In the previous blog, I talked about investments and realized we all are investors. Everyone possesses the characteristics of investors. Today, I am going to discuss about types of investors. Yes, there are types of investor depending upon the kind of investment one does. The basic two types of investors are individual investors and institutional investors and the rest falls under them. Under the individual investors, we can categorize investors as – Retail individual investors and High net worth individual investors. We all know that we don’t need abundance of money to start our investment. We can start investing by a small amount too, maybe 100 rupees or lesser. The amount invested by an individual in an IPO defines him/her as either retail investor or high net worth investor. In India, a person who applies for shares less than 2 lakhs rupees in an IPO (Initial Public Offering) is considered retail investor and the one who applies for more than 2 lakh rupees comes under high net worth category. The benchmark amount that distinguishes retail and high net worth individuals is different for other countries.

The institutional investors consist of banks, insurance companies, mutual funds, endowments, pensions, hedge funds, investment advisers and REIT(Real Estate Investment Trusts). The combined are categorized into Domestic Institutional Investors (DII) and Foreign Institutional Investors (FII) depending on geographical boundaries. The institutional investors that invest in the domestic market are called Domestic Institutional Investors like LIC(Life Insurance Corporation of India) investing in Indian markets. Whereas, the banks, insurance companies, mutual funds or other institutions that operate outside India but invests in Indian markets and securities are considered Foreign Institutional Investors. The type of investors (be it institutional or individual) is also defined on the basis of their preferences of tolerating risks while investing. There are three types of investors in this category – risk-averse, risk-seeking and risk-neutral investors.

The risk-averse investors are those who prefer less risk for a given expected return and thus, go for investments where return is guaranteed. However, if these investors agree to take more risk then they should be compensated with higher returns. The risk-seeking investors are those who are ready to take more risks for the given expected returns and hence, choose more risky investments. And the risk-neutral investors have no preference for the level of risk and are indifferent to the types of investments.

The stages of financing also define the types of investors. It means at which stage of the firm, investors are investing. There are different stages of financing mostly formative stage, later stage and mezzanine stage. Under formative stage (also known as the ‘early stage’), the investor invests in the firm (basically startup) for their ideas, for product developments, marketing and research, and for commercial production and sales. Under the later stage, the investor invests in the firms that are already under operation and need financing for expansion. While under the third stage i.e. mezzanine stage, the investors invest to prepare the firm for an IPO which means the firm is ready to enter into the primary market.

Basically, these are the different types of investors. There are others too apart from the above mentioned. As said in the beginning, the types of investors depend on types of investments. With time, the type of investments is increasing and so do the investors. I guess you must have figured it by now, under which category you lie.