Foreign portfolio investment

A portfolio investment is a grouping of assets such as stocks, bonds, and cash equivalents. Portfolio investments are held directly by an investor or managed by financial professionals. In economics, foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country’s stock and bond markets, sometimes for speculation.[1][2]

Portfolio investments typically involve transactions in securities that are highly liquid, i.e. they can be bought and sold very quickly. A portfolio investment is an investment made by an investor who is not involved in the management of a company. This is in contrast to direct investment, which allows an investor to exercise a certain degree of managerial control over a company. Equity investments where the owner holds less than 10% of a company's shares are classified as portfolio investment.[3] These transactions are also referred to as "portfolio flows" and are recorded in the financial account of a country's balance of payments. According to the Institute of International Finance, portfolio flows arise through the transfer of ownership of securities from one country to another.[4]

Foreign portfolio investment is positively influenced by high rates of return and reduction of risk through geographic diversification. The return on foreign portfolio investment is normally in the form of interest payments or non-voting dividends.

References

  1. ↑ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 551. ISBN 0-13-063085-3.
  2. ↑ Appleyard, Dennis; Alfred J. Field, Jr (2014). International Economics, Indian Edition, 8e, p. 234.
  3. ↑ "Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6)" (PDF). IMF. Retrieved 10 July 2014.
  4. ↑ "Portfolio Flows Tracker FAQ". IIF. Retrieved 10 July 2014.


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