In the stock market, traders and investors together make the market a broad market, but among these traders and investors there are different types of investors, which include Fii-(Foreign Institutional Investors) Dii-(Domestic Institutional Investors), Retail Investors, High Net worth people, investors who invest in equities are called retail investors, and those who actually move the market are called institutional investors.
Who is Institutional Investor?
Institutional investors are those who pool funds from a large number of individuals or organizations to purchase a wide range of financial assets. Because institutional investors often buy and sell blocks of stocks, bonds or other securities, and are called sharks of the stock market, institutional investors can be classified as Fii or Dii.
What is FII and DII? (Fii and Dii Meaning)
Let us know one by one about Fii or Dii, who are they and what is their works?
FII
FII – Foreign Institutional Investors These are those investors who invest in India but are not citizens of this country. Hence these are known as FIIs investors, Now these can be mutual funds or insurance companies from any country, They invest in large amounts and also have the potential to contribute to the growth of our economy.
These are not Indian companies, so first of all foreign institutional investors have to register with SEBI. Besides, its rules will also have to be followed. FII is also known as FPI (Foreign Portfolio Investor). Now since this is a stock market,
there is a possibility of foreign investors i.e. FIIs making huge profits or losses due to changes in currency prices.
DII
DII – Domestic Institutional Investors are those who are residents of the same country in which they wish to earn money by investing in the stock market of that country. DIIs may also invest in insurance companies and mutual funds,
liquid funds, and other financial instruments, and often find that both political and economic dynamics influence DII investment decisions. As a result, domestic institutional investors have the same potential as FIIs to influence net investment flows into the economy.
To govern the Indian stock market, domestic institutional investors play a vital role and especially when foreign institutional investors are net sellers in the country.
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Types of FIIs and DIIs
Following are the types of FIIs and DIIs in detail –
First we will learn in detail about the types of Fiis –
FIIs
Some of the types of FIIs are as follows –
- Sovereign Wealth Funds – Sovereign wealth fund is a kind of investment fund administered by a state government and funded by the government, usually through the sale of surplus reserves. The development of SWF not only benefits the country’s economy but also benefits its inhabitants.
- Foreign Government Agencies – A foreign agency is a foreign entity or organization or agent authorized by the law of another country to perform welfare services.
- International Multilateral Organisation – Multilateral organizations are formed when three or more countries come together to work on issues that are relevant to each of them. They ensure that everyone has a stake in managing global issues, as well as Also, any attempt to stay should be legal.
- Foreign Central Banks – A foreign central bank is a bank that is a primary authority other than a government that issues instruments used as money under legal or governmental approval. A central bank is a financial institution that acts as a repository of a country’s currency.
DIIs
Some of the types of DIIs are as follows –
- Indian Insurance Companies – The importance of insurance companies in India has grown tremendously over the last few decades. Because insurance companies provide financial security in case of critical illness or sudden death.
- Indian Mutual Funds Corporation – Mutual funds are widely used in India, as they are one of the most common financial vehicles used for investment. Because mutual funds invest the pooled funds in desirable assets, keeping in mind the risk tolerance of the investor.
- Indian Banks and Other Financial Institutions – Banks and other financial institutions provide various services such as insurance and many other types of insurance. Profits from these assets are then reinvested in the equity market.
FII Vs DII
Following are the differences between Fii and Dii –
| Main Point | FII | DII |
|---|---|---|
| Location or headquarters | The main difference between FIIs and DIIs is the location of investment. Because foreign institutional investors do not live in the country of investment | Domestic Institutional Investors (DIIs) are people who reside in the country of investment. |
| Limits on Total Amount of Investment | FIIs can invest only 24% of the total paid up capital of the company. | While DII ownership is not subject to such restrictions. |
| Stock market holdings | FIIs own about 21% of the companies included in the Nifty 500. | On the other hand, DII has about 14% share of all shares in Nifty 500 businesses. |
| Investing Style | Foreign institutional investors invest with a short to medium term in mind. | On the other hand, domestic institutional investors make long-term investments. |
Factors Influencing FII and DII Investments
Understanding the factors that influence FII and DII investments is crucial for predicting market trends and making informed investment decisions. Let’s explore three significant factors that affect these institutional investors.
Economic Indicators
Economic indicators such as GDP growth rate, inflation rate, interest rates, and fiscal policies have a direct impact on FII and DII investments. Positive economic indicators attract foreign investors and encourage domestic institutions to increase their exposure to the market.
“The performance of the Indian stock market has a strong correlation with the macroeconomic indicators of the country.” – Financial Analyst
Market Sentiments
Market sentiments play a vital role in driving FII and DII investments. Positive sentiments can lead to increased buying activities from both foreign and domestic institutions. Conversely, negative sentiments can deter investment and trigger sell-offs.
“The behavior of institutional investors is often influenced by market sentiments, which are driven by factors like global trends, political stability, and major economic events.” – Market Analyst
Regulatory Framework
The regulatory framework and policies set by the government impact the ease of investment and the attractiveness of the market for FIIs and DIIs. Investor-friendly policies and simplified regulations tend to attract more institutional investments, while complex and restrictive policies can deter them.
“Ensuring a robust regulatory framework that promotes transparency, safeguards investor interests, and provides a level playing field can boost institutional investments and bolster market confidence.” – Regulatory Expert
What is Fii Dii FAQ
The primary distinction between FIIs and DIIs is the investor’s location. Foreign institutional investors (FIIs) do not reside in the same country as the investment. Domestic Institutional Investors (DIIs) are people who live in the same nation as the investment.
Overseas institutions, for instance, Morgan Stanley, Vanguard, etc., investing in the Indian stock market are examples of FIIs. Indian institutions, for instance, LIC, ICICI Prudential, etc. investing in Indian companies are examples of DII for the Indian market.
The FII and DII data can be read using the Buy and Sell value, but it is best to focus on its net value. This will help you decide on the best decision regarding any stock. If the net value of FII or DII is positive, they have a net purchase; if it is negative, they have a net sale.
For any given time period, the FII and DII ‘ownership ratio’ is equal to the entire FII equity holdings divided by the total DII holdings.
The full form of FII is foreign institutional investors, and DII is domestic institutional investors.
Conclusion
Institutional investors are those who pool funds from individuals or organizations to purchase financial assets, and they can be classified as FII (Foreign Institutional Investors) or DII (Domestic Institutional Investors). FIIs are foreign investors who invest in India, while DIIs are residents of the country who invest in the stock market.
Factors such as economic indicators, market sentiments, and regulatory framework influence their investment decisions. The main difference between FIIs and DIIs is the location of investment, and they have different investing styles and ownership limits.