Institutional Investment

Institutional investment is a kind of investment done by a financial-services providing organization. The most common examples of institutional investments are following. Insurance companies, a bank, a hedge fund, a retirement fund or a mutual fund. 

Institutional investment is a form of advanced investment in large volumes. Institutional investment portfolios always have a large number of investments.  Due to its advanced characteristics, the institutional investors involve in private security placements. where particular features of the securities regulations are not enforced. The increase in international portfolio within this investment has led to a growth. Especially to manage foreign exchange risk. The findings show an increasing awareness of the foreign exchange risk management problem. And show that investment institutions manage foreign exchange risk within their investment portfolios.

foreign institutional investor

Describing what a foreign institutional investor is, requires more than just detail. Foreign – means that the individual or entity doing the investing is not a resident of the country. Institutional – means that the company investing is not a single individual in project. This means that a mutual fund, might be an institutional investor. An insurance company or a pension fund could also qualify under this definition.

Foreign institutional investors are the outsiders in the financial markets of a company.  A foreign institutional investor is a legal entity such as an investment fund or mutual fund. That puts money into a business venture or project in a country other than the one in which the investor lives.  In a country like India, for example a mutual fund from Europe may put money into the Indian markets to make a profit. This means the entity from Europe must register with the Securities Exchange Board. so that it can take part in the financial system of India. Countries generally encourage sound institutional investment from other nations. So that it won’t be necessary for the government to increase their debt by borrowing money.

Institutions that involve in the foreign institutional investments

  • Mutual Funds
  • Hedge Funds
  • Pension Funds
  • Insurance Companies

The economies which grow very rapidly, are becoming favorite investment destinations for investors. These markets have the potential to grow soon. This is the reason behind the growing interests of the foreign institutional investors. The money which comes through the foreign institutional investment is ‘hot money’. Because the money can removed from the market at any time by these investors. 

The foreign investment market was not so developed in the past. But after the globalization took the whole world in its grip. The diversified global market became united. Because of this, the investment sector became very strong. Also and at the same time allowed the foreigners to enter the national financial market.  At the same time the developing countries understood the value of foreign investment. And so allowed the foreign institutional investments in their financial markets. The foreign institutional investments are unpredictable. In other countries, the Securities and Exchange Board looks after them.

Advantages of Investments through institutional investors

  • Ability to influence a company’s solvency.
  • Safe institutional investments; owing to their vast domain knowledge.
  • Influencing the conduct and capital requirements of listed companies.
  • The risk is low in institutional investments than that faced by non-institutional investors. Rather owing to a broad and diversified investment portfolio.
  • Active involvement and influence in corporate governance.

The importance of institutional investments may vary. Sovereign wealth funds in oil-exporting countries are quite significant. And so, pension funds are highly popular in developed economies. Even investing in startups could be an attractive alternative. We connect active investors with entrepreneurs who seek investment capital and business funding. Probably to start up new ventures or expand existing businesses.