Questions Personal and Family

What role do investment banks play in the economy?


Edhi Mehtra

Take your dreams seriously

Investment banking plays a significant role in the economy, i.e., financial planning of a company or a person whether it is related to increasing capital through stocks or bonds or any other types of investments. Issuing bonds and stocks is one of the fundamental ways for a company to raise capital. The mission of a company or an individual is to raise the present capital to a large amount through investing them in special funds or deposits with fewer risk factors. But in the busy schedule and work culture, nobody has so much time where he/she can get all the information about these essentials. Thus, here starts the role and importance of investment banks. 

1. Investment banks act as an advisor for the large enterprises or individuals by suggesting them the way or plans through which the enterprises or the individual can earn meet their expectations by regulating a huge amount of capital. Banks are a connection between the investors and the enterprises. Even the financial challenges, the current position of the stock market, the rate of interests, bond issues, everything is detected by the investment banks and informed to the company or the individual.

2. When it comes to mutual funds, the investment banks act as a great resource in the sales process of mutual funds by indicating the correct market price, flexibility issues, risk issues and competitive factors of the funds when the company or an individual is pursuing it. It has been found that nowadays, most of the mutual fund investments are made through investment banks rather than the company or the individual himself. 

3. Investment banks are an institution of the stock exchange where they are highly involved in the buying and selling of the shares and bonds by guaranteeing security and safety to the companies. A company can raise capital through more than one equities or debentures where the investment banks also get involved and determine a rise in the present capital as they buy stocks from some institutions. As they are offering a great profit to the company, at the same time the banks are also earning a considerable profit.

4. Several teams in the investment banks are always busy researching what kind of stocks are worth buying or selling and produce reports which are an excellent resource for the companies or the individual. Not only this, but investment banks also have trading and sales team who actively keep on finding respective clients seeking for a mutual fund or a stock. 

5. Asset management like pension fund management, wealth management, insurance management, real estate trust management, debenture instrumentation is a prime role of the investment bank. Investment banks also provide security to the products which are associated with the company like credit card documents, fixed income, financial assets, etc.

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