.
The extent of regulation or the relative absence of it also depends on the extent of integration of the concerned country with the world economy.
Economic perspective of the Foreign Institutional Investor
While investment is necessary for sustaining the production of an economy , it is better if it can be garnered from internal resources. The problem arises because what is good in theory is, most of the time, difficult to apply in reality. Most developing countries suffer from a paucity of funds.
Herein comes the foreign institutional investor with hard currency funds to propel the economic growth. The problem arises on two counts. The foreign institutional investor can tie his investment with condition strings. He may also not be willing to reinvest a substantial portion of his profits in his country of operation.
Repatriation of profits earned back home to its country of origin by a foreign institutional investor can adversely affect the economy. The remuneration of capital is interest and if a large chunk of the interest income generated in a country is repatriated to a foreign land the GDP of the country suffers along with the prospects of economic growth. Capital base is not adequately built up.
The absence of proper regulatory compliance for foreign institutional investor may also affect the social security of the working population of a developing country. So while the foreign institutional investor is a boon for the capital starved nations they may well turn out to fair weather friends. A country, in its march towards growth, should also encompass the concepts of development to make the whole procedure viable.
Last Updated on : 5th July 2013