Banking · Macro Economics and Financial Systems
Which statement correctly describes the nature of Foreign Direct Investment (FDI), Foreign Institutional Investment (FII/FPI), and the eligibility criteria for a Non-Resident Indian (NRI) to open a National Pension System (NPS) Tier I account?
- 1FDI is primarily debt-based, whereas FII is purely equity-based. An NRI can join NPS, but the account is automatically closed if the investor loses their NRI status and becomes a Resident Indian.
- 2FDI flows are characterized by a low exit barrier and short-term commitment. FII investment is classified as direct investment if it exceeds 25% of the company's paid-up capital. An NRI can open an NPS Tier I account only through a joint holder who is a resident Indian.
- 3FDI represents a long-term interest with significant management control, whereas FII (or FPI) is generally more sensitive to short-term market fluctuations and is thus considered volatile. An NRI is eligible to open and operate an NPS Tier I account, provided they are between 18 and 70 years of age and satisfy KYC norms.✓
- 4FDI involves an investment of less than 10% equity in a listed company; FII represents long-term strategic interest. An NRI is not eligible for the NPS Tier I account as per PFRDA regulations.
Correct answer
FDI represents a long-term interest with significant management control, whereas FII (or FPI) is generally more sensitive to short-term market fluctuations and is thus considered volatile. An NRI is eligible to open and operate an NPS Tier I account, provided they are between 18 and 70 years of age and satisfy KYC norms.
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