stock market

6 Types of investors in the stock market

Most people prefer to stay out of the investment world because of the fear of losing money. However, knowing the different types of investors who participate in the market could give you a significant competitive advantage.

The stock market attracts a variety of investors. Are you interested in learning what kind of investor you are? If so, I have your back.

Investors are ultimately distinguished based on their risk-taking ability and their investment objectives. The variety of investors is the true beauty of the stock market.

Before getting started with the types of investors, you need to have proper knowledge of an investor. So let us understand the role of an investor.

What is an investor?

An investor is a person or other institution (like a business or a fund) who invests money in the hope of generating a profit.

Investors depend on a variety of financial assets to generate a return on investment and achieve crucial investment objectives such as preparing for retirement, paying for a student’s education, or simply expanding as time goes on.

An investor does not refer to a trader. When a trader aims to make short-term earnings by repeatedly trading stocks, an investor uses income for long-term profit. 

Investors examine potential from a broad perspective, and they typically favor reducing risk while maximizing returns.

Types of investors in the stock market

Choosing the stocks, you intend to include in your portfolio can be a difficult task for a fellow investor.

Numerous companies are listed on marketplaces all over the globe. Instinctually, selecting just a few is a difficult task.

To focus your studies and get started, it might be helpful to understand the different types of investors, as they help you identify which stocks are bought the most by different types of investors in the stock market. 

In this article, we describe 6 types of investors in the stock market as per their investment styles and risk-taking ability.

So, without any further ado, let’s get started.

1. Retail investors.

Retail investors are common public investors, usually people like you and me, who invest in the stock market from their pockets. These are nonprofessional investors trying to be a part of the growing economy.

Retail investors, according to the Securities Exchange Board of India (SEBI), are people whose initial public offerings (IPO) application amount is below Rs 2 lakhs. 

As per reports, retail investors made up about 20% of the stock market in 2022. We have observed a rapid rise in the participation of retail investors during the COVID pandemic.

2. Non-Institutional Investors.

Non-institutional investors are organizations with an application value of greater than Rs 2 lakh (NIIs). High-net-worth individuals are also included in NIIs.

Similar to NII’s, investors with application values greater than 2 lakhs are considered high net-worth investors. Non-institutional investors are only allowed to purchase about 15% of the offer in an IPO.

The distinction between a qualified institutional investor and a non-institutional investor is that an NII does not have to be registered by SEBI.

3. Foreign institutional investors.

An investor or investment fund that makes investments in a nation other than the country where they are authorized is known as a foreign institutional investor (FII).

In simple words, when foreigners invest money in the Indian financial market, they are referred to as “FIIs.” You can also be a foreign institutional investor by investing in foreign stocks. They have a significant impact on the economic growth of our country.

As a result, the market moves upwards after FIIs like these buy shares and equities. On the other hand, when they remove their investments from the markets, the reverse might also occur. They, therefore, control a considerable portion of the market.

4. Anchor investor

The Stock Exchange introduced the idea of the anchor investor. Before Initial Public Offerings (IPOs) begin, anchor investors are encouraged to subscribe to the IPO to boost the issue’s presence. These investors are known as “anchor investors.”

Anchor investors have the advantage of investing in the stocks before they are made available to the public. These are qualified institutional investors registered by SEBI. Anchor investors must invest at least 10 CR in stock.

5. Domestic institutional investors.

Institutional investors who invest in stocks and other investment securities within their own country are referred to as domestic institutional investors. Clearly defining, domestic institutional investors deal in domestic assets and securities using pooled financial resources.

They include institutions or organizations like banks, mutual funds, insurance companies, etc., that invest in securities and financial assets. Domestic institutional investors, or the DII, play a very important role in the stock market.

6. Qualified Institutional Investors

A qualified institutional investor is an investor who has been granted permission by the SEC (Securities and Exchange Commission) to make a deal in private placement investments without the securities being registered with the SEC.

The certification of a qualified institutional buyer is usually given to organizations made up of knowledgeable and experienced investors.

Primarily, these people or organizations do not require the same level of regulation that normal retail investors do when buying securities because of their knowledge, experience, or net worth.

The Bottom Line

These are the different types of investors you will find in the stock market. It’s important to have a brief understanding of each before starting your investment journey.

You need to remember that every type of investor is of great importance in the stock market. Even though some investors have some perks and support, no one has special authority in the market.

I hope you might have figured out the type of investor you are. If yes, then comment down below and let me know what type of investor you are.