Which of the following is NOT an example of direct investment in the capital account?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Offshore funds
In the capital account, investments are of two kinds: direct investment and portfolio investment.
Option (1) Foreign direct investment — True. FDI is the main example of direct investment.
Option (2) Equity capital — True. Equity capital put into a firm gives the investor a direct stake in it.
Option (3) Reinvested earnings — True. Profits put back into the firm count as direct investment.
Option (4) Offshore funds — False. Offshore funds sit with FII under portfolio investment.
NCERT (2026-27): “6.1.2 Capital Account … Fig. 6.2 classifies the items which are a part of capital account transactions. These items are Foreign Direct Investments (FDIs), Foreign Institutional Investments (FIIs), external borrowings and assistance.”
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