Retail Investors are people like us who invest in equities on our own. Individual Investors is another term for us. Institutional Investors include mutual funds, pension funds, and other investment institutions. We form an important element of our financial system when we work together. I hope you’ve heard about these two terms, FII and DII, someplace such as on news channels, reporters reporting that FII and DII have begun purchasing or selling shares, and you’ve pondered upon ‘What is FII and DII?’ How can I verify FII and DII data? As a result, let us go through the subject in depth in this post.
What Is DII?
DII stands for Domestic Institutional Investors, the Indian investors who invest their money in the Indian stock market to earn profits. The amount of investment is related to the investment conditions, i.e., the financial incentives given by the government and how favourable they are in the country. If the Government of India creates a favourable environment for investors, they will invest in their country rather than a foreign country.
What Is FII?
‘FII’ stands for Foreign Institutional Investors, and refers to an investor or an investment fund that invests in a country’s assets while based elsewhere. This is a prevalent term in India to refer to international entities that invest in the country’s financial markets. The FIIs who want to invest in India need to register with SEBI and follow the rules and regulations which SEBI sets.
FII Restrictions on Investing in Indian Companies’ Equity
● For FIIs, the maximum investment limit in public sector banks is 20% of paid-up capital.
● For FIIs, the maximum investment limit in Indian enterprises is 24% of paid-up capital.
● If particular corporations receive shareholder approval, they can raise the maximum to 30%.
● FIIs are permitted to invest up to 10% of a single company’s shares.
Differences between FII and DII
The FII and DII are very similar, but there are some differences as well.
- The headquarters of the FII entities are located in the country where it is located, while the DII investors are of Indian origin.
- There are more risks in an investment made by FII as compared to a DII investment. The FIIs can pull out their investment anytime, which can affect the market.
- The FIIs need a strong research team as they are total strangers to the country they invest.
- There are four types of typical DII investors in India. Indian local pension plans, mutual funds, insurance companies, financial organizations, and banks are examples of these. FIIs for India include pension funds, multinational insurance companies, hedge funds, and mutual funds that are not based in India.
The Impact of FII and DII on the Indian Stock Market:
If FIIs chose to sell heavily, the market might enter a negative period due to the massive outflow. However, when DII purchases match FII sales, the market’s negative impact is mitigated.
FIIs and DIIs pour money into or withdraw from the market, altering the market’s liquidity. Because FIIs are more trading-oriented, their activities have a greater impact on the market’s short-term liquidity. FII inflows typically boost market liquidity and vice versa.
When each market participant’s investment decision has an impact on the stock market, FII and DII investments can cause stock market volatility. Even the tiniest market member has an effect on the overall market trend. FIIS and DIIs are also market participants and hence play an important influence in market volatility.
When more FIIs attempt to buy equities in the known Indian stock market, the market is more likely to rise as a result of the increased inflow. Furthermore, it demonstrates FIIs’ trust in the general Indian market and has a beneficial impact on investors.
The Importance of Buying and Selling FII and DII:
Institutional investors are usually referred to as market drivers because they invest in much larger amounts and volumes than average retail individual investors. This is represented in equity prices, which rise and fall in response to momentum. When anyone buys or sells stocks in large quantities, the market reacts, but the effect may be temporary. The presence of these investors is a vital market driver.
The FII and DII activities also have advanced research and analysis teams to help them decide on the appropriate industry or security to invest in. As a result, if you understand the next target of these behemoths, you may benefit from investing in these firms.
When FIIs sell and DIIs buy, what happens?
As per the FII and DII meaning when a large number of FIIs sell, the market’s liquidity suffers. A large outflow of FIIs can be a warning sign for the market. However, when DII purchases match FII sales, the market’s negative impact is mitigated.
FIIs and DIIs are institutional investors who differ in their home nations and where they invest. The FII and DII in share market prominence are outstanding and they are the participants whose activities have a significant impact on the market.
How To Read FII And DII Data
The data of FII and DII is updated every day on the NSE website. A retail investor can track the activities of FII and DII i.e., the securities they buy or sell, etc.
The FII and DII data can be read using the Buy and Sell value, but it is best to focus on its net value. This will help you decide on the best decision regarding any stock. If the net value of FII or DII is positive, they have a net purchase; if it is negative, they have a net sale.
Institutional investors are an important part of the market as they provide liquidity in the market. The two types of these are the DIIs and the FIIs which differ based on their headquarters location i.e., the home country or a foreign country. If the data of FII and the DII are tracked properly by a trader, he may predict some of the future trends.
A trader needs to know about the FIIs and DIIs that have invested in India and what actions they take that may affect the stock market.
When did FII start in India?
FIIs started investing in India after 1992. The LPG policy which was adopted in 1991, opened up the country
Which is preferable, FII or DII?
The FII and DII both play an important role in the market, yet there is no definitive answer as to which is superior. But the FII investments are risky as the foreign entities can pull out at any time.
Why are FII and DII data important?
The data of the FIIs and DIIs are important for the Indian stock market as they can influence the market with their actions. This data may give traders and investors an idea of an upcoming trend.