Retail Investors Meaning

The share market comes with limitless opportunities for investors to earn money. It is said that the more you invest, the more are the chance to book a profit and create wealth. But what is the limit to investing in the share market? Well, it differs for different types of investors in the stock market. In a broader class, there are two categories, retail and institutional investors. In this article, let’s have a quick understanding of retail investors’ meaning. 

Who are Retail Investors?

Investors are the people or those entities (such as firms and mutual funds) which put their money or capital into securities or funds while expecting to earn financial returns.

Retail investors are non-professional individuals who desire to reap the benefits of investing by participating in the stock market. Here when considering the limit of investment, it is comparatively lower than the other class of investors, i.e. institutional investors. 

SEBI defines a retail investor as an individual whose application or bid for securities or stocks does not exceed  ₹ 2,00,000 in an IPO and doesn’t hold or buy stocks for a value of more than ₹2,00,000.


Retail Investors Characteristics 

After understanding the retail investors meaning, let’s have a look at the features and characteristics of retail investors:

  • Retail investors are non-professional traders who trade individually through traditional, online brokerage apps and other investment accounts for and on their own.
  • A majority of the retail investors tend to trade occasionally in small amounts as compared to the institutional buyers such as mutual funds, pension funds, etc that use a huge amount of capital for trading.
  • Since the buying potential of retail investors is low, they are charged higher fees on their transactions. However, some of the online brokerage apps and brokers have made a specific type of trading free of cost.
  • Retail investors enter the stock market for their own personal interests, which may include the income for a college fund after retirement earning or just to generate additional capital.
  • Generally, retail investors enjoy the benefits of more liquidity and less paperwork as compared to institutional investors.
  • Research and guidance are two of the most important fundamentals of investing. Retail investors have to research for the quality stock on their own and do not get crucial guidance unless they use a specific investing app or broker, which provides technical analysis and guidance.
  • There is no doubt the fact that retail investors lay a remarkable influence on the market sentiment, which directly affects the overall functioning of the stock markets.

Retail investors Protection

Retail investors stand a huge possibility to be exploited by the exposure to the various risks of the stock market. Therefore, SEBI, the regulatory authority of the stock market focuses on the protection of retail investors and their interests. 

Since the majority of retail investors are unaware of certain risks and scams in the market, it is essential to protect retail investors for the fair and orderly functioning of the stock market. 

Therefore, SEBI consistently formulates new regulations and makes amendments in order to protect and promote retail investors.

SEBI consistently formulates new regulations and makes amendments to existing laws in order to protect and promote retail investors.

Some of the major regulatory measures introduced by SEBI are to protect retail investors.

  • Educating the investors and promoting financial literacy by collaborating with different exchanges and depositories.
  • Enhancing caution among the retail investors by conducting regional seminars regarding schemes and apps, which mislead the investors into the allocation of their capital in speculative activities by expressing a chance to earn exceptional returns.
  • Furthermore, SEBI focuses on enhancing the possibility and lowering the costs of the entry and activities of retail investors in the market. 
  • Along with that SEBI aims at an advanced disclosure of the rules and guidelines that protect the retail investors again and again at different steps.
  • To ensure that retail investors are able to equally access the IPOs of their preference, the allocation of shares to retail investors has been shifted from 25% to 35% of the total issue of shares in case of book-built issues.
  • Modification of the share allotment system that allows every retail investor to get allotted a minimum bid of shares, without considering their application size.
  • Allowing retail investors a price discount in initial and follow-on public offers limited to 5% of the offer price that is paid by institutional investors.

The Bottom Line

The number of retail investors in the stock market is increasing exponentially. One of the major reasons behind the rapid surge in the number of retail investors is the increasing interest of people in the stock market.

Moreover, SEBI has eased up the entry and the activity in the stock market for individual investors, allowing more people to enjoy the stock market party. Hence, even non-professional individuals start to invest on and for their own. 

For the convenience and ease of retail investors, various online investing apps are providing fascinating features that promote and protect retail investing. In all the retail investor meaning points towards the individual holding the investment right in the stock market up to the limit of Rs 2 lakhs. 

To become a successful retail investor, it is important to gain the proper understanding of share market investment, for which you can join or register yourself in the stock market courses now.

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