June 06 , 2012
Consider a Los Angeles pension fund. It may have some part of its portfolio allocated to emerging markets, and a part of that to India. With our regulator's permission, if it enters and invests in the Indian stock or debt market, it is said to be a Foreign Institutional Investor (FII). They also become market participants in the Indian stock markets, similar to domestic institutions and individuals.
Unlike Foreign Direct Investment (FDI), for an FII, the investment in India is merely a part of their portfolio. They have no interest or expertise in managing the companies whose shares they own.