Investors in the stock market are generally categorized into different categories based on their role in the market and the amount of their investment. Generally, there are two types of investors widely known, that are FII (Foreign Institutional Investors) and DII ( Domestic Institutional Investors).
These two types of investors work differently and impact the market’s functioning in their respective ways.
In this article, we will educate ourselves about the difference
What is FII and DII?
What is FII?
Foreign Institutions that invest in the Indian stock market are known as FII. The term FII mainly stands for Foreign Institutional Investors. Generally, mutual funds or the insurance industry of any country fall into this category. Their investment in the Indian economy is also one of the factors contributing to economic growth.
Since these institutions do not belong to our country, they need to register with the SEBI and follow their sets of rules and guidelines.
Examples of FII are Sequoia, Amansa Holding Private Limited, etc.
What is DII?
In contrast to FII who invests in a foreign country, DII’s are Domestic Institutional Investors who invest in their own country's stock market. In our case, it would be the Domestic institutions who invests in the Indian market.
There are many reasons concerning the political or economic conditions that eventually impact the DIIs’ investment decisions. DIIs’ are also responsible for the economic growth and market movements
Difference between the FII and DII
Let’s understand the difference between FII and DII
| Point of Differences | FII | DII |
| Meaning | Foreign Institutional Investors who invest in a foreign country | Domestic Institutional Investors who invest in their own country |
| Investment Restriction | FIIs can invest a maximum of 24% of the company's total paid-in capital | There is no investment restriction for DIIs’ |
| Weightage in NIFTY | FIIs hold approximately 21 percent of the companies which constitute the Nifty 500 | DII owns 14% of the total shares in NIFTY 500 businesses |
| Term of Investment | FII largely invests for a medium period | DIIs’ are in for the long-term game |
| Impact on Market Volatility | FIIs’ can be the reason for the higher market volatility | DIIs’ are responsible for making markets stable |
| Regulatory Mode | Regulated by their country’s authorities responsible for finances | SEBI |
Types of FII and DII
Below mentioned are the different types of Foreign Institutional Investors (FII) and Domestic Institutional Investors (DII) -
Type of FII
FPI (Foreign Portfolio Investors) -
FPI includes the foreign entities, the ones who invest in the Indian stock market, examples of these entities are like hedge funds, mutual funds and pension funds.
Sovereign Wealth Funds -
A sovereign wealth fund can be understood as an investment fund that is managed by the state and financed by the government, usually through the sale of surplus reserves. The country’s economy is usually benefitted from the establishment of these wealth funds.
Foreign Central Banks -
Central bank of a country has an authority, next to government for issuing the instruments which can be used as currency. This Central Bank also serves as a repository for the currency reserves of a country.
Foreign Government Agencies -
Foreign agencies are the authorities which are responsible for doing welfare services, by the law of that country
Type of DII
Insuarance Companies -
Insurance companies invest funds that they collect from insurance premiums. These funds are then invested into various financial instruments.
Mutual Funds -
Mutual Fund industry is responsible to invest the pool of funds into diversified assets, meanwhile also catering to the risk appetite of an investors.
Banks and Financial Institutions-
There are different types of facilities offered by banks, such as lockers or loans etc, and they earn some profit over these services. This profit earned are then further invested in the equity market.
Conclusion
It is important for investor to have an understanding about Foreign Institutional Investors (FII) and Domestic Institutional Investors (DII).
Both of them impact market in the different ways. FII movements are majorly influenced by conditions prevailing in world, while DIIs’ are largely influenced by the domestic conditions and scenarios.