Classes of Investor
Also written Classes of investors · Types of investors · Investor classification · Institutional, non-institutional and retail investors
The workbook's three-way split of who buys securities — institutional, non-institutional and retail — sorted by the size of the cheque and the sophistication of the strategy.
In plain language
Not every buyer of a security is the same kind of buyer. A pension fund and a school teacher both own shares. They do not have the same money, the same staff or the same aims.
So the workbook sorts investors into three classes. The sort is done on two things: how big the investment is, and how sophisticated the strategy is.
Institutional investors are organisations. They invest large sums and employ specialist skill.
Non-institutional investors are the middle group. The workbook defines them by what they are not: any investor who is not a retail investor. Family offices and high net worth individuals sit here.
Retail investors are individuals buying and selling for their own account. They do not buy for a company or an organisation.
This matters for an AIF manager for one blunt reason. An AIF may not sell to the public at all. Its investors come from the first two classes only.
How it works
The workbook names the members of each class.
Institutional investors comprise mutual funds, pension funds, insurance companies, hedge funds, alternative investment funds and foreign portfolio investors.
Non-institutional investor means any investor other than a retail investor, and includes family offices, high networth individuals and ultra-high networth individuals.
Retail investors are individual investors who buy and sell securities for their personal account and not for another company or organisation. The one hard number attaches here: under the SEBI (ICDR) Regulations, 2018, a retail individual investor is an individual who applies or bids for specified securities for a value of not more than Rs 2 lakh.
How the classes map onto an AIF. Chapter 7 sets the entry price of the private market, and it is what keeps retail out:
| Test | Figure |
|---|---|
| Minimum investment by each investor in an AIF | Rs 1 crore |
| Minimum corpus of each scheme | Rs 20 crore |
| Maximum investors in a single scheme | 1,000 |
| Route for raising the corpus | Private placement only |
Indian, foreign and non-resident Indian investors may all contribute to an AIF corpus. Domestic institutional investors such as banks, insurers and pension funds are additionally governed by their own regulations on eligibility and quantum. Category III AIFs are the sharpest case: the workbook says they suit only institutional investors, family offices, non-resident investors and ultra-high and high net worth individuals.
SEBI then cuts across the three classes with a fourth label, the accredited investor, which is about certified income or net worth rather than about the type of entity.
A worked example
Kaveri Multi Strategy Fund, a Category III AIF, opens its book. Five applicants come in.
| Applicant | Class | Amount | Accepted? |
|---|---|---|---|
| Nandini Pension Trust | Institutional | Rs 45 crore | Yes |
| Rao Family Office Pvt Ltd | Non-institutional | Rs 12 crore | Yes |
| Mr Suresh Iyer, UHNI | Non-institutional | Rs 3 crore | Yes |
| Mrs Latha Menon, salaried, first-time equity investor | Retail | Rs 1.8 lakh | No |
| Employee of the manager | — | Rs 25 lakh | Yes, under the employee concession |
Mrs Menon is refused twice over. Her Rs 1.8 lakh is inside the Rs 2 lakh ICDR ceiling that defines a retail individual investor, and it is far below the Rs 1 crore an AIF investor must commit. The fund is also barred from inviting the public, so she could not have been approached in the first place.
Now put the same Rs 1.8 lakh into an IPO of Kaveri Industries Ltd. There she is a retail individual investor and bids in the retail portion. Mr Iyer, bidding Rs 3 crore in the same IPO, falls in the non-institutional portion. Nandini Pension Trust, if it meets the ICDR list, bids as a qualified institutional buyer.
Same three people, same amounts, two completely different products — and the class label decides what each may buy.
Why NISM asks about it
Chapter 1 (Investments Landscape), section 1.4.4.2 on Market Participants, closes with the Investors paragraph that carries this classification. Chapter 6 and Chapter 7 then use it constantly to say who an AIF is suitable for.
Expect a direct recall question on the Rs 2 lakh retail individual investor limit under the ICDR Regulations, 2018, and a matching question that lists entities and asks which class each belongs to. The discriminator is the non-institutional class: candidates know institutional and retail, and forget that family offices and HNIs are a class of their own rather than large retail.
Common exam traps
- Non-institutional is defined negatively. It is any investor who is not retail. So a family office with Rs 500 crore is non-institutional, not institutional.
- Rs 2 lakh is the ICDR retail limit for a public issue. It is not the AIF minimum. The AIF minimum is Rs 1 crore.
- A high net worth individual is non-institutional, however large the cheque. The class follows the type of person, not the amount.
- The classification is about size and sophistication, not about residence. Indian, foreign and NRI investors can all appear in any class.
- An accredited investor is not a fourth class here. It is a separate certification that cuts across these three.
- AIFs raise money only by private placement, so no class of retail investor can be solicited, whatever the amount offered.
Where this is taught
Free preparation for NISM Series XIX-CRelated terms
- Accredited InvestorAn investor certified by an accreditation agency as meeting SEBI's income or net-worth tests, and therefore allowed into products on relaxed terms — including below the Rs 1 crore AIF floor.
- Retail Individual InvestorUnder the SEBI ICDR Regulations, 2018, an individual investor who applies or bids for specified securities for a value of not more than Rs 2 lakh.
- Alternative Investment FundA privately pooled investment vehicle registered with SEBI that raises money from select Indian or foreign investors under a defined investment policy — never from the public at large.
- Institutional investorsOrganisations rather than individuals that invest in mutual funds — companies, partnership firms, associations of persons, societies and trusts, banks and FIs, and FPIs — each acting through authorised signatories.
- Non-Institutional InvestorThe residual public-issue category for applicants who are neither retail individual investors nor qualified institutional buyers — in practice anyone bidding for more than Rs 2 lakh without being a QIB.
- Qualified Institutional BuyersThe closed list of institutional investors in the ICDR Regulations — SEBI-registered funds, non-individual FPIs, banks, insurers, large provident and pension funds — with special rights and limits in issues.
- Family OfficeA private office that manages one or more wealthy families' money — a non-institutional investor under the workbook's classification, and one of the main domestic sources of AIF capital in India.
- Sovereign Wealth FundA state-owned fund set up by countries with large trade surpluses — OPEC members, Norway, China, Japan, Singapore, Malaysia — that invests across markets, including through AIFs.
- FoundationA not-for-profit organisation that donates funds and supports other organisations for charitable purposes — an AIF investor whose long horizon lets it carry illiquidity.