Domestic Institutional Investors or DIIs are key players in the Indian stock market. These financial institutions, ranging from mutual funds to insurance companies and pension funds, have significant influence over the stock market. In this article, we explain who these institutional investors are and the different types of DIIs. We will also discuss the role of DIIs in the Indian stock market.
Who are Domestic Institutional Investors?
DIIs are large institutions based in India such as mutual funds, insurance companies, pension funds, and banks & other financial institutions. They pool money from different sources to invest in various securities. For example, an insurance company invests the premiums collected from its policyholders on different assets. Life Insurance Corporation (LIC) is an insurance company that is a DII.
Since these organisations invest people’s money, they have a fiduciary relationship with their investors. DIIs perform due diligence while making investment decisions. They don’t invest in stocks and other securities that are unsafe. Therefore, a DIIs investment in a company shows its conviction in that company’s future prospects.
Analysing the shareholding pattern of DIIs in companies is a part of fundamental analysis. If these institutional investors hold a significant stake in a company, it is a positive sign. Furthermore, the investment trend in these companies also says a lot about it. A decrease in the shareholding over months or years means they are selling their investment in the company. This either means that the company has limited upside potential or the risk has increased.
Types of Domestic Institutional Investors:
Below are a few of the different types of Domestic Institutional Investors:
Mutual Funds
A mutual fund takes money (investments) from different individuals and entities who have a common investment objective. This pooled sum of money is managed by a professional fund manager, who invests in securities and assets to generate returns for investors. Investors buy units in the mutual fund. A unit represents proportional ownership. Experienced professionals manage the funds and make investment decisions on behalf of the investors.
According to the risk appetite of the investment scheme, they broadly invest in equity (comparatively riskier), gold, and fixed-income securities (bonds, debts).
Let us look at the top mutual fund houses in India by Assets Under Management (AUM). AUM refers to the total market value of the investments made by a fund house:
| Fund House | AUM |
| SBI Mutual Fund | ₹7.1 lakh crore |
| ICICI Prudential Mutual Fund | ₹5.1 lakh crore |
| HDFC Mutual Fund | ₹4.37 lakh crore |
| Nippon India Mutual Fund | ₹2.87 lakh crore |
| Kotak Mahindra Mutual Fund | ₹2.84 lakh crore |
Insurance Companies
An insurance policy is an agreement between the insuree (customer) and the insurer (insurance company). According to this contract, the insured person has to pay regular premiums to the insurance company. There are multiple insurance options from life insurance to health, automobile, electronics, etc. In case of any claim by the insuree, the company will provide them with a lump sum amount within the policy limit. In order to hedge this risk, the insurance company pools in the premiums collected from clients and invest in various financial instruments.
Life Insurance Corporation of India (LIC) has a massive 50%+ market share in the life insurance segment. It is one of the largest DIIs in India.
| Insurer | AUM |
| LIC | ₹43.97 lakh crore |
| SBI Life | ₹3.07 lakh crore |
| ICICI Prudential Life | ₹2.6 lakh crore |
| HDFC Life | ₹2.5 lakh crore |
| Max Life | ₹1.06 lakh crore |
Pension Funds
Pension schemes are offered to citizens to create a hassle-free retirement life with a sufficient corpus. An individual pays a fixed amount during their working life and will receive a monthly pension post-retirement.
Since these schemes are market-linked products, a fund manager will pool money and invest in multiple financial assets.
National Pension Scheme (NPS), Public Provident Fund (PPF), and Employees Provident Fund Organisation (EPFO) are some of the pension funds.
Banks & Other Financial Institutions
Banks and Non-Banking Financial Institutions (NBFCs) also participate in investments for their long-term goals. They primarily invest in government securities and corporate bonds as they are low-risk, fixed-return investment vehicles.
Difference Between DIIs and FIIs
Foreign institutional investors (FIIs) are those investors or funds who make investments in assets located in nations other than their own. FIIs can include hedge funds, insurance companies, pension funds, investment banks, and mutual funds of foreign countries and can aid in the growth of our economy. FIIs are also known as Foreign Portfolio Investors or FPIs.
All FIIs in India must register with the Securities and Exchange Board of India (SEBI) to participate in the market. To learn more about FII’s, click here!
The differences between FIIs and DIIs are:
| FIIs | DIIs |
| FIIs are not residents of the country they invest in. | DIIs reside in the country in which they invest in. |
| FIIs can only invest up to 24% of the entire paid-in capital of the company. | DII ownership is not subject to such restrictions. |
| FIIs own around 21% of the companies that comprise the Nifty 500. | DIIs own approximately 14% of all shares in the Nifty 500 companies. |
| FIIs generally invest with a short to medium-term horizon in mind | DIIs generally make long-term investments |