The investment that is carried out by organizations or institutions like banks, insurance companies, mutual fund houses, and more in the real or financial assets of a country is known as institutional investors. In simple words, domestic investors will use funds that they pool together so they can trade in the securities and assets of their country.

What is DII in stock market?

DII stands for ‘domestic institutional investors.’ DIIs are a particular class of investors that undertake to invest in financial assets and securities of the country they are currently residing in. These investment decisions of DIIs are impacted by both political and economic trends. Similar to foreign institutional investors (FIIs), domestic institutional investors (DIIs) can also impact the economy’s net investment flows. 

In India, domestic institutional investors have quite a decisive role when it comes to the performance of the Indian stock market, especially when foreign institutional investors are the county’s net sellers. As of March 2020, DIIs invested a cumulative ₹55,595 crores in the Indian equity market. This was a record investment for the country within a single month.

Types of DIIs in India

In India, there are a total of four sets of domestic institutional investors. These are: 

1. Indian Mutual Funds

Mutual funds invest the pooled investments of shareholders in a range of securities which vary with the goal of the mutual fund. There are a broad range of fund types that are available for purchase which depends on both the risk tolerance and needs of the investor. As of the March quarter in 2020, Indian mutual funds held a total of ₹11,722 crores in equity holdings. In India, mutual funds are a popular investment option for beginners, intermediate and expert investors due to their flexibility and versatility. Investors can pick and choose their funds based on their risk tolerance and wealth creation goals, and accordingly indirectly become domestic institutional investors by contributing to Indian mutual funds investments.

2. Indian Insurance Companies

Another type of domestic institutional investor in India is all India-based and Indian-owned insurance companies. Insurance companies offer their clientele a range of insurance options from life insurance, term insurance, health insurance, retirement options, and more. Depending upon the scope of what the company offers, one can usually also secure loans and other types of financial instruments such as ULIPs from Indian insurance companies. Insurance companies are a massive contributor to the overall DII equity holdings and were contributing about ₹20,000 crores in the March quarter. 

3. Local Pension Funds

The purpose of these pension schemes is for individuals to lead a hassle-free retirement by creating a retirement corpus through their pension plan. India’s government-run pension schemes such as the National Pension Scheme, Provident Public Fund, and Employees’ Provident Fund Organisation are also a contributor to the country’s DIIs. As of the March 2020 quarter, local pension schemes were the biggest domestic institutional investors totaling at ₹33,706 crores in equity holdings.

4. Banking & Financial Institutions

A final contributor to domestic institutional investing is India’s banks and financial institutions themselves. Although they were not a key driver of India’s stock market performance in the March 2020 sector, since the beginning of 2020, the AUM or ‘Assets under management’ of banks grew by 20%. As a domestic institutional investor, this is a record growth in AUM, even though the total institutional AUM has fallen by about 16.5% since the start of 2020. 

FII vs DII Competitive Analysis for 2020

1. Asset under Management (AUM) 

As of April 2020, DIIs had a total of ₹20.4 lakh crores in their assets under management whereas foreign institutional investors had about ₹24.4 lakh crores. Since January of 2020, domestic institutional investors experienced a fall of about 10% in their AUM while FIIs saw a fall of double that at about 21.3%.

2. Inflows/Outflows YTD

Since January of 2020, DIIs have invested about ₹72,000 crores year to date. Foreign institutional investors have removed about ₹39,000 crores from Indian equity markets at the year to date. 

3. Ownership Ratio

The FII to DII ‘ownership ratio’ is equal to the total FII equity holdings divided by the total DII holdings for any given duration. From its peak ratio in April 2015, this ratio has dropped to 1.2 in April of 2020.