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A comparative study of FIIs and DIIs in financial markets 

In the world of finance, two prominent forces playing a significant role in shaping the dynamics of markets are FIIs (Foreign Institutional Investors) and DIIs (Domestic Institutional Investors). These institutional investors have the potential to impact asset prices, market trends and overall economic stability. 

FII data shows that FII investments have crossed the $10 billion mark in the Indian stock market for FY24, driving Nifty to a record peak above 18,900 points. 

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Historically, FII and DII data shows that their buying and selling activities can influence the movement and direction of the entire stock market.

We will shed light on varied aspects defining the roles of FIIs and DIIs in domestic and global markets.

Defining FIIs and DIIs

Foreign Institutional Investors or FII, also named as Foreign Portfolio Investors (FPIs), are the institutional entities that invest in financial assets outside their national territories.

FIIs can be mutual funds, pension funds, hedge funds, sovereign wealth funds or other institutions. FIIs can invest in debt instruments, equities or other financial assets under the regulatory framework of a country. 

Since FIIs are companies operating outside India, they must register with the SEBI (Securities Exchange Board of India) to invest in Indian financial markets. 

On the other hand, Domestic Institutional Investors or DIIs are institutional entities that engage in investments within their national boundaries of the financial market.

DIIs comprise insurance companies, pension funds, mutual funds, and other financial institutions in India. They can invest across different investment products. 

Also Read: What is the role of FIIs in the Indian stock market? 

Investment behaviour:

FIIs and DIIs have distinct investment behaviour as defined below:

  • FIIs enter markets with shorter investment horizons and are more sensitive to macroeconomic indicators. 
  • Conversely, DIIs generally focus on a longer-term perspective based on the growth potential of Indian companies. 

Assessing market impacts of FII

Here are the key aspects defining the roles and impacts of FIIs in financial markets:

  • Market liquidity: FIIs inject liquidity into financial markets. It helps to enhance trading volumes, facilitating smoother trading without significant price fluctuations.  
  • Market sentiments: FIIs often respond to global economic dynamics. Their actions have the potential to impact the overall market sentiment.
  • Market volatility: FIIs’ investment decisions can lead to increased market volatility. Undoubtedly, FIIs bring substantial foreign capital into Indian markets, contributing to liquidity.
  • Price appreciation:  With increased demand from FIIs for Indian stocks and other financial products, asset prices tend to increase that ultimately benefits Indian investors.

Market impact of DIIs 

  • Price support: DIIs’ consistent buying and long-term holdings can support stock prices. Therefore, they can considerably act as a buffer against sharp declines during market downturns.
  • Market stability: DIIs’ holdings help stabilise the market as they offer a more consistent flow of funds to Indian markets. 
  • Liquidity in markets: DIIs’ regular buying and selling activities contribute to market liquidity significantly.

Also Read: Diving into FDI: What it means for investors and countries

Risk and reward

When FIIs invest in a nation’s financial markets with high growth potential, there can be significant potential rewards, but they may have to face various risks, including exchange rate risk, geopolitical risk, market risk, regulatory risk, economic risk, etc.

On the other hand, DIIs prioritise capital preservation and stable returns from their investments, focusing more on risk management. Although less likely to be caused by short-term market movements, they still face economic and company-specific risks.

FII vs DII – Comparison at a glance

Type of investorsForeign entitiesInstitutions within the country
Investment focusFinancial markets of various countriesHome country’s financial markets
Market ImpactImpact on market dynamics  due to large trades and contribute to market liquidity primarilyImpact on market stability primarily
Currency riskSignificant exposure to exchange rate riskLess exposure to currency risk
RegulationSubject to foreign investment regulations and need regulatory approvalSubject to local financial regulations and easier access

The closing

With an understanding of FII vs. DII, how they operate in different market environments, their unique investment strategies, and market impacts, investors can go through the complexities of the financial markets.


What is the ratio of FII to DII?

Foreign institutional investors (FIIs) have around 21% of the total interests in the companies that constitute the Nifty 500. On the other hand, the DIIs own around 14% of all the shares in the companies that make up the Nifty 500.

Is a high FII holding good or bad?

As per analysts, companies with robust fundamentals and support from long-term investors, like pension funds, are relatively less risky than stocks with high FII holdings. However, stocks that experienced a significant surge due to investor interest in short-term funds might be particularly at risk.

How much FII is allowed in India?

Up to 10% of the stock in a single company may be invested by any FII or sub-account of an FII, with a total investment cap of 24% for all FIIs, NRIs, and OCBs. For particular companies that have received shareholder approval, the 24% maximum may be increased to 30%.

Is FDI better than FII?

FDI investment is directed towards a particular firm. Investments made by FII do not go after a particular business. Because foreign direct investment (FDI) increases the nation’s GDP, it benefits the entire nation. Companies around the country have more capital as a result of FII investments.

How do you read FII and DII data?

The buy and sell value can be used to interpret the FII and DII data, but focusing on its net value is preferable. A positive net value for FII or DII indicates a net purchase; a negative net value indicates a net sale.

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