What is FII vs DII?
‘FII’ stands for ‘foreign institutional investor,’ and refers to an investment fund or an investor who puts their money into a country’s assets while being headquartered outside of it. In India, this is a commonly used term to refer to outside entities contributing to the country’s financial markets by investing. On the other hand, ‘DII’ stands for ‘domestic institutional investors.’ Unlike FIIs, DIIs are investors that invest in the financial assets and securities of the country they are currently residing in.
These investment decisions of both FIIs and DIIs are impacted by political and economic trends. Additionally, both types of investors — foreign institutional investors (FIIs) and domestic institutional investors (DIIs) — can impact the economy’s net investment flows.
Types of FIIs and DIIs
Types of Foreign Institutional Investors (FIIs):
Foreign Pension Funds: These are pension funds from foreign countries that invest in Indian financial markets. They often have a long-term investment horizon and seek stable returns to meet pension obligations.
Foreign Mutual Funds: Overseas mutual funds invest in Indian securities on behalf of their clients. They may focus on specific asset classes or sectors within the Indian market.
Sovereign Wealth Funds (SWFs): These are government-owned investment funds of foreign nations. SWFs allocate a portion of their assets to Indian equities and other investments to diversify their portfolios.
Hedge Funds: Some foreign hedge funds actively trade Indian stocks, bonds, and derivatives. They tend to have a shorter investment horizon and often employ more aggressive investment strategies.
Insurance Companies: International insurance companies may invest in Indian insurance firms and related financial instruments to gain exposure to the growing insurance sector.
Types of Domestic Institutional Investors (DIIs):
Mutual Funds: Domestic mutual funds pool money from retail and institutional investors to invest in stocks, bonds, and other securities. They are one of the largest categories of DIIs in India.
Insurance Companies: Indian insurance companies invest policyholders’ premiums in various asset classes, including equities and fixed-income securities, to generate returns for policyholders.
Banks: Banks in India invest in government securities, corporate bonds, and stocks. They also hold a significant portion of public sector bonds.
Non-Banking Financial Companies (NBFCs): NBFCs invest in a variety of financial instruments, including loans, debentures, and equities, to generate returns for their stakeholders.
Pension Funds: Pension funds in India manage retirement savings and invest in a diversified portfolio, which often includes equities and bonds.
Exchange-Traded Funds (ETFs): ETFs are investment funds that are traded on stock exchanges. They often track specific market indices and are a popular choice for passive investing among DIIs.
FII Vs DII
Foreign Institutional Investors (FIIs)|
Domestic Institutional Investors (DIIs)|
Foreign entities and individuals|
Domestic entities and individuals|
Short to medium-term investments in financial assets|
Diverse, including long-term and short-term investments in financial assets and businesses|
Control and Ownership|
Typically, they have no control or influence over companies|
May have board representation and influence in company decisions in some cases|
FII can only be up to 24% of the total paid-up capital|
There is no restriction on the volume of DII|
Short to medium-term (days to months)|
Short to long-term (months to years)|
Around 21% of the companies representing the Nifty 500 have FII investments|
The DII investment is channelised to 14% of all the shares in NIFTY500|
Regulated by the host country’s financial authorities|
Regulated by domestic financial regulators and market authorities|
Seek financial returns and portfolio diversification|
Invest for wealth creation, retirement funds, and other long-term goals|
Influence on Management|
Generally, passive investors|
May actively engage in corporate governance and management decisions|
Primarily focus on financial markets and assets|
Invest in a broad range of sectors, including financial and non-financial|
Impact on Market Behavior|
Can influence short-term market volatility|
Tend to stabilise markets over the long term|
May be subject to withholding tax on capital gains|
Tax implications vary based on investment type and local regulations|
FII vs DII Competitive Analysis for 2023
Over the years, the gap between FII and DII investment has narrowed consistently. On March 31, 2023, the investments from domestic institutional investors reached an all-time high of 25.72% in the NSE, up from 24.44% on December 31, 2022. The gap between FII and DII had reduced to 20.46% compared to 24.30% on December 31, 2022. The FII during the same period also touched an all-time high of 36.91%, compared to 35.56% at the end of the quarter on December 31, 2023.
What are FIIs and DIIs, and how do they differ?
FIIs are Foreign Institutional Investors, while DIIs are Domestic Institutional Investors. FIIs are foreign entities that invest in a country’s financial markets, whereas DIIs are domestic entities investing in their own country’s markets.
What types of entities typically fall under FIIs and DIIs?
FIIs include foreign mutual funds, pension funds, hedge funds, and sovereign wealth funds. DIIs encompass domestic mutual funds, insurance companies, banks, and pension funds.
How do their investment approaches differ?
FIIs often have shorter investment horizons and may engage in more speculative or short-term trading strategies. DIIs tend to focus on long-term wealth creation and portfolio diversification.
Do FIIs and DIIs influence market behavior differently?
Yes, they can. FIIs can contribute to market volatility due to their significant investments and rapid trading activities. DIIs often provide stability as they continue investing during market downturns.
What is the impact of regulatory oversight on FIIs and DIIs?
FIIs are subject to regulatory compliance in both their home country and the host country where they invest. DIIs are primarily regulated by the domestic financial authorities of their home country.