In the current digitized world, the old investing tools in the investment management industry are slowly diminishing due to the emergence of advanced technologies like AI helping both the individual and institutional investors to make accurate investment decisions.
The ability to understand the differences between individual and institutional investors in vital for novice players in the investment space to evaluate the strategies that are applied by them to generate maximum returns and achieve optimal market performance.
So, let’s understand this quickly.
An individual investor is a single, private person, who buys and sells equity, debt, or other kinds of investments by taking help of a broker, bank, and so on in order to generate returns.
In this way, such investors manage their own money and are driven by personal goals.
On the other hand, an institutional investor is an organization or a larger entity that takes the investment responsibility on behalf of its members. Such entities pools money for making investments.
Some popular types that qualify for institutional investors include pension funds, mutual funds, hedge funds, insurance companies, commercial banks, money managers, and commercial trusts.
Talking about differences, institutional investors certainly have advantages when it comes to negotiating better fees in investments and accessing investing that normal or individual investors can’t due to lack of resources.
However, if we compare both the investors on other aspects like the decision-making process, resource availability, taxes, cost, and benchmarking, then both faces certain pros and cons.
The investment decision-making process is often long and complex for institutional investors as the appointed investment team require to discuss everything with the overseeing committee, whereas individual investors enjoy a free ride when it comes to decision making.
Continuing with differences, institutional investors are levied with high taxes; thus efficient tax management is something that needs to be properly handled by institutional investors for providing maximum return to members.
In the case of individual investors, tax efficiency is a huge advantage, but as they grow in the investment space, it becomes complex for them too.
When it comes to operating costs, institutional investors due to their sheer size and resources can ask for lower fees from the banks and trading platform, unlike individual investors, who suffer due to lack of capital.
Resource availability like access to financial professionals is high for institutional investors due to economies of scale, whereas individual investors are in the water when it comes to having access to financial expertise.
However, recent technology advancements like Robo-advisory, in the investment space have opened up ways for individual investors to maximize their returns and improve market performance.
For institutional investors too, technology solutions have been a blessing in terms of better assessment of the portfolio, and market risk and conditions.
For example, DCI Ecosystem in the investment industry is helping both the individuals and institutional investors in terms of having a 360-degree of their overall investment portfolio and optimizing it properly.
DCI is a finance preferred eco-system that leverages advanced technologies like Artificial Intelligence (AI), ML, DLT, and Robo-advisory for helping investors in portfolio creation, optimization, and management by offering calculated investment advice and information of share market trends.
The other features of DCI that make it a go-to-choice of both traditional investors include cross-chain transaction capability, third-party API support, portfolio risk-rating & assessment, and multi-currency wallet facility.