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Who are the merchant bankers?

  


Who are the merchant bankers

Introduction 

Merchant bankers are professionals who assist companies in issuing shares on the stock market and help with many other financial services. In addition, these firms or individuals offer advice and guidance to corporations to help them with their primary market activities.

Before issuing shares on the stock market, companies must comply with some legal requirements. Furthermore, it is necessary to promote the share so potential investors can gain knowledge about it and help the company generate funds.

Merchant bankers help businesses make issuing shares as straightforward as possible. These bankers are also responsible for marketing the share to potential investors so that companies can generate funds.

In other words, merchant bankers are in charge of the issue and are involved in the process from the beginning to the end. They act as intermediaries between the company and the investors.

Scope for Merchant Bankers

Merchant bankers play an essential role in corporate finance. Companies require merchant bankers for a variety of reasons. For example, financial institutions' policies are constantly changing, and merchant bankers assist companies in staying current with these policies so that they can continue their work without delay.

Apart from that, they aid in collecting debt through various debt instruments. Finally, merchant bankers oversee the entire process, raising funds as needed by the company and handling all legalities on its behalf.

Additionally, merchant bankers can advise businesses on how to raise funds and review their strategies, structure, and operation of specific projects. Merchant bankers provide many services for the benefit and growth of the company.

 

 What Are The Importance Of Merchant Bankers?

Merchant bankers assist businesses by helping them understand complex financial norms. In this section, we'll look at the significance of merchant bankers.

  • They aid in comprehending complex financial rules and procedures.

  • They improve the company's cash flow by implementing better strategies.

  • They aid in the raising of funds through the use of various debt instruments.

  • They assist companies in issuing a public offering by completing all the legalities and marketing your share to reach potential customers.

  • They assist businesses in keeping up with changing financial rules and regulations.

  • They assist investors in making purchasing decisions for securities.

  • They offer corporate counselling regularly to help the company grow.

 Important Functions of Merchant Bankers

Merchant bankers perform a variety of tasks. Some standard functions are as follows:

  • Fundraising

Merchant bankers assist businesses in raising funds. They determine the promoter's contribution and assist businesses in obtaining project loans. They primarily assist businesses in raising funds through public stock offerings, financial institution advances, and syndicate loans from commercial banks.

  • Project Management

Merchant bankers assist with project management. For example, it creates a project report, decides on a financing strategy based on market conditions, and assesses the project's technical, commercial, and financial viability. Merchant bankers also assist businesses in filing forms to obtain funds from the institution.

  • Research

Before issuing stock for public sale, merchant bankers conduct market research. They go into considerable detail to forecast the market so that companies can make decisions on the various factors that will help them in every way possible to provide better development and benefits.

  • Taking Care of Public Issues

Merchant bankers are involved in all aspects of public issuance. They handle this process to make it as viable as possible for the company. They provide services in pre and post-issue exercises such as determining share allotment, pricing, completing legal compliances, marketing the public offering, and so on.

  • Managing Portfolio

Merchant bankers primarily provide portfolio management services to institutional investors. They advise them on investment decisions, such as which securities to invest in to generate a sufficient profit. In addition, they advise investors based on investment objectives, tax brackets, maximizing returns, capital appreciation, and so on.

  • Advisory

Merchant bankers regularly advise corporations to improve performance and build a better image among other investors. As a result, the company's market value will rise, and the share price will follow suit. In addition, they offer comprehensive counselling services to help businesses make better decisions about their overall development.

Categories of Merchant Bankers

There are several types of merchant bankers, and they are classified based on their services. First, let's look at the most common types of merchant bankers:

  • Category 1 - Merchant bankers in this category can perform all types of merchant banking services such as prospectus preparation, financial structure determination, market surveys, raising funds from capital markets, raising funds through new instruments, working capital finance, venture capital, lease finance, fixed deposit management, factoring, mutual fund portfolio management, and so on.

  • Category 2 - Merchant bankers fall in this category and work as advisors, consultants, co-managers, underwriters, and portfolio managers.

  • Category 3 - Merchant bankers fall in this category and work as an issue's underwriter, advisor, and consultant.

  • Category 4 - Merchant bankers in this category only act as advisors or consultants on an issue.

 Advantages

  • Reviving Small Business

Merchant bankers assist small and medium-sized businesses in reviving by implementing better strategies and providing beneficial advice. In addition, they assist such businesses in raising funds to run different projects.

  • Proper Counseling

Merchant bankers advise businesses on changing strategies or implementing new methods regularly. These recommendations assist businesses in growing in the right direction and increasing the market value of themselves and their shares.

  • Better Investment Decision

Merchant bankers also provide proper guidance to businesses when making investment decisions. First, they conduct research on the company and the investment they wish to make, and after forecasting all possibilities, they recommend whether the investment is worthwhile.

  • Money Management

Merchant bankers assist corporations in various ways, and one of the other services they provide is cash management, which helps companies manage their cash flows more effectively.

Disadvantages 

  • Hefty Fees

It could be an obstacle faced by many businesses to avail merchant bankers' services. Unlike other commercial banks, merchant banks do not offer their services for nominal charges; instead, they charge high fees or commissions. As a result, many businesses may be unable to bear the costs of hiring merchant bankers and thus may be unable to benefit from their services.

  • Limitation

Merchant bankers face their own set of constraints while giving services. The regulatory authority imposes numerous rules and regulations with which merchant bankers must comply. These rules and regulations may sometimes limit merchant bankers' operations, and they must separate their business activities to ensure they do not violate any laws.

 Difference between Merchant Bankers and Investment Bankers

Besides a few differences, merchant and investment bankers perform similar functions. While both bankers work in the financial sector, they operate in different ways.

On the one hand, merchant bankers primarily work with small and medium-sized businesses, while investment bankers manage the financial activities of large corporations. On the other hand, both types of bankers provide various financial services to businesses to help them grow and develop.

The investment banker assists large companies in raising funds through initial public offerings, acquiring finance through capital markets, merger and acquisition strategies, and other capital restructuring services.

Whereas merchant bankers provide financial services to small and medium-sized businesses. They assist them in raising funds, recommending investment strategies, portfolio management, and other services to help companies recover and grow.

Merchant bankers play an essential role in managing a company's finances. They offer various services to capitalize on investment and raise capital to acquire multiple projects to scale up businesses. You can seek assistance from Agarwal Corporate for more information on investment and capital market services. They have experts who can advise you on the best strategies and investments.


Frequently Asked Questions

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Indian merchant bankers are governed by the Security and Exchange Board of India (SEBI).

 

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The primary services provided by merchant bankers include fund-raising, venture capital financing, underwriting, loan syndication, investment advising, portfolio management, and issue management.

 

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The first merchant banker in India is Grindlays Bank.

 



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