DII meaning: Types, How Do DIIs Work, and Differences

What is DII Meaning?

06 Jun 2024
By: BlinkX Research Team

Domestic institutional investors (DIIs) are institutions or groups of investors who invest in a country's financial assets on behalf of corporations or organizations such as banks, insurance companies, mutual funds, and others. Simply said, local investors will combine their funds only for trading in their country's assets and resources.

Understanding DII in Share Market

DIIs, or domestic institutional investors, invest in the financial securities and assets of their home country, influenced by economic and political developments. They can influence net capital inflows in the economy, particularly in the Indian financial markets. In March 2020, DIIs invested ₹55,595 crores in the Indian equities market, setting a new national record. Local investors significantly influence the success of the stock market in India, especially when foreign institutional investors are the net sellers. Between April and August 2021, DII inflows totalled USD 7.1 billion, while FII flows reached USD 2.4 billion.

Table of Content

Understanding DII in Share Market
Types of DIIs in India
How Do DIIs Work?
What is the Difference Between FII & DII

Types of DIIs in India

In India, there are four categories of domestic institutional investors. They are:

Indian mutual funds

Mutual funds invest their shareholders' pooled contributions in a variety of securities, depending on the mutual fund's purpose. There are many different types of funds available for purchase based on the investor's risk tolerance and demands. As of March 2020, Indian mutual funds have stock assets worth ₹11,722 crores. Mutual funds are a popular investment choice in India for beginners, intermediate, and experienced investors due to their flexibility and adaptability. Investors can select funds depending on their risk tolerance and wealth development objectives, so indirectly becoming local institutional investors by contributing to Indian mutual fund investments.
Indian Insurance Companies

Domestic institutional investors in India also include all India-based and Indian-owned insurance businesses. Insurance firms provide their clients with a variety of insurance alternatives, including life insurance, term insurance, health insurance, retirement plans, and more. Depending on the breadth of the company's offerings, one may typically obtain loans and other forms of financial instruments such as ULIPs from Indian insurance firms. Insurance businesses account for about ₹20,000 crores of DII stock holdings in the March quarter.
Local Pension Funds

The goal of these pension plans is to allow individuals to have a stress-free retirement by building a retirement fund through their pension plan. India's government-run pension systems, including the National Pension Scheme, Provident Public Fund, and Employees' Provident Fund Organisation, also contribute to the country's DIIs. In the March 2020 quarter, local pension plans were the largest domestic institutional investors, with ₹33,706 crores in stock.
Banking & Financial Institutions

India's banks and financial institutions are the ultimate contributors to domestic institutional investing. Although banks were not a major driver of India's stock market success in March 2020, their AUM (or 'assets under management') increased by 20% since the beginning of 2020. As a domestic institutional investor, this marks a record growth in AUM, although total institutional AUM has declined by around 16.5% since the start of 2020.

How Do DIIs Work?

Domestic investment institutions (DIIs) are market movers due to their research and investments. Despite India's restrictions on the number of equity equities and assets FIIs can buy from a company, DIIs are not subject to these restrictions. DIIs invest for the long term, unlike FIIs, who focus on short- to intermediate investment.

The NSE website provides information on FIIs and DIIs, allowing retail investors to follow their activities and monitor their investments. This information can help identify high-quality firms without extensive analysis or investigation. Novice investors can partially rely on information on FII and DII operations for their research, as it is a reliable indicator of a company's future performance. Retail investors can also bet on a business if DIIs and FIIs have made investments, as it is a reliable indicator of the stock's performance.

What is the Difference Between FII & DII

The differences between FII and DII are:

Aspect	Foreign Institutional Investors (FIIs)	Domestic Institutional Investors (DIIs)
Investor Location	Reside outside the country of investment.	Reside within the same nation as the investment.
Ownership Restrictions	Limited to 24% of the total paid-in capital of the company.	Not subject to specific ownership restrictions.
Ownership in Nifty 500 Companies	Own approximately 21% of the Nifty 500 companies.	Possess around 14% of the shares in Nifty 500 businesses.
Investment Horizon	Typically, focus on short to medium-term investments.	Primarily engaged in making long-term investment decisions.

Conclusion

Overall, understanding Domestic Institutional Investors (DIIs) is crucial for grasping the dynamics of the Indian stock market. DIIs, comprising entities like mutual funds, insurance companies, pension funds, and financial institutions, play a pivotal role in shaping market trends and liquidity. Their long-term investment strategies and significant capital inflows contribute to market stability and investor confidence. Retail investors can leverage information on DII activities to make informed decisions when using online trading app to navigate the ever-evolving investment landscape.

What is DII in Share Market FAQs

FII operations in India are managed by institutional investors from abroad, such as foreign asset management companies, hedge funds, and pension funds, approved by SEBI.

FIIs own around 21% of the firms that form the Nifty 500. DIIs, on the other hand, own around 14% of all shares in Nifty 500 companies.

FII stands for Foreign Institutional Investors, while DII stands for Domestic Institutional Investors.

DIIs in India include mutual funds, insurance companies, banks, financial institutions, and other entities investing primarily in domestic financial markets.

FIIs and DIIs operating in India must adhere to the regulatory framework established by the Securities and Exchange Board of India (SEBI) governing foreign and domestic investment activities.

FIIs and DIIs play significant roles in shaping Indian financial markets through their investment strategies, capital inflows, and market participation, influencing market liquidity and asset prices.

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