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Key Takeaways
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DIIs are domestic investors, and FIIs are foreign investors investing in Indian assets.
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DII holdings in 2025 have hit an all-time high, reflecting the growing confidence of local investors.
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FIIs influence the short-term volatility, whereas DIIs contribute to long-term stability of the markets.
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The ownership gap between FIIs and DIIs is at a record high, symbolizing India’s increasing reliance on domestic capital.
Apart from retail investors, there are many other participants, or traders, who engage in trading activities in the Indian stock market. Two of these participants that have a significant influence on the market performance are DIIs and FIIs. Here’s all you need to know about these and how are they different.
What are FII and 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. They are also now known as FPI (Foreign Portfolio Investor). In India, this term is commonly used to refer to external entities that contribute 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 in which they are currently residing.
The 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
|
Aspect |
Foreign Institutional Investors (FIIs) |
Domestic Institutional Investors (DIIs) |
|
Investor Origin |
Foreign entities and individuals |
Domestic entities and individuals |
|
Investment Type |
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 |
|
Investment Limit |
FII can only be up to a certain % of the total paid-up capital, depending on the company and sector |
There is no restriction on the volume of DII |
|
Investment Horizon |
Short to medium-term (days to months) |
Short to long-term (months to years) |
|
Investment volume |
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 |
|
Regulatory Oversight |
Regulated by the host country's financial authorities |
Regulated by domestic financial regulators and market authorities |
|
Purpose |
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 |
|
Sector Focus |
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 |
|
Taxation |
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 2025/26
As of March 31, 2025, DII ownership in NSE-listed companies reached an all-time high of 17.62%, up from 16.89% on December 31, 2024. In contrast, FII holdings declined to 17.22%.
By September 2025, DII ownership in NSE-listed companies surged to an all-time high of 18.26%, up 44 basis points from the June quarter. In contrast, FII holdings declined to 16.71%, marking a 13-year low. The ownership gap between domestic and foreign investors is now the widest in 25 years, with the FII-to-DII ratio dropping below 0.92. This confirms DIIs’ sustained lead after surpassing FIIs in early 2025.
Additionally, domestic mutual funds continued to anchor this growth, with their collective ownership rising to 10.9% in September 2025, up from 9.93% in March 2025. The surge has been supported by record SIP (Systematic Investment Plan) inflows, increasing retail participation, and contributions from insurance and pension funds.
Retailisation of equity ownership remains a defining theme, with consistent monthly investments exceeding ₹20,000 crore through SIPs throughout 2025.
In terms of net investment flows, DIIs injected a record ₹6 trillion into Indian equities in 2025, effectively offsetting FII outflows worth ₹2.03 trillion during the same period. While FIIs continue to hold a significant portion of India’s market capitalisation, their share has been declining steadily due to concerns over valuations, global interest rate uncertainty, and geopolitical risks.
Hence, FY25–26 marks a turning point for Indian equities. Domestic investors have become the driving force, while foreign investors play a more selective role amid global uncertainty.
Conclusion
Both FIIs and DIIs play a crucial role in India's investment ecosystem, providing liquidity, stability, and economic growth. Understanding the difference between FII and DII is vital. FIIs provide foreign capital, diversify ownership structures and give India's markets a boost in the confidence of global investors. However, their inflows can be sensitive to global interest rates and currency exchange rates, as well as to geopolitical developments that often trigger short-term fluctuations.
DIIs, such as mutual funds, banks and pension funds, are a stabilising force. Their investments are normally based on the domestic fundamentals, long-term growth potential and investor sentiments within India. When FIIs exit their positions during global uncertainties, DIIs tend to increase their holdings, cushioning the volatility of markets and balancing them.
FII and DII activity are thus tracked by investors to get a sense of the sentiment within the markets and the potential price movement. For example, persistent inflows of DII indicate domestic optimism, and heavy outflows of FIIs could be a sign of risk aversion for emerging markets. Understanding the FII vs DII trends can help retail investors make informed investment decisions, diversify their portfolios, and align their investment strategies with larger market trends.