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Investment Bank

Investment Bank.webp

Key Highlights

  • An investment bank is a specialised financial institution that helps companies, governments, and large investors raise capital, execute strategic transactions, and access financial markets.

  • Types of investment banking services includes equity capital markets (ECM), debt capital markets (DCM), structured finance, M&A advisory, institutional equities & broking and alternative investments advisory.

What is Investment Bank?

An investment bank is a specialised financial institution that helps companies, governments, and large investors raise capital, execute strategic transactions, and access financial markets. Unlike commercial banks, investment banks focus on advisory, capital-raising, underwriting, trading, and market-making services across equity, debt, and alternative asset classes.

For investors and corporates, investment banks play a pivotal role in facilitating market access, improving liquidity, and enabling complex financial decision-making.

Key Functions of an Investment Bank

1. Capital Raising

Investment banks assist businesses in raising funds through:

  • Equity issuance: IPOs, FPOs, QIPs, Rights Issues

  • Debt issuance: Corporate bonds, NCDs, structured debt solutions

They advise on pricing, structure, timing, and regulatory compliance to ensure successful capital mobilisation.

2. Mergers & Acquisitions (M&A) Advisory

They guide companies through strategic transactions such as mergers, acquisitions, divestitures, and joint ventures. This includes:

  • Deal sourcing and valuation

  • Negotiation support

  • Due diligence

  • Transaction structuring

3. Market Making & Institutional Equities

Investment banks facilitate trading by providing liquidity and competitive pricing for institutional clients, including:

  • Mutual funds

  • Insurance companies

  • Pension funds

  • Foreign institutional investors

4. Research & Analytics

Institutional-grade research across equities, sectors, commodities, and fixed income helps clients make informed investment decisions.

5. Underwriting

They assume the risk of distributing new securities to the market. By underwriting, an investment bank guarantees:

  • Full subscription of an issue

  • Efficient execution

  • Credibility with market participants

Types of Investment Banking Services

  • Equity Capital Markets (ECM)

  • Debt Capital Markets (DCM)

  • Structured Finance

  • M&A Advisory

  • Institutional Equities & Broking

  • Alternative Investments Advisory

Why Investment Banks Matter to Investors?

  • They enable participation in high-quality IPOs and debt issuances

  • Offer research insights and market intelligence

  • Ensure smooth execution of large-volume trades

  • Provide diversified investment opportunities through capital market products

FAQs on Investment Banks

1. How is an investment bank different from a commercial bank?

A commercial bank deals with retail banking - savings accounts, loans, deposits - while an investment bank focuses on capital raising, advisory, underwriting, and market-related services for corporates and institutional investors.

2. Do investment banks manage money for individual investors?

Typically, no. Investment banks cater primarily to corporates, governments, and institutional investors. However, some may have separate wealth or asset management divisions.

3. What is the role of an investment bank in an IPO?

They act as lead managers, advising on valuation, preparing regulatory filings, underwriting the issue, and connecting the company with both institutional and retail investors.

4. Are investment banks involved in debt markets?

Yes. Through Debt Capital Markets (DCM) teams, they help raise funds via bonds and debentures and advise on credit strategy, pricing, and investor distribution.

5. Why do companies need investment banks for M&A?

Investment banks bring expertise in valuation, negotiation, deal structuring, and due diligence, ensuring transactions are strategically sound and financially viable.