Domestic institutional investors, also known as DII, are those entities who make investments in the Indian stock market on behalf of businesses registered in India such as banks, insurance companies, mutual funds and large portfolio managers.
In simple terms, domestic institutional investors (DII) are those entities who are registered in the same nation as the investment.
A country’s economic conditions, company earnings, political development and market sentiments are factors that influence the decisions of Domestic Institutional Investors (DII).
Investors registered outside India, investing in the Indian stock market are referred to as Foreign Institutional Investors (FII).
Buy and sell decisions of these Domestic Institutional investors (DIIs) and FIIs can influence net capital flow to the stock market. FIIs and DIIs data are always tracked by analysts to understand market sentiment.
How Domestic Institutional investors (DIIs) get money?
Domestic Institutional investors (DIIs) and FIIs are known as market movers due to their large volume buying and selling in the market. If the net buying is higher, then the market most probably will move up. On the other hand, if net selling is higher, then the market will move down.
You can get FII and DII net buying and selling information from the NSE website. Many retail and institutional traders use this data to understand market sentiment of DIIs and FIIs.
We have different types of DIIs in India based on their type of registration and objective. Let us discuss two most important domestic institutional investors (DII) to understand how public money is invested in the stock market for higher return.
Mutual funds
Mutual funds pool money from their unit holders to invest in different types of assets such as stocks, bonds and ETFs based on the objective of their fund.
As per a report published by Association of mutual funds in India, assets under management (AUM) of the Indian mutual fund industry as on 30th November 2023 stood at Rs 49,04,992 crore. Within 10 years the mutual fund industry has gone up from Rs 8.9 trillion to Rs 49.05 trillion.
You can imagine the impact of mutual funds on the Indian stock market.
Insurance companies
Indian insurance companies are another form of domestic institutional investors who invest in the Indian stock market from the money that they receive from policyholders.
Out of all insurance companies, LIC has major shareholding in the Indian stock market. They have invested in almost all large and mid size listed companies.
Other than mutual funds and insurance companies, we have banks, financial institutions, hedge funds, liquid and pension funds who invest in the Indian stock market for a good return on their capital. These people are also known as domestic institutional investors. However, mutual funds and insurance companies are the major contributors to the stock market.
