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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
Direct investment refers to the process of investing capital directly into a business or enterprise with the aim of establishing significant influence or control. In global finance, this is often known as Foreign Direct Investment (FDI), where you, as an investor from one country, invest in a business located in another country. Understanding what is direct investment can help you explore new opportunities, expand your operations, and build long-term partnerships across borders.
If you're trying to understand what is direct investment, think of it as putting your money directly into a business with the intention to be actively involved in how it functions. You're not just an investor watching from the sidelines, you get to influence decisions and shape the company’s direction.
The term direct investment meaning often refers to a business or individual putting capital into a company located in another country, either by starting a new venture, acquiring part of an existing company, or taking over some of its assets. The goal is to obtain a significant share that allows you to influence business decisions, even without owning the entire company.
Unlike portfolio investment, where you simply buy shares or bonds and have no say in how the business is run, direct investment is more hands-on. It's about building long-term relationships, transferring knowledge or technology, and actively contributing to the growth of the business.
So, when you explore what is direct investment, you’re really exploring a way to engage deeply in a business, often across borders, to grow your influence, profits, and reach.
Direct Investment (DI), or Foreign Direct Investment, refers to a corporation’s investment in another company located in a foreign country. The investing market is a vast expanse. Individual individuals and giant corporations can invest in domestic and international businesses. Foreign Direct Investment, or FDI, refers to when one firm invests in another company’s business in a foreign country.
Ten distinct types of direct investment exist. They are as follows.
Horizontal DI is the most prevalent kind of FDI, which typically involves investing funds in a foreign firm operating in the same industry as the FDI investor’s company. In this case, one corporation invests in another company situated in a different nation that produces identical items.
For example, if a clothing brand is based in Italy and decides to invest in a fashion retail company in India that also sells casual and formal wear, it’s a horizontal investment because both businesses operate within the same industry.
Another sort of investment is vertical direct investment. Vertical foreign direct investment happens when an investment is made inside a typical supply chain in a firm that may or may not be in the same sector. Backward vertical integrations and forward vertical integrations are subcategories of vertical FDI.
Forward vertical integration occurs when a firm invests in a foreign company ranked higher in the supply chain, such as a coffee company in India investing in a French supermarket brand.
When investments are made in two firms from wholly different industries, the transaction is known as a conglomerate foreign direct investment. Therefore, FDI is not directly related to the investor’s company.
For example, if you run a healthcare company and decide to invest in a foreign entertainment streaming service, it’s a conglomerate investment. This helps diversify your business interests without creating operational synergies.
Platform FDI is another category of direct investment. In platform FDI, a company extends into a foreign nation, but the manufactured goods are exported to a third nation.
For example, an Indian textile manufacturer might set up a production facility in Bangladesh to take advantage of lower labor costs and then export the finished garments to Europe and North America.
FDI is when you invest in a business located in another country with the intent of gaining lasting interest and control.
A common example is an Indian automobile company setting up a manufacturing unit in Brazil to serve the Latin American market.
You invest by buying a portion of the company, which gives you both a role in decision-making and a share in the earnings it generates.
For instance, investing in a foreign tech startup by purchasing 25% of its equity would give you partial control and returns based on its performance.
This type of direct investment involves buying property in a foreign or domestic market. It may be commercial, residential, or industrial.
For example, if you purchase office spaces in Dubai to lease them to tech firms, you’re making a real estate direct investment.
You can choose to start your own business in a foreign country. This might mean launching a chain of restaurants or retail stores. It gives you full ownership and control, along with the risk and reward that comes with starting from scratch.
Here, you invest in large-scale public systems like transportation, energy, or communication networks in a foreign country.
For example, an Indian company partnering in the construction of highways in Africa is engaging in infrastructure direct investment.
These involve investing directly in startups or growing businesses with high potential, often in exchange for equity.
For instance, an Indian VC firm funding a fintech startup in Singapore is a classic example of this type of direct investment.
Getting started with direct investment doesn’t have to be complicated. Here are five simple steps to guide you:
1. Understand the Basics First, know what is direct investment and the direct investment meaning, it’s when you invest directly in a business or asset to gain control, unlike passive investments like mutual funds.
2. Set Your Investment Goals Define what you want - long-term growth, steady returns, or market entry. You can use an investment calculator to estimate potential returns based on your goals and risk tolerance.
3. Research Markets and Industries Pick a location, domestic or international, and study industries that match your goals. Understand local laws, trends, and economic conditions.
4. Assess and Plan Your Investment Evaluate opportunities, review financials, and prepare your funding. Seek guidance from financial and legal professionals to ensure you’re making well-informed investment choices.
5. Invest and Stay Involved Once ready, make the investment and stay engaged. Monitor performance and adapt as needed to maximize your returns.
Now that you know what is direct investment, you can see how it's different from other types of investing. Instead of just buying shares and waiting, you’re actually putting your money into a business to be more involved. It could mean starting something new, buying into an existing company, or even owning property.
Direct investment is often seen as a long-term investment because it takes time to grow and show results. But if you're patient and do your research well, it can open up good opportunities for you, either in your own country or abroad.
1
Direct investment involves acquiring ownership or control of a business or asset, such as setting up a new company, purchasing real estate, or taking a major stake in an existing firm. In contrast, indirect investment refers to buying financial instruments like stocks or mutual funds, where you don’t have direct control over the business operations.
2
The key types of direct investment include:
Each serves different investment plans, depending on your goals, capital, and risk appetite.
3
Direct investment offers several advantages like long-term profit potential, ownership control, and strategic market entry. It can also help diversify your portfolio and create new revenue streams beyond traditional asset classes.
4
While potentially rewarding, direct investment carries risks such as market volatility, legal complications, regulatory changes, and capital loss. Conducting thorough due diligence and seeking expert guidance can help reduce these risks.
5
FDI occurs when a person or business from one country makes a substantial investment in a company or asset in another country, often to establish operations or gain significant influence. It can include opening a subsidiary, acquiring a firm, or partnering in a joint venture in order to help investors expand globally and tap into new markets.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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