Role of investment banking and ESG funds in India

Investment banking is a term we are all familiar with. From time to time, we must have read this term in the newspapers, heard on news channels or simply must have heard on some TV show. But what exactly is investment banking? Investment banking, in simple terms is the process of raising funds and capital for clients that can either be big corporates or government sector institutions, and some other entities too. Their primary functions include aiding their clients in underwriting new debt, selling securities and also help in facilitating mergers and acquisitions. Along with this, they are also involved in reorganizations for private sector investors and some institutions as well. Another very important function of the investment banks is helping and guiding firms (the bigger ones) with investment in ESG funds in India, or wherever they might be. ESG funds are the kind of funds that tells potential investors about a company’s position and credibility through their investments in environmental, social and governance factors. The major focus is on those businesses that resort to having environment-friendly conduct, deliver services or products that have a positive impact on the society and give a great importance to ethical business conduct.

So why exactly is ESG funds in India or anywhere else important today? To put it in simpler words, it is a belief that companies would invest in ESG only when there is some pressure from bigger and larger investors, who have the power to hold them accountable for their environmental, social and governance ethics. Plus, we cannot rule out the fact that in today’s world, any business that could potentially harm the climate, societal beliefs, and governance conduct can be a greater risk for any business and hence, the investors too. Those companies that follow the ESG guidelines and norm are always in safe zone in terms of losses with reference to the above-mentioned factors.

What functions do investment banking firms perform?

At some or the other time, we have all heard about investment banking. But what does investment banking really mean? We shall find out today. Investment banking is that branch of banking operations that provides aid to organizations and even individuals in order to raise capital. Along with that, the investment banker appointed also provides them with detailed financial consultancy as well.

As a field in the banking universe, investment banking is known to be as one of the most complicated financial systems. Be it investment banking firms in India or anywhere in the world, all these firms provide a wide array of service. Their role in helping their clients is in more than one way. Along with that, the type of clients they deal with are also different. Investment banking firms provide services such as trading securities or proprietary, assisting and overlooking mergers and acquisitions that they clients might be dealing with (usually work as advisory), lend money to firm in need so as to enable them in purchasing assets and also settle some liabilities, help businesses in restructuring making them more business efficient and ultimately, helping businesses or their individual clients make more profit. They also help private businesses in going public.

Most investment banks also provide the wealth management service. Wealth management in this century has become a wholesome concept, where it is no more about investing money in assets that were deemed to be safe earlier such as fixed deposits or property. While property is still one of the most valuable of assets, it does not provide liquidity. When investing your money to gain profits, it is important that the money is divided across different kinds of assets, those who have good liquidity and others that are stable. Risk factors also need to be taken into consideration on the above two types.

Why choosing a good asset management company is important?

If you consult with any of the top asset management companies in India today, you are bound to here many stories of investors’ panic selling when the market goes down and also of those investors that kept their patience at the time of crisis, did not sell their shares which also formed a major part of their assets, and reaped high benefits over a period of time. The difference between these types of investors is not just about their patience, but also the type of guidance that they have been receiving from their asset or wealth manager. Time and again, it has been said that market being down is an opportunity for investors to invest more (as the shares are cheaper) so that they can enjoy the gains at a later stage. However, unfortunately, some wealth managers fail to make their clients, the investors, understand this. Ultimately, the investor looses out on the profits that he or she would have gained only if they would have been guided and explained the meaning of remaining steady, properly. This brings us to the main point of this blog, the importance of having a good wealth manager. A wealth manager is not someone who you just hire so that they manage your wealth for you and ultimately give you good fruits. A wealth manager is more than just your wealth guide. For a wealth manager to churn our good results for your wealth, you need to trust them. But all this comes only after verifying that the wealth manager has produced good results for other clients in the past. Be it about long short funds in India, different types of mutual funds or any other financial portfolios, the wealth manager should explain the investors benefits and cons of each type of investment and lead them to a better progress and profit.

The role of an asset management company in brief

While both investment banking and asset management are important for the financial growth of a firm and of any business, both these verticals have some key differences. We shall be exploring the same today, although stressing more on the functions of any asset management company. One of the major functions of the asset management companies is that they become an intermediate not just for individual clients and households, government or big business firms. But they also help other categories, more specifically insurance companies and pension funds. As the financial companies or institutions that direct or influence the decisions for investors who choose to get professional help in managing their clients, the asset management company becomes an important buy side institution type.

Another major function of the asset management company is allocation of funds and assets. The mutual funds that everybody talk about comes with a specific aim in the financial terms, which would help the asset manager (on behalf of the client) to decide by shortlisting the best assets to invest in in terms of the returns they are known to give. They are so many funds that are debt oriented that do not put any more than twenty percent of assets in any inequities of undermanagement. A fund that is balanced, could invest 60 percent of asset inequities. This forms one of the crucial decisions that an asset manager you hire needs to make. On the other hand, when it comes to investment banking, the investment banking companies focus on raising capital or finance for their clients, who may be individual, governmental, large sized private firms or so on.

Asset management also involves a lot of R&A, that is, Research and Analysis. The asset manager needs to carefully study and analyse the current market situation, micro plus macro-economic aspects and even the performance of various funds that they advise their clients to invest in.

What is credit management and how does it help a business?

Credit management is a very old concept in the financial history. Its literal definition means a process or a function that puts together, a company’s activities and aims at making sure that the customers in reference pay their respective invoices within the said terms and conditions. Basically, it is a way of granting credit, plus making sure that the said payment is collected as an when an invoice is due. A credit management that is reliable and good is often the one that encourages a dialogue between the sales and finance teams in order to strike a balance between minimalised risk and maximised opportunities. It is a very common practice amongst businesses that deal with other businesses to have trade on credit, not just for the convenience attached to it, but also because it is broadly accepted that offering credit is necessary for building good businesses relationships and at the same time, developing new ones. Most businesses state that having trade of credit is more convenient.

You could hire a professional financial service provider, who would look into hedge funds, your credit management, asset management and wealth management too. From the above stated discussion, it is clear that trade credit is a very important business too. to customers, companies allowing a payment window of 30 days after delivery are more attractive than those who demand on the spot payment. However, the businesses should remember that more the number of days given of extended credit, greater is the risk of non-payment, which could actually prove a tough sport between the growth and downfall of a business, if the payment doesn’t occur on time. therefore, it is very necessary that the business finds a good balance on the extended credit period and function accordingly. They should not get into risks by the mere purpose of looking attractive to customers.

How do asset management firms guide a business in investment?

Every growing company at some or the other time in their journey need financial advisory services. These financial services help them navigate through their journey of investment, tackling liabilities, acquiring new businesses and so on. You can hire these services basis the size of your company, and your business. For example, a mid-sized firm or an MSME might not be able to hire the top most financial company. 

However, on doing a good research and gathering reviews, you might be able to find out some good and decent firms. If growing your assets is what you are looking for specifically, then you can go to hire one of the best asset management firms as per your business requirements. The firm will then assign an asset manager to you, who will be responsible for guiding you through further investments as well. They do a thorough study of your financial portfolio, figure your current state of assets, liabilities and credit. 

Then, they enquire of you the goals that you have set for the coming years. Once all this is done, they then help to chalk out a very reasonable plan for your business’s financial journey ahead, especially the investments that are to become assets in near future. Some assets are tangible (which can be seen and felt) and others are intangible (one that is only seen on paper in numbers). The investments that an asset manager does on your behalf could be a combination of these two types of assets. These assets could be either long term or short term assets. Long term assets reap benefits after a couple of months or years. The short term assets such as stocks and shares show us results in just a few days or so. Therefore, assets can be of various types. What matters is how they are well invested and what they get for your business.

What next for your business after the pandemic?

Credit management is a subject that has been doing many rounds lately. The global pandemic of COVID-19 has made it very difficult for even the top asset management and investment banking companies in India and all over the world to actual carry out their day to day operations. Plus, with every industry currently only seeing a downfall in their profits and their earnings as well, the world is bracing itself for the tough recession that is going to follow. It has also become very crucial for investors to keep their spending and investment limited, so that there is no further damage done to their business. When the lockdown around the world lifts at a gradual pace, we are going to witness the slow emergence of the world economies and how they cope up from the hit and blow that hit them. Investment too, is going to see a dry state in most industries for a very long time. So, what can you do, as a business owner to be ready to face what is coming? Firstly, having faith in the business is very important. You might even have to take some tough decisions for the sake of your business but remember that it is all going to be to keep your firm running. Secondly, start venturing out of your business’s comfort zone, once your profits become steady, so that, if at all in future, go forbid, such a situation arises, you are ready to face it. This means that you need to increase your backbone, investment in your assets and also invest smartly in other businesses. You may hire an asset management firm that will help you in this venture. An asset management company would also help you to navigate through all the investment decisions you plan on taking and advice you on what would be more profitable for your business.