Introduction

Do you want to explore the financial markets in India as a retail or an individual investor? But, as a novice trader, you are unaware of the other participants in the stock markets and are curious to know about it, then, you have landed on the right page.

This blog will cover the two main categories of traders in the Indian financial market. So, bursting your enthusiasm, apart from retail traders, we have institutional traders who trade in financial instruments.

Retail traders are those traders who trade individually with their personal accounts in the financial market. On the other hand, institutional traders are entities, who manage their money or trade for several other traders on their behalf. Some examples of institutional traders are Mutual fund houses, insurance companies, pension funds, etc.

Although a thin line of difference distinguishes trading from investing, i.e. the horizon of investment. Trading is done for a short term, say for some days or weeks, and investing is done for a long term, say for months or years. In this blog, we have treated trading and investing as similar terms.

Who are Retail traders?

Let’s talk about retail traders. These are everyday people like you and me who buy and sell stocks, bonds, and other investments for themselves. They might not have as much money for buying and selling of shares, but they’re still out there making moves in the market.

Retail traders have the objective of maximising their money by earning profits from different investment avenues. Some are saving up for retirement, while others are looking to grow their wealth. They make their investment decisions based on personal research, tips from financial advisors, and on the trending securities in the market.

While they may not have all the fancy tools and research that the large players have, the retail investors are getting increasingly savvy. Of course, they get a little emotional when the market becomes turbulent or rocky; with electronic trading platforms and financial education galore, however, they are growing more empowered than ever to make smart investment choices.

Who are Institutional Traders?

In the world of securities trading, institutional investors are the heavyweights. They’re the big investors who handle massive amounts of money for other investors.

Some of the examples of institutional investors are the institutions or houses that deal in pension funds, mutual funds, insurance companies, and hedge funds.

Examples of Institutional Investors in India

Examples of the Mutual Fund houses in India include – Aditya Birla Sun Life Mutual Fund, Axis Mutual Fund, HDFC Mutual Fund, ICICI Prudential Mutual Fund, Kotak Mahindra Mutual Fund, Nippon India Mutual Fund, SBI Mutual Fund, UTI Mutual Fund, etc.

Examples of Insurance companies in India include – Aditya Birla Sun Life Insurance, Bajaj Allianz, Canara HSBC Life Insurance, HDFC Life, ICICI Prudential, LIC (Life Insurance Corporation of India), Max Life Insurance, PnB MetLife, SBI Life, TATA AIA, etc.

Some examples of Pension Fund Houses include – HDFC Pension Management Co. Ltd., LIC Pension Fund Ltd., SBI Pension Fund Pvt. Ltd., UTI Retirement Solutions Ltd., etc.

Some examples of Hedge fund companies in India are Quant First Alternative Investment Trust, IIFL Opportunities Fund, Motilal Oswal’s offshore hedge fund, India Zen Fund, Munoth Hedge Fund, etc.

What gives institutional investors the advantage over retail investors?

For starters, they’ve got serious expertise and resources at their disposal. This means they can conduct extensive research and develop complex investment strategies, giving them a leg up in the market. Their huge size means they have lower transaction costs and have a major influence over market prices and trends.

Differences Between Retail Trader & Institutional Trader:

Here are the major differences between a Retail trader and an Institutional trader

Sr. no.	Basis of difference	Retail Traders	Institutional Traders
1	Meaning	They are Individual Traders, buying and selling stocks, bonds, options, and futures in the financial markets in India.	They are entities or institutions buying and selling securities and managing them on behalf of other individuals or groups.
2	Capital for trading	They have usually less capital to bring in while trading in different types of securities.	They have more capital as compared to retail investors, as they invest a pool of money from a group of investors in the financial markets
3	Volume of trading	An individual trader trades according to his/her individual capacity. Therefore, the volume depends on the type of trader.	As compared to the retail trader, an institutional trader brings more volume of trade to the financial markets as it’s a large group of traders investing in the financial markets at a given point of time.
4	Professional management	Retail traders typically manage their trading on their own, as they are self-reliant.	There is a professional management team for managing the funds with proper guidelines and code of conduct.
5	Resources used	Retail traders use limited resources for trading.	Institutional traders use extensive resources, in terms of money, no. of securities, involvement of professionals, etc.
6	Influence on markets	Individual or retail traders have little impact on the markets.	Institutional traders have a huge impact on the markets because of the volume of their trading.
7	Risk management	Retail traders are solely responsible for their trading.	In Institutional trading, the risk is diversified into different groups and they do strong risk management.

Strategies involved in Retail Trading and Institutional Trading

A) Strategies used by retail investors are as follows.

Avenues of investment:

Retail investors typically invest across various asset classes to manage risk, investing in mutual funds, stocks, bonds, and real estate.

Tenure of holding:

Many retail investors employ a buy-and-hold approach or buy-sell approach. They may hold the financial instrument for a longer or shorter time.

Utilisation of online resources:

With the trend for online trading platforms’ increasing popularity, retail investors become more and more dependent on technology when it comes to research and performing trades. Instead, they will use mobile apps and online tools for market analysis and making investment decisions.

Emotional management:

Market volatility, such as fluctuations in stock prices or comments from influential people about how to invest, can lead retail investors to follow the crowd. In this way, they may sometimes fall into herd behaviour that is driven by emotions rather than analyses or facts.

B) Strategies used by institutional investors

Institutional investors, such as mutual funds houses, pension funds houses, and insurance companies, have greater resources and access to advanced tactics:

Dynamic Management:

These investors often utilise active trading approaches, using their research capabilities to make well-informed choices. They typically analyse larger economic trends, corporate governance, and sector performance to guide their investments.

Concentrated Portfolios:

Aimed investment strategy is preferred by several institutional equity investors in order to have a limited number of highly confident stocks maximizing profits, hence, enabling efficient risk management.

Access to Private Equity and Venture capital:

They can look into options that even individual backers may not have, like private equity or venture capital, that might bring in more returns.

Market Influence:

Because of their large trading volumes, institutional investors may have a strong impact on the prices and liquidity of the markets. Very often, this sector bases its decisions about trading on extensive research and analysis; therefore, their investment outcome will be less volatile than in the case of a single investor.

Risk Management:

To maximize returns and minimize risks, institutional investors employ sophisticated risk management strategies that involve asset class and geographic returns.

Frequently Asked Questions (FAQs)

What is an Institutional trading account?

An institutional trading account is for the individual investors. These accounts are managed by the institutions such as Banks, Mutual Funds houses, Insurance companies, etc.

Which investor category, retail or institutional, has better access to technology?

Institutional investors enjoy better access to trade technology, data, and sophisticated research than the individual investors do.

Give examples for Institutional Investors in India.

UTI Asset Management, JM Financial, SBI Mutual Fund, Motilal Oswal Financial Services, Tata AIA, ICICI Prudential, Max Life Insurance, are some of the Institutional Investors in India.

Which type of investor invests comparatively for a longer period?

This is commonly seen that institutional investors normally invest for a longer horizon of time as compared to the retail investors.

Based on location, how are institutional investors divided?

Institutional Investors based on location are divided into two categories- Domestic and Foreign Institutional investors.

Which three are the largest domestic institutional investors in India?

LIC (Life Insurance Corporation of India), SBI (State Bank of India), and HDFC Group are among the top domestic institutional investors in India, based on their substantial holdings in the Indian market.

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