FDI involves direct investment in physical assets or a significant degree of control or influence in the management of a company in a foreign country. It often focuses on specific sectors, such as manufacturing or infrastructure.

On the other hand, FII refers to investments made by foreign institutions, such as mutual funds, hedge funds, and pension funds, into the financial markets of a country. FIIs usually invest in a broader range of securities, and their investments can help increase capital availability across various sectors of the economy.