All About Domestic Institutional Investors (DII)

Institutional investors are any organization or institution that invests in real or financial assets of a country. This includes mutual fund houses and insurance companies. Domestic investors use funds they pool to trade in assets and securities of their country.

What is DII on stock market ?

DII stands to represent 'domestic institution investors'. They are an investor group that invests in securities and financial assets of the country where they reside. Political and economic trends can have an impact on DIIs' investment decisions. Like foreign institutional investors (FIIs), domestic investors (DIIs), can also have an impact on the economy's net investments flows.

Domestic institutional investors play a significant role in India's stock market performance, particularly when they are the country's net sellers. In March 2020, the cumulative investment of DIIs in India's equity market was Rs55,595 million. This was a record-breaking investment by the country in a single month.

Types and Applications of DIIs in India

There are four types of Indian institutional investors. These are:

1. Indian Mutual Funds

Mutual funds invest the pooled investment of shareholders in a variety of securities that vary according to the mutual fund's goal. There are many fund types available, depending on the investor's risk tolerance and their needs. Indian mutual funds had equity holdings of Rs11722 crores as of March 2020. Mutual funds are an excellent investment choice for novice, intermediate, and experienced investors in India. They offer flexibility and versatility. By contributing to Indian mutual fund investments, investors can choose the funds they want to invest based on their risk tolerance or wealth creation goals.

2. Indian Insurance Companies

All Indian-owned and India-based insurance companies are another type of domestic institutional investor. The insurance companies offer a variety of insurance options to their clients, including term, life, and health insurance. They also provide retirement options. Depending on the type of service offered by the company, it is possible to obtain loans or other financial instruments from Indian insurance companies. The March quarter saw an estimated Rs20,000 crore contribution from Indian insurance companies to the total equity holdings of DII.

3. Local Pension Funds

These pension plans are designed to help individuals have a stress-free retirement. They create a retirement fund through their pension plan. India's government-run schemes like the National Pension Scheme, Provident Public Fund and Employees Provident Fund Organization contribute to the country's DIIs. Local pension schemes accounted for Rs33,706 crores of equity holdings as of the March 2020 quarter.

4. Banking & Financial Institutions

Indian banks and financial institutions are the final factor in domestic institutional investment. They were not a major driver of India's stock exchange performance in March 2020 sector but the AUM (or 'Assets Under Management') of Indian banks increased by 20% since 2020. This is a record-breaking increase in AUM for a domestic institutional investor. However, the institutional total AUM has dropped by 16.5% since 2020.

FII and DII Comparative Analysis for 2020

1. Asset under Management (AUM)

In April 2020, DIIs managed Rs20.4 lakh crores of assets. Foreign institutional investors managed Rs24.4 lakh crores. Domestic institutional investors saw a drop of 10% in their AUM since January 2020 while FIIs experienced a decrease of around 21.3%.

2. Inflows/Outflows Year to Date

DIIs have invested approximately Rs72,000 crores in India since January 2020. Indian equity markets have been robbed by foreign institutional investors of Rs39,000 crores over the past year.

3. Ratio of Ownership

The FII-to-DII 'ownership ratio" is equal to the sum of all FII equity and total DII holdings over a given time period. This ratio dropped from its April 2015 peak to 1.2 in April 2020.