Direct investment and portfolio investment are two distinct ways of investing internationally, each with different goals, structures, and levels of involvement.

Direct investment involves acquiring a lasting interest and significant control in a foreign business, often by owning at least 10% of its voting stock or establishing new operations. It is long-term in nature and typically includes active management, technology transfer, and decision-making influence. Examples include building a factory abroad (greenfield investment) or acquiring a foreign company (mergers and acquisitions).

Portfolio investment, on the other hand, refers to purchasing financial assets like stocks, bonds, or mutual funds in a foreign market without seeking control over the business. These investments are usually short to medium term, aimed at generating returns through dividends, interest, or capital gains. Investors do not participate in management decisions and rely on market performance for returns.

The main difference lies in involvement and purpose: direct investment seeks strategic influence and long-term business growth, while portfolio investment focuses on financial returns without operational control. As a result, direct investment often carries higher initial costs and risks but can lead to greater long-term benefits, whereas portfolio investment offers liquidity and easier entry and exit.