What is FII and DII?

Who are FIIs?

Foreign Institutional Investors are investors who are investing in India but are not a part of India. These investors are referred to as FIIs. They can be mutual funds or insurance businesses from any country. It has the potential to contribute to the expansion of our economy.

Foreign institutional investors must register with SEBI and abide by its requirements because they are not Indian companies. FIIs are sometimes referred to as FPIs (Foreign Portfolio Investors). Foreign direct investments (FIIs) have the potential to make or lose a significant amount of money due to changes in currency values.

Examples - J.P. Morgan, Euro pacific growth fund, Morgan Stanley.

Limits on Foreign Institutional Investors or FIIs in Indian Stock

1. FIIs can invest up to 10 percent of their total capital into a single company's equity.
2. The maximum amount foreign institutional investors (FIIs) are allowed to invest in public sector banks is 20% of the bank's paid-up capital.
3. Foreign institutional investors (FIIs) can only invest up to 24% of an Indian company's paid-in capital.
4. The maximum threshold can be lifted to 30% if the individual corporations receive permission from their shareholders.
 

Who are DIIs?

Domestic Institutional Investors are Indian investors who want to profit by putting their money in the Indian stock market. DIIs can put capital in insurance companies, mutual funds, liquid funds, and other investments. Both political and economic dynamics influence these investment decisions of DIIs. Domestic institutional investors (DII) have the same potential to affect the economy's net investment flows as Foreign Institutional Investors (FIIs) do. 

In India, domestic institutional investors play a big part in how the stock market performs, notably when foreign institutional investors are the net sellers in the country. The amount of money invested in the Indian stock market by domestic institutional investors (DIIs) has surpassed the benchmark of Rs. 2 trillion rupees so far in 2022.

For example - In India, the Life Insurance Corporation is the most prominent domestic institutional investor (DII).

Some more list of DII in India -

1. ICICI Prudential

2. Nippon AMC

3. HDFC Life

However, what are the significant distinctions between FIIs vs. DIIs, why FII and DII are opposite, and why is the existence of these two types of investors beneficial to India?

FII vs. DII

What Types of FII vs. DIIs are allowed in India?

The following are the different types of foreign institutional investors (FIIs) and domestic institutional investors (DIIs) list of in India:

Domestic institutional investors (DIIs) -

●  Indian Insurance Companies - In India, the significance of insurance firms has significantly increased during the past few decades. They offer financial safety in case of a fatal illness or accidental death. For example - Bajaj Allianz Life Insurance and Max Life Insurance. 

●  Indian banks and other Indian financial entities - Loans, lockers, and various kinds of insurance are among the items they offer. The profits generated from these assets are then placed in the equity markets. Examples include HDFC Bank, SBI, and Kotak Mahindra Bank.

●  Indian Mutual Funds Companies - One of the most common financial vehicles used for investing is the mutual fund, which is widespread in India. They then invest the combined capital in desirable assets, considering the individual investors' comfort levels with risk. Examples include ICICI Prudential Mutual Fund, Tata Mutual Fund, etc.

For Foreign Institutional Investors (FIIs) -

●  Foreign Government Agencies - Foreign Agency means the foreign entity, organization, or agent allowed by the foreign country's laws to provide welfare services. For example - United States Agency for International Development

●  Foreign Central Banks - A foreign central bank is a bank that, by law or government permission, is the leading authority other than the government that issues instruments meant to be used as currency. A central bank is a financial organization that acts as the depository for the nation's currency reserves. For example - the European Central Bank, Bank of Japan, Bank of England

●  Sovereign Wealth funds - Simply put, a sovereign wealth fund is an investment fund controlled by the state and funded by the government, typically through the sale of surplus reserves. The economy of a nation and its residents both stand to benefit from the establishment of SWFs. An SWF may obtain its capital from a vast number of different sources. For Example - Korea Investment Corporation(KIC) and Taiwan National Stabilization Fund (TNSF).

●  International Multilateral Companies - Multilateral organizations are formed when three or more countries band together to work on topics that are important to each of them. They ensure that everyone has a say in the management of global affairs while also ensuring that any relief efforts that are carried out are legitimate. For example - Global Environment Facility (GEF), European Bank for Reconstruction and Development (EBRD)

Types of Foreign Institutional Investors (FIIs)

• Foreign Pension Funds: These are retirement funds from other countries that invest in India’s financial markets. Their focus is usually on long-term growth and stable returns to meet future pension payouts.
• Foreign Insurance Firms: Global insurance companies invest in Indian financial markets, including shares of Indian insurance firms and related instruments, seeking exposure to the expanding insurance sector.
• Sovereign Wealth Funds (SWFs): SWFs are investment vehicles owned by foreign governments. They allocate part of their funds to India to diversify their global holdings and tap into emerging market growth.
• Foreign Mutual Funds: Mutual funds based outside India invest in Indian equities, debt, or sector-specific opportunities. They manage investments on behalf of their global investors.
• Hedge Funds: These are actively managed funds that often take high-risk positions in Indian stocks, bonds, and derivatives. They usually aim for quick returns through short-term strategies.
   

Types of Domestic Institutional Investors (DIIs)

• Mutual Funds: Indian mutual funds collect money from investors and invest across stocks, bonds, and other securities. They play a key role in market stability and investor participation.
• Insurance Companies: These companies invest the premiums they collect in different asset classes, including equities and fixed-income securities, to generate long-term returns for policyholders.
• Banks: Banks in India invest in instruments like government securities, public sector bonds, and equities as part of their asset management and liquidity planning.
• Non-Banking Financial Companies (NBFCs): NBFCs invest in loans, corporate bonds, and sometimes equity markets. Their investments support lending and other financial services.
• Pension Funds: Indian pension funds manage retirement savings and typically invest in a mix of government bonds, equities, and other long-term assets to ensure steady returns.
• Exchange-Traded Funds (ETFs): ETFs are passively managed funds traded on stock exchanges. Indian ETFs often track benchmark indices and are increasingly used by DIIs for broad market exposure.
   

Conclusion

Institutional investors like FIIs and DIIs differ based on their country and where they invest. Both are essential market participants who significantly impact the market through their actions. If you keep track of how FII and DII affect the stock market, you might be able to predict future market trends. Before making investment decisions based on these numbers, you need to figure out the reason for their actions.