DII - What are Domestic Institutional Investors in Stock Market? | Espresso

What are Domestic Institutional Investors (DII)?

Most people invest in the stock market individually. They are retail investors. But, some investment institutions invest in the stock market via their firm. When institutions invest in the financial assets of a country, they are known as institutional investors. These institutions include insurance companies, mutual fund houses, and banks. These investors are divided into FII and DII.



What is a Domestic Institutional Investor?

Domestic institutional investors refer to different organisations. These include mutual fund houses, provident funds, banks, pension funds, and insurance firms. This particular class of investors uses pooled money to trade in different financial assets of the country.

Generally, DIIs invest in a different category of financial securities and assets. Their investment decisions depend on the political and economic trends in the country. Domestic institutional investors have become a vital source of funds for the companies. They are similar to foreign institutional investors. Moreover, they play a significant role in the net investment flows of the economy.

Institutional investors make it easier for Indian businesses to access capital. The capital inflow from these investors helps in financial innovation. It also helps in the development of hedging instruments.

In India, the role of domestic investors is quite decisive in the stock market’s performance. This is more so since foreign institutional investors are the country’s net sellers. The DII flows between April 2021 and August 2021 were USD 7.1 billion, whereas FII flows were USD 2.4 billion.

Types of DIIs in India

There are four types of domestic institutional investors in India. Let’s explore each of them briefly.

  • Indian Mutual Funds

Mutual funds invest the pooled money of shareholders in various securities and assets. These investments depend on the goal of the mutual fund. There are several types of funds that investors can buy based on the investor’s risk tolerance and needs.

In India, beginners can start their investment journey with mutual funds. It is because they are flexible and versatile. DIIs can select their funds based on their wealth creation goals and risk tolerance.

  • Indian Insurance Firms

Indian insurance companies are another type of domestic institutional investor. They significantly contribute to the overall DII equity holdings. These companies provide their clients with a range of investment products, such as term insurance, life insurance, health insurance, and more. Moreover, some insurance companies offer loans and other financial instruments like ULIPs.

  • Local Pension Funds

Another contributor to the country’s DII inflow is pension schemes. These are run by the Government of India. These pension schemes create a retirement corpus for individuals through the pension plan and help in leading a hassle-free life after retirement. The schemes include Employees’ Provident Fund Organization, National Pension Scheme, and Provident Public Fund.

  • Banking and Financial Institutions

The last contributor to the country’s DII equity holdings is the banks and financial institutions.

How Do DIIs Work?

Domestic institutional investors have qualified research staff certified by SEBI. However, retail investors and economists give higher priority to FII investments and operations because of their superior research.

DIIs and FIIs are also known as market movers since their buying and selling volumes alter the market direction. While India has laid down restrictions on the volume of equity stocks and the overall value of assets FIIs can purchase within a firm, DIIs have no such limitations. Unlike FIIs, who have a short to medium-term investment goal, DIIs invest for the long term.

FII and DII Data

Data on domestic investments and foreign investments made by institutional investors is available on the NSE website. A retail investor can study this data to track the activities of institutional investors. For example, one can learn where they have invested, which securities have they bought or sold, and more.

A retail investor can benefit significantly from this data. He can follow the actions of these institutional investors. The retail investor does not need to spend time on analysis or research to find an excellent grade company. 

Most retail investors know that it is tough to get all relevant information about a stock. So, they can choose to rely on the data for FII and DII activities for their research to a certain extent.

Investments by DIIs and FIIs in a firm give a strong sign of the stock’s performance in the future, and retail investors can bet on that company.

Summing Up

Domestic institutional investors (DII) are vital for economic and retail investors. Newbies without any investing experience can benefit in particular. But, remember to research on your own before buying a stock. The data for these institutional investors keep changing. DIIs improve capital markets and corporate governance.

Share Market Knowledge Centre

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Frequently Asked Questions

DII stands for Domestic Institutional Investors. These institutional investors invest in the financial securities of their home country. They include mutual funds, banks, pension funds, and others.

Domestic institutional investors make investment decisions based on domestic economic and political trends. Foreign and domestic institutional investors affect the net investment flows into the economy.

Institutional investment refers to the investment made by institutions such as mutual fund houses, insurance companies, banks, etc. Generally, DIIs pool money from small investors to trade in different securities and assets. These financial instruments are of the country they are based in.

Some examples of domestic institutional investors include banking and financial institutions, mutual funds like Axis Midcap Fund, Nippon AMC, domestic pension funds, and insurance companies like Aviva Life Insurance and HDFC Life.

In India, there are four types of domestic institutional investors. These include Indian mutual funds, Indian insurance companies, local pension plans, and banks or financial institutions.

Yes. FII stands for foreign institutional investors. They refer to an investment fund or investor residing outside of the nation. They invest in the nation’s assets. DII refers to an investment fund that invests in the assets of the country they are based in presently.