Investment Bank

Investment Bank acts as an intermediary in the financial system which help the institutional investors to raise capital.

Mutual funds, Hedge funds, Pension funds, Insurance companies, HNIs, corporations, banks, government, etc are the clients of Investment Bank.

Investment Bank is different from Retail Bank

  • The Retail Bank handles transactions with a lesser amount of money whereas the Investment Bank handles transactions with large amount of money.
  • The clients in case of Retail Bank are general public while in case of Investment Bank are large institutions, government, corporates, HNIs.
  • The services provided by Retail Bank are deposit and lending, ATM services, debit and credit cards, online banking. Whereas, services provided by Investment Bank include mergers and acquisitions, underwriting equities, debt security, trading services, asset management services, etc
  • The Retail Bank charges fees for the services rendered whereas the Investment Bank charges fees (when acting as a broker) and makes profits ( when acting as a dealer).

Role of Investment Bank.

  • Investment Bank helps the companies to raise capital through IPO/FPO.
  • It also helps the companies in Mergers and Acquisitions by researching about the company and then valuating and negotiating about it.
  • It provides trading services to its clients. Nearly 100,000+ trades happen in a single day in a big Investment Bank.
  • It researches about the companies, industries and economies.
  • It provides Asset management i.e. portfolio management services and fund management services to its clients.
  • It also acts as a custodian of its clients’ assets.
  • It also advises its clients on Restructuring of their businesses.

Cash equities

Cash equities refers to the issuance of common stock/shares to the general public as well as institutional investors. It can be easily converted into cash (in T+2 settlement cycle) , that’s why they are referred to as cash equities.

It is a financial product which is traded in capital market. The Primary market issues fresh or new securities to the general public through IPO (Initial Public Offering) or FPO ( Further Public Offering). The secondary market also called aftermarket is the financial market where previously issued securities are bought and sold.

The major advantages of investing in cash equities.

  • The shareholder becomes the part owner of the company.
  • He gets the voting rights in important decisions of the company such as Restructuring, Mergers and Acquisitions, etc.
  • He gets the dividend and capital appreciation.
  • Also, the shareholder gets the flexibility to easily transfer his shares.

Disadvantages of investing in cash equities.

  • The equity shareholders are given last preference at the time of liquidation of the company.
  • There is uncertainty about the dividends.
  • There can be capital depreciation.
  • There can be difficulty in transferability of shares if there is some bad news about the company or the company has gone bankrupt.

So, one must have full and thorough knowledge about cash equities before investing in it.

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