[Economy Q] Investment banking Meaning and functions

sanchit asked: investment banking samjha do plz

Ans. Suppose you want to start a new factory, don’t have enough money. Banks are not giving you loans or their loan-conditions are very tough. So you want to Issue an IPO/security in the primary market to get the required funds.

*security =a piece of paper. When someone buys that piece of paper from you, they give you money like 100. And you’re supposed to pay them back after a period or share your profits with them (Shares).

But what if nobody buys your IPO? And how to go and launch your IPO in the first place? You don’t know the technical nitty gritty or paper-work involved in it, or have the competent staff to do that? Easy, just walk in to an investment bank, they’ll launch the IPO on your behalf. They’ll sell you on your behalf and if no-one buys it, the investment banker will buy it and pay you the money. This is called underwriting.

Investment banks’s primary job =offering underwriting.

For example, on following link see the big underwritings made by Kotak Investment bank and the list of their big clients

Kotak Investment Banking: Leaders in the Equity Capital Markets

Other functions of an investment banker

If you’re a big corporate co., currently under heavy-debts, they’ll help you re-structure your debts. e.g. longer EMIs, selling or renting your non-core assets to squeeze some money and so on.
help you make deals,big investments, joint ventures, Mergers and acquisitions with other companies. They provide you with Research data like how much risk is there, what’ll be your return on investment, is there any technical or legal hurdle, if yes then how to bypass it.
Settle your family disputes. (like big corporate dad died and now people fighting for property, they help you come at an amicable compromise, without getting involved in lengthy court process.
They also help you convert your money from one currency to another.

So investment banker is not just a banker but combo of many things: lawyer, financial adviser, money-lender, insurer, Real estate agent and so on.
But Investment banks don’t do anything on small scale. Like you can’t walk in to get bike/car/house loan or get your 100$ converted into rupees.

Their customer base= big MNCs and corporates.
Their scale of operation= in millions and billions of Rs./dollars.

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juhee

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.not only underwriting but the work of an investment banker is also related with all other activities of issue management( issuing securities for the first time in primary market),like deciding the timing of public issue,preparing of prospectus which is to be filed with SEBI,and also dealing in securities(i.e. selling the securities)
.related terms are- merchant banking (where all investment banking activities are done but without the commitment of own funds)

. also corporate banking-which is simply banking provided for corporate customers which is more conservative than investment banking. investment banking is more innovative in character.

. also, investment/merchant banks are not necessarily banks.they are financial institutions providing various services like acceptance of bills of exchanges,corporate finance,portfolio management and other banking services.

krishna kishore

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thank you

Mrunal Patel || મૃણાલ પટેલ

@Juhee,
thanks, I appreciate your inputs.

ni3narang

thanks mrunal…really nice…

Monika Nohria

Hello Sir,
I am new to all this scenario.. just came across ur site while looking for some tips on preparing! Really a very useful site for newcomers like me! Thnx for your encouraging tips on self study etc.but the thought of Economics still haunts me. I m taking no coaching and preparing from my hometown(which is actually a small town)in Punjab. I wonder if u can suggest me some books or like to make my concepts clear in Economics as the changed pattern of Pre as well as Mians is becoming more conceptual than factual!!

ankit

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Same here Monika…..really great site…

life!!!

very helpful…can u please explain hedge funds?
and how do they differ from mutual funds??

Aaryan Mishra

NCERT-CLASS 9,10,11,12(MACRO-ECONOMICS ONLY) must…..then IGNOU material on egyankosh.ac.in website….choose BA(ECO)or MBA stuff on dat site….excellent material…..no need to buy other stuff….re-read those stuffs …..or abt sm particular stuff….wikipedia, investopedia related site…..albeit Ramesh Singh (book) (adv displayed on dis site) is also v-gud…..visit this site too…. http://indianeconomyforcs.blogspot.in/

[Economy] LIST of All Articles published by me to clear the basic concepts of Economy for any recruitment exam or interview « Mrunal

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