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
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.