Portfolio investment: Difference between revisions

Portfolio investments are [[passive investment]]s, as they do not entail active [[Corporate management|management]] or control of the issuing company. The foreign investors have a relatively short-term interest in the ownership of these passive investments such as bonds and stocks. Rather, the purpose of the investment is solely financial gain, in contrast to [[foreign direct investment]] (FDI), which allows an investor to exercise a certain degree of managerial control over a company. For international transactions, equity investments where the owner holds less than 10% of a company's [[Share (finance)|shares]] are classified as portfolio investments.<ref>{{cite web|url=http://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf|title=Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6)|publisher=IMF|access-date=10 July 2014}}</ref> These transactions are also referred to as "portfolio flows" and are recorded in the [[Capital account|financial account]] of a country's [[balance of payments]].<ref>{{Cite book|title=International Business: The New Realities|author1=S. Tamer Cavusgil |author2=Gary Knight |author3=John Riesenberger |date=2012 |publisher=Prentice Hall|isbn=9780136090984 |edition=2nd }}</ref>

They are categorized in two major parts: foreign institutional investment and investments by non-residents. According to the [[Institute of International Finances]], portfolio flows arise through the transfer of ownership of securities from one country to another.<ref>{{cite web|url=http://www.iif.com/emr/resources+3574.php|title=Portfolio Flows Tracker FAQ|publisher=IIF|access-date=10 July 2014}}</ref>