What is Investment Banking?
You may have often heard about large-ticket mergers and acquisitions in the corporate world. Doesn’t that leave you wondering about how do these companies know when and where to invest these huge amounts of money and reap good returns on them at the same time? This is where the importance of investment banking comes in.
Read all about Investment banking – definition, operations, job roles, skills required & how to become a successful investment banker.
What is Investment Banking?
Almost all the corporations planning these large and complicated financial transactions turn towards investment banking services to plan their investment, devise strategies on how to best utilise their time and resources, and get aware of the risks associated with these projects.
Investment banking is a specialised segment of banks that helps organisations raise finances by organising transactions such as asset management, mergers and acquisitions, hedging, trading and sales, wealth management, etc.
An investment banker is a professional who combines investment-based transactions with their experience, analytical skills, and negotiation techniques to help organisations raise capital. According to an Economic Times report, investment bankers made a whopping INR 220 crores in a series of IPOs and other transactions.
It is very different from corporate banking, which is broadly about the financial activities of a company and aims at increasing the organisation’s value for its shareholders.
The regulatory framework of investment banks in India includes:
- All investment banks in India are regulated by the Companies Act, 1956 of and are governed by the provisions of this Act.
- All Non-banking Finance Companies and Universal banks that function as investment banks are regulated by the Reserve Bank of India under the RBI Act of 1934.
- The Securities and Exchange Board of India Act, 1992, governs all the functional aspects of investment banking.
Eager to start your journey as an Investment Banker?
What are investment banking operations?
The front office is the main revenue generating unit and brings in monies for the investment bank. Investment bankers working in the front office directly work with the clients, including individuals and organisations, and offer them financial products or advise them on trading.
Not all front office roles are client-facing. Professionals who handle mergers and acquisitions, wealth management, or equity may not interact with their clients or bring in revenues directly.
Some responsibilities of front office professionals may include:
- Asset management
- Creating client pitches and financial models
- Scouting for good investment opportunities
- Trading in derivatives and equities
The middle office of an investment bank is primarily responsible to ensure that the bank confirms to all the applicable regulatory requirements. Other major roles of middle office professionals include providing technology support to the front office and management of risk.
Responsibilities of middle office professionals include:
- Ensuring seamless functioning of IT software
- Capturing market data for front office employees to use
- Analysing front office deal agreements to ensure they are within the laws
The back office is the unit that ensures the smooth functioning of the investment bank’s daily operations. Broadly this office is responsible for payments, administrative, and other support services. These services may vary depending on the specific needs of different banks.
If you are working with the back office, your responsibilities may include:
- Maintenance of records
- Payroll management
What are the essential skills of an investment banker?
The career of an investment banker is not just extremely rewarding but also challenging and demanding. Having the right skill set can help you handle the challenges of the job well and advance your career.
Here are some essential skills that an investment banker must possess:
One of the most important skills that an investment banker must possess is financial modelling. It refers to the ability to record and analyse data about the monetary transactions of their clients. These transactions may include investments, records of profits and losses, etc.
Business valuation refers to the process of evaluating the best price ranges of bonds and stocks at which corporations can offer them to the public. Alternatively, it also refers to the optimum capital that the buying corporation wants to pay for its acquisition. Investment bankers arrive at these valuations and numbers and share their views on the potential of the project.
The job of an investment banker goes much beyond just number crunching. It is also about presenting these numbers well so that the relevant parties can consume them. An investment banker must be able to think out of the box for making their presentation interesting and comprehensive.
Understanding of transaction documents
An investment banker must have the skills to grasp, analyse and present transaction documents. These documents may include term sheets, confidentiality agreements, investment teasers, and confidential information memorandum, etc.
One of the core skills of an investment banker is to manage their relationship with their clients well. It also entails dealing with difficult clients and situations with a positive attitude. This goes a long way in not just acquiring clients but also keeping them with you for a long time.
An investment banker has to deal with a lot of data each day. One of the most essential skills that help you work with financial data is how well you analyse it. It also includes solving problems and making appropriate decisions. You may even be responsible for collecting market data and analysing it.
Your communication skills are paramount when working as an investment banker. You will spend a lot of time dealing with your current and potential clients including your team members. Great communication skills are the only way to deal with and manage these different stakeholders.
Why should you consider becoming an investment banker?
One of the best reasons why you should consider becoming an investment banker is because you get to deal with complex and important financial models right at the beginning of your career. And as and when you grow in your career, your body of work becomes even more sophisticated.
Since the field of investment banking is extremely dynamic, you get to learn something new each day. Each client’s portfolio and expectations are different from one another, which helps in creating new learning curves for you.
If you are passionate about finance, then investment banking is a great career for you. While you may start with the basic investment banking work, you will gradually progress towards key areas such as trading and sales, mergers and acquisitions, underwriting, etc.
Investment bankers, not just work on a higher pay scale as compared to their counterparts in other financial profiles, but they also frequently get perk packages whenever a bog ticket deal gets closed.
Opportunities to network
Investment banking offers you a chance to network with high-profile finance heads who take key decisions for their companies. Networking with them may open up new horizons for you when needed.
How to become an investment banker?
Now that you know what investment banking is, the skills of an investment banker, including the perks of this career, let’s get to know how you can formally learn the ropes of this exciting career.
There are many investment banking courses available that you can pursue to realise your dream of becoming an investment banker.
However, choosing the right institution and course is critical to have a successful career. One such course is IMS Proschool’s Certificate in Investment Banking and Capital Markets.
This course is specially curated to help you develop the requisite skills needed for a career in investment banking. The course offers theoretical and practical knowledge in niche subjects such as mergers and acquisitions, financial modelling, underwriting, etc.
- Curated by investment industry experts
- Meets the needs of a dynamic finance market
- Readies for exciting investment banking roles such as research, advisory, etc.
To enrol for this course either you should be a graduate or in the third year of your graduation.
What are the careers in investment banking?
According to the International Journal of Business and Management Intervention, the careers in investment banking are split into:
A career in investment banking opens up a plethora of opportunities for you. Some of these include:
Investment banking interns work with banks to get an exposure to the industry. This role allows them to learn practical application of what they have studied in their investment banking course. They work under the supervision of professionals and may or may not get paid during their internship period.
Junior investment banker
This is a position that is offered to entry-level investment bankers. The responsibilities of a junior investment banker may include meeting potential clients to assess their requirements, verifying their financial information, presenting different solutions available to them, etc.
An investment banking analyst is responsible for offering critical researched information to their clients for them to make optimum decisions about their investments.
Certification to get to be certified as an investment banker
Certifications play a major role in shaping the career of an investment banker. They are a testimony to the experience and knowledge of the candidate and help give them a career boost.
Here are some of the most valuable certifications required for a career in investment banking:
CFA (Chartered Financial Analyst)
This certification tests the knowledge of the investment banker on areas such as valuation of assets, management of portfolios, wealth planning, etc.
Want to know more about CFA?
Financial risk manager certification
This certification showcases the ability of an investment banker to understand and apply the concepts of credit risk, market risk, etc. and help mitigate their client’s risk.
Financial modelling certification
One of the most helpful certifications for an investment banker, the financial modelling certification helps you learn how to create and tweak financial models for your clients. This helps in creating budgets, analysing past data, and creating projections for the future.
Want to know more about CFA?
Certified public accountant certification
This certification confirms an investment banker’s knowledge and experience about important accounting principles. These may include concepts such as financial accounting, auditing & reporting, business environment concepts, and regulatory frameworks.
Fees or opportunity cost of becoming an investment banker
The course fee for the investment banking courses ranges between INR 5-20 lacs. However, this course is negligible when compared with the salaries that you can expect to get when you become an investment banker.
You can easily work with CA firms, private financial firms, MNCs, international banks, etc. for an average pay packet of INR 12.00 lacs per year.
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