One of the main categories of different types of investors is retail investors. A common man who deals in the stock market is usually a retail investor. So, let’s move forward and understand the retail investors in detail.
Who is a Retail Investor?
Amongst all types of investors, the retail investor is the least professional investor. They can buy and sell equity, commodity, mutual funds, ETFs, and all other sorts of investments and trade in the market. A retail investor usually has to deal in the market through a broker.
According to SEBI guidelines for retail investors, the maximum limit for retail investors in IPO (Initial Public Offering) is Rs 2 lacs. They can also buy and sell stocks up to the same limit in the stock market. SEBI retail investment limits are not applicable for commodity trading.
In IPOs also, 35% of the total amount of shares is always reserved for retail investors. Thus, one can say that although the participation of retail investors might be very less as compared to big institutional investors, they still play a very important role in the stock market.
Limitations and Advantages of a Retail Investor
Retail investors have a lot of limitations as well as advantages.
- No area for diversification
If you are investing in small amounts, you cannot diversify your investments. If you do so, then you’re left with very small patches of investments. Thus, retail investors have very little space to diversify.
- Time Management
As retail investors are not professionals in the market, they cannot invest their entire time analysing the market. Thus, they are lesser known to market trends.
- Heavy Brokerage
When retail investors have to go through a brokerage company, they have to pay a brokerage amount. This decreases their profits.
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Retail investors also have great advantages in their basket.
- Outsider’s insight
A retail investor is not completely into the market. But their involvement in other sectors proves very useful for them. For example, if you are a factory worker, you’d know that in the next few months, production will increase as demand has increased in the last few days. This would help you invest in the company’s stock as you know how the company is going to perform in some days.
- Balance of loss and profits
Everyone knows that the market involves high risks. As retail investors invest in low amounts, their chances of going into loss decrease.
Retail investors invest in small amounts and SEBI reserves a specific quota for retail investors.
In simple words, a retail investor is you and I, people who save from their income and decide to invest a small amount of it in the stock market.