Difference Between FII and DII

Difference Between FII and DII

Consider any marketplace as a stock market. Retail investors buy in tiny quantities. Domestic Institutional Investors (DIIs) are local bulk purchasers, whereas Foreign Institutional Investors (FIIs) are individuals from other nations. Institutional investors, such as DII and FII, play an important role in the stock market. 

What is FII and DII?

The term 'FII' stands for 'Foreign Institutional Investor,' and it refers to an investment fund or investor who invests in a country's assets while being located elsewhere. In India, this is a prevalent word to refer to international firms that invest in the country's financial markets. The term 'DII' refers to 'Domestic Institutional Investors.' DIIs, unlike FIIs, invest in the financial assets and securities of the nation in which they now reside.

Political and economic developments influence the investing decisions of both FIIs and DIIs. Both influence the economy's net investment flows.

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Table of Content

  1. What is FII and DII?
  2. FII vs DII
  3. Types of FIIs and DIIs
  4. A Few Other Aspects to Know About FII and DII

FII vs DII

Here is the difference between Foreign institutional investors and Domestic institutional investors.

AspectForeign Institutional Investors (FIIs)Domestic Institutional Investors (DIIs)
Investor OriginForeign entities and individualsDomestic entities and individuals
Investment TypeShort to medium-term investments in financial assetsDiverse, including long-term and short-term investments in financial assets and businesses
Control and OwnershipTypically, they have little power or influence on businesses.May have board representation and influence in company decisions in some cases
Investment LimitFII can only be up to 24% of the total paid-up capitalThere are no limitations on the amount of DII
Investment HorizonShort to medium-term (days to months)Short to long-term (months to years)
Investment VolumeAround 21% of the Nifty 500 firms have FII interests.The DII investment is channelled to 14% of all the shares in NIFTY500
Regulatory OversightRegulated by the host country’s financial authoritiesRegulated by domestic financial regulators and market authorities.
PurposeSeek financial returns and portfolio diversificationInvest in wealth growth, retirement savings, and other long-term objectives.
Influence on ManagementGenerally, passive investorsMay actively participate in company governance and management decisions.
Sector FocusPrimary focus on financial markets and assetsInvest in a wide variety of areas, both financial and non-financial.
Impact on Market BehaviorCan influence short-term market volatilityTend to stabilize markets over the long term
TaxationWithholding tax may apply to capital gains.The tax consequences differ depending on the type of investment and the local legislation.

Types of FIIs and DIIs

Here are some of the types of Foreign Institutional Investors (FIIs) & Domestic Institutional Investors (DIIs):

Types of Foreign Institutional Investors (FIIs):

  • Foreign pension funds: These are pension funds from other nations that invest in Indian financial markets. They frequently have a lengthy investing horizon and expect consistent returns to satisfy pension commitments.
  • Foreign mutual funds: These invest in Indian stocks on behalf of their investors. They may concentrate on particular asset classes or sectors in the Indian market.
  • Sovereign Wealth Funds (SWFs): Foreign governments own investment funds known as sovereign wealth funds. SWFs spend a portion of their assets in Indian stocks and other investments to diversify their portfolios.
  • Hedge Funds: Some overseas hedge funds are actively trading Indian equities, bonds, and derivatives. They tend to have a shorter investment horizon and use more aggressive investing tactics.
  • Insurance Companies: International insurance businesses may invest in Indian insurance firms and related financial instruments to acquire exposure to the country's burgeoning insurance industry.


Types of Domestic Institutional Investors (DIIs): 

  • Mutual Funds: Domestic mutual funds combine funds from ordinary and institutional investors to invest in stocks, bonds, and other assets. They are among the major groups of DIIs in India.
  • Insurance businesses: Indian insurance businesses invest policyholder premiums in a variety of asset classes, including stocks and fixed-income instruments, to produce returns for policyholders.
  • Banks: India's banks invest in government securities, corporate bonds, and equities. They also own a considerable amount of public sector bonds.
  • Non-Banking Financial Companies (NBFCs): NBFCs engage in a variety of financial products, such as loans, debentures, and stocks, to produce profits for their stakeholders.
  • Pension Funds: Pension funds in India manage retirement savings and invest in a diverse portfolio that frequently includes stocks and bonds.
  • ETFs (Exchange-Traded Funds): ETFs are investment vehicles that trade on stock exchanges. They frequently follow certain market indexes and are a popular option for DIIs seeking passive investment.

A Few Other Aspects to Know About FII and DII

Here are the few other aspects to know about FII and DII:

FII (Foreign Institutional Investors)

  • FII (Foreign Institutional Investors) refers to investors or entities from countries outside India.
  • It consists of hedge funds, insurance firms, pension funds, investment banks, and mutual funds.
  • FIIs must register with SEBI (Securities and Exchange Board of India) before operating in India.

DII (Domestic Institutional Investors)

  • DIIs are institutions or groups that originate and operate in India.
  • Made up mostly of Indian mutual funds, insurance firms, banks, and pension funds.
  • They are also subject to SEBI's jurisdiction and must adhere to norms designed specifically for domestic firms.

Conclusion

Knowing the distinction between FIIs and DIIs is critical for everyone interested in the Indian stock market. While both types of institutional investors contribute to market liquidity, their origins, investment techniques, and influence on market dynamics differ greatly. Furthermore, the sorts of FIIs and DIIs authorised in India add to the investment landscape's diversity, catering to a wide range of investor demands and preferences. When making investment decisions, investors should always choose a reliable online trading app to examine the roles and behaviours of FIIs and DIIs, since these institutional actors have diverse influences on market trends and asset prices.

Difference Between FII And DII FAQs

For any particular period, the FII and DII 'ownership ratio' is equal to the total FII equity holdings divided by the total DII holdings.

Yes, FIIs (Foreign Institutional Investors) and DIIs (Domestic Institutional Investors) influence market behaviour differently. FIIs often bring in foreign capital, impacting market sentiment, while DIIs largely represent domestic investors' sentiments and investment patterns.

FIIs often have shorter investment horizons and may pursue more speculative or short-term trading tactics. DIIs tend to prioritise long-term wealth growth and portfolio diversity.

FIIs must adhere to regulatory requirements in both their home nation and the host country where they invest. DIIs are largely controlled by the domestic financial authorities in their native countries.

In technical terms, FDI is an investment in the country's main markets, whereas FII is an investment in the country's secondary markets. As a result, in terms of economic success, FDI outperforms FII.