Who are the Institutional Market participants in securities market?
Investors in securities market can be widely categorized into Retail Investors and Institutional Investors.
Institutional Investors comprise domestic financial institutions, Mutual Funds and Foreign Portfolio Investors Banks, Insurance Companies. Some of them are mentioned below:
Foreign Portfolio Investors (FPIs):
A Foreign Portfolio investor (FPI) is a body incorporated outside India that offers to make investments in India.
These international investors must list with the regulator - Securities and Exchange Board of India (SEBI) to participate in the Indian Securities Market.
Participatory Notes (P-Notes or PNs) are instruments issued by SEBI registered foreign portfolio investors to overseas investors, who desire to invest in the Indian stock markets without listing themselves with the market regulator - Securities and Exchange Board of India. P-Notes offers right to use of Indian securities to these investors.
A mutual fund is a resourcefully managed collective investment scheme that brings in money from a lot of investors to purchase securities on their behalf.
Mutual fund companies invest the gathered money in stocks, bonds, and other securities, based upon the investment purpose of the scheme which is stated.
A fund manager along with a research team takes all the most important choice in terms of which companies to invest in, the percentage of each stock in the portfolio, when to exit and so on.
Each investor owns units, which signify a part of the holdings of the fund. Diversification of investments is a significant feature of Mutual Funds investing.
It aids in reducing the risk in investment for the investor. As an effect, the investor is less liable to lose money on all the investments at the same time.
Insurance companies' core business is to guarantee assets. Based on the kind of assets that are insured, there are a range of insurance companies like life insurance and general insurance etc.
These insurance companies have huge corpus and they are one of the most important investors in the Indian economy by investing in equity investments, government securities and other bonds.
Similar to mutual funds, each Insurance company also has chosen people who are accountable for investment decisions.
A fund recognized to facilitate and systematize the investment of the retirement funds contributed by the employees and employers or even only the employees in a few cases.
The pension fund is a common asset pool meant to make stable growth over the long term, and offers a retirement income for the employees.
Pension funds are normally run by a financial mediator for the company and its employees, even though some larger corporations operate their pension funds in-house.
Pension funds control comparatively large amount of capital and symbolize the largest institutional investors.
Venture Capital Funds:
A venture capital fund refers to the gathered investment vehicle like mutual fund but with authorization to invest money in enterprises that are in the early stage of progress but with the latent of long-term growth.
The longer development period and higher risk of failure make it hard for such companies to admittance conventional sources of finance, such as banks and the capital markets.
Venture capitalists lead managerial and technical expertise as well ahead with capital to their investee companies.
Private Equity Firms:
Private equity is a expression used to describe funding available to companies in the early stages of growth, expansion or buy-outs. Investee companies might be secretly held or publicly traded companies. The expression private equity includes venture capital firms. The money in the fund is contributed by investors, known as limited partners, and invested and managed by the general partner(s). Some of the private equity funds are specialized funds with ability in a picky industry, stage of the company, or targeted deals such as funding buyouts.
A hedge fund is an investment vehicle that pools capital from a number of investors and invests that across the assets, across the products and across the geographies. These fund managers normally have very wide authorization to produce return on the invested capital.
They hunt for prospect to make money for their investors wherever possible. The expression hedge fund is misnomer as these funds may not essentially be hedged.
Alternative Investment Funds:
Usually, investments in stocks, bonds, fixed deposits or real estates are measured as traditional investments.
Whichever vary other than this traditional form of investments is characterized as alternative investment.
Even within investments in stocks, if the investments are in the stocks of small and medium scale enterprises (SMEs), it gets characterized as alternative investments in many jurisdictions (For Example, the SME exchange is known as Alternative Investment Market (AIM) in UK).
In India, (AIFs) - Alternative Investment Funds were described in Regulation 2(1) (b) of Securities and Exchange Board of India AIFs Regulations, 2012. It refers to any privately pooled investment fund, (whether from Indian or foreign sources), in the form of atrust or a company or a body corporate or a LLP - Liability Partnership which is not presently covered by any Regulation of SEBI governing fund management (like, Collective Investment Scheme or Regulations governing Mutual Fund) nor coming under the direct regulation of any other sectoral regulators in India - IRDAI, PFRDA, RBI etc.
Investment advisers work with investors to assist them choose on asset allocation and make a choice of investments based on an evaluation of their needs, time horizon return expectation and ability to bear risk.
They may also be mixed up in creating financial plans for investors, where they assist investors describe their financial goals and offer suitable saving and investment approach to meet these goals.