An investor is a person or organization that invests money into financial instruments with the expectation of achieving a profit in a given time period.
If we talk about investors from the stock market perspective, there are 2 main categories of Retail and Institutional investors.
Whilst they both have the same objectives of earning profits, both types of investors have 2 very different paths towards making an investment, let us look into them in detail
A retail investor, also known as an individual investor, is a non-professional investor who buys and sells securities. Retail investors execute their trades through traditional or online brokerage firms by paying some brokerage or charges.
Retail investors purchase securities for their own personal accounts and often trade in smaller amounts as compared to institutional investors to cause of their small purchasing power, most retail investors may have to pay higher fees or commissions for their trades but thanks to the emerging class of discount brokers, that have reduced the burden of brokerage or commission to a larger extent.
SEBI has the responsibility of protecting retail investors to ensure the markets function in a fair and orderly manner, SEBI creates awareness to retail investors by providing education and the enforcement of regulations to ensure people remain confident and comfortable investing in the markets.
Institutional investors contribute a significant amount of the trading volume on NSE and BSE, they trade in bulk quantity and have a lot of influence on the stock market movements. Institutional investors are equipped with sophisticated tools and systems and also who are knowledgeable and, therefore, less likely to make uneducated or vague investments.
The money that institutional investors use is not actually money that the institutions own themselves. Institutional investors generally invest for other people.
Institutional investors will have access to any information available in the market, They have specialized experts, a well-versed research team, and ample financial resources. They tend to trade frequently as they are charged with negligible fees as they tend to pump large funds.
Institutional investors are the big players in the market who move big money. Examples of institutional investors include:
Foreign Institutional Investors, Pension funds, Mutual funds, Fund Managers, Insurance companies, Investment banking companies, Hedge funds, and private equity firms or investors.