Understanding the Types Of Investors In The Stock Market: Think of the term “investor” and your mind will either instantly shift to your neighbour uncle who’s up before the markets reading the business section, or your college friend who’s going on non-stop about crypto and NFTs.
But, little did you wonder that both of them come under just one category – Retail Investors. The news and investor enthusiasts tend to focus on large individual investors as it’s easy to put a face to the personality behind the money.
Beyond them, are different categories of investors that barely make headlines. This blog will take you through the types of investors, mostly related to the stock market.
Types Of Investors In The Stock Market
Common Investors, Big Investors, Mutual Fund Houses, Institutional investors, and many different types Of Investors In The Stock Market are active. Below are the listed ones for your knowledge.
1. Based On Investment Category
1.1 Retail Investors
SEBI defines retail investors as individuals whose application size to an IPO is below the value of ₹2 lakh rupees. In India, retail investors only hold a 6% stake in the equity capital markets. This number is currently growing with better financial literacy and active involvement in the markets post Covid-19. They are also the most vulnerable set of investors as misinformation and lack of knowledge is abundant.
To start investing, all it takes is opening a Demat account with a registered broker.
1.2 High Networth Individuals
Investors with a net worth of ₹2 Crores or above in investable assets are considered high net worth individuals. Net worth is the number of net assets minus liabilities. Investors with close to ₹25lakh to ₹2 Crores are considered emerging High Networth Individuals.
HNIs need to apply separately when subscribing to an IPO, as compared to retail investors.
1.3 Domestic Institutional Investors
DIIs are Institutional investors who are based in the country that they are investing. Under DIIs are multiple categories –
A) Asset Management Companies
AMCs are perfect investment vehicles for investors who are keen on making money that gives better returns than deposits but doesn’t have the resources to actively research and invest. Asset Management companies pool money from huge groups of investors and use those funds to invest in various instruments. It’s through these companies that mutual funds are issued and sold to retail investors. AMC leans on the idea of getting better than average returns but lower risk than direct investing.
Examples of some AMCs In India are – HDFC AMC, Nippon Asset Management, and UTI AMC.
B) Indian Insurance Companies
Insurance providers like LIC, HDFC Life, and ICICI Prudential invest a portion of their profits into the stock markets.
C) Pension Funds
A pension fund is for retired professionals and seniors post their career retirement. Major banks such as HDFC, SBI, and Kotak provide pension funds to retired professionals, both private and public sectors.
Registered commercial banks invest a small portion of their overall investments into the stock market. Most banks do it indirectly through AMC companies held by the banks themselves or have a separate investment team dedicated to making investment decisions for the bank.
E) Foreign Institutional Investors or Foreign Portfolio Investors
FIIs and FPIs are investment firms whose sole purpose is to conduct high-volume trading and investing internationally.
A Foreign Institutional Investor is an entity established in one country and making investments in a non-domestic nation. They hold a superior advantage over DIIs asFIIs are usually invested in developing economies, where the currency value is not as strong as their country and securities are affordable in huge volumes.
Examples of FIIs and FPIs are Pension Funds and Mutual Funds, Hedge Funds and Sovereign Wealth Funds
2. Based On Investment Style
2.1 Value Investor
A value investor is an individual who researches and looks for fundamentally strong stocks which are undervalued in the market. While the stock price today would be low, it is expected to greatly appreciate in the future. Value investors look for long-term growth over short-term gains.
2.2 Growth Investor
Growth investors lean more toward stocks that are relatively new to the market and expect it to grow positively and consistently in the future. A growth investor looks for greater growth in a shorter period of time, irrespective of the current market price.
2.3 Special Situation Investor
Ever read the news and felt like investing in a certain company because of a new project or merger announcement? Then you might fall under this category. Special Situation Investors are individuals who base their actions on the latest news and updates, corporate actions, mergers, and acquisitions, etc.
3. Based On Risk Appetite
3.1 Aggressive Investor
An aggressive investor takes the high-risk high-reward approach to investment. They have a larger portfolio than most investors and usually invest in risky instruments like futures and options.
An aggressive approach is suitable for investors who have an already well-diversified portfolio before going ahead with higher-risk options. But in times of market crises, there is a higher chance of failure and losses.
3.2 Moderate Investor
A well-balanced portfolio has a good balance between risk as well as safety. That is exactly what a moderate investor would consider.
Safe investments get you above-average returns with a lower chance of volatility and a risk factor that may or may not give you exponential returns.
3.3 Conservative Investor
The last and most well-known investors are the conventional and traditional investors who prefer to preserve cash with no major movement. Some of the investment options preferred by a conservative investor are fixed deposits, recurring deposits, Post Office Savings Bank, etc. Their goal is to retain cash and save money while making some returns.
To understand what type of investor you are, there are multiple questionnaires online that tell you what your personal risk tolerance is. So, that’s all for the post on Types Of Investors In The Stock Market. Hope you liked reading it.
You can do this or ask yourself certain questions about your personal investment goals and the timeline under which you want to achieve them. Happy Investing!