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Financial services Investment Banking Mutual fund Stock Broking

Mutual fund
A mutual fund is A pool of money managed by an investment company. Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money. Mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.

Advantages of Mutual Funds


Professional Management - The primary advantage of funds is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolios. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments. Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money. Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions. Liquidity - Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time. Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.

Disadvantages of Mutual Funds


Professional Management - Many investors debate whether or not the professionals are any better than you or I at picking stocks. Management is by

no means infallible, and, even if the fund loses money, the manager still gets paid.

Costs - Creating, distributing, and running a mutual fund is an expensive proposition. Those expenses are passed on to the investors. Since fees vary widely from fund to fund, failing to pay attention to the fees can have negative long-term consequences. Remember, every dollar spend on fees is a dollar that has no opportunity to grow over time. Dilution - It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Taxes - When a fund m anager sells a security, a capital-gains tax is triggered. Investors who are concerned about the impact of taxes need to keep those concerns in mind when investing in mutual funds. Taxes can be mitigated by investing in tax-sensitive funds or by holding non-tax sensitive mutual fund in a tax-deferred account, such as a 401(k) or IRA.

Different Types Of Funds


No matter what type of investor you are, there is bound to be a mutual fund that fits your style. It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk it's never possible to diversify away all risk. This is a fact for all investments. Each fund has a predetermined investment objective that tailors the fund's assets,

regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds: 1) Equity funds (stocks) 2) Fixed-income funds (bonds) 3) Money market funds All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.

Money Market Funds The money market consists of short-term debt instruments, mostly Treasury bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD).

Bond/Income Funds Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.

Investment banking
Investment banking (corporate finance) is the traditional aspect of investment banks which also involves helping customers raise funds in capital markets and giving advice on mergers and acquisitions (M&A). This may involve subscribing

investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Another term for the investment banking division is corporate finance, and its advisory group is often termed mergers and acquisitions. A pitch book of financial information is generated to market the bank to a potential M&A client; if the pitch is successful, the bank arranges the deal for the client. The investment banking division (IBD) is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry, such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, project finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade debt and generally work and collaborate with industry groups on the more intricate and specialized needs of a client. There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) constitutes the "buy side". Many firms have buy and sell side components.

Core investment banking activities Front office

Stock Broking
Investment banking (corporate finance) is the traditional aspect of investment banks which also involves helping customers raise funds in capital markets and giving advice on mergers and acquisitions (M&A). This may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Another term for the investment banking division is corporate finance, and its advisory group is often termed mergers and acquisitions. A pitch book of financial information is generated to market the bank to a potential M&A

client; if the pitch is successful, the bank arranges the deal for the client. The investment banking division (IBD) is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry, such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, project finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade debt and generally work and collaborate with industry groups on the more intricate and specialized needs of a client. Sales and trading On behalf of the bank and its clients, a large investment bank's primary function is buying and selling products. In market making, traders will buy and sell financial products with the goal of making money on each trade. Sales is the term for the investment bank's sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on a caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, which can price and execute trades, or structure new products that fit a specific need. Structuring has been a relatively recent activity as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities. In 2010, investment banks came under pressure as a result of selling complex derivatives contracts to local municipalities in Europe and the US. Strategists advise external as well as internal clients on the strategies that can be adopted in various markets. Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene. This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structures create new products. Banks also undertake risk through proprietary trading, performed by a special set of traders who do not interface with clients and through "principal risk"risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. The necessity for numerical ability in sales and trading has created

jobs for physics, mathematics and engineering Ph.D.s who act as quantitative analysts. Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division may or may not generate revenue (based on policies at different banks), its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. Research also serves outside clients with investment advice (such as institutional investors and high net worth individuals) in the hopes that these clients will execute suggested trade ideas through the sales and trading division of the bank, and thereby generate revenue for the firm. There is a potential conflict of interest between the investment bank and its analysis, in that published analysis can affect the bank's profits. Hence in recent years the relationship between investment banking and research has become highly regulated, requiring a Chinese wall between public and private functions. Middle office Risk management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent "bad" trades having a detrimental effect on a desk overall. Another key Middle Office role is to ensure that the economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation. Corporate treasury is responsible for an investment bank's funding, capital structure management, and liquidity risk monitoring.

Size of industry Global investment banking revenue increased for the fifth year running in 2007, to

a record US$84.3 billion, which was up 22% on the previous year and more than double the level in 2003. Subsequent to their exposure to United States sub-prime securities investments, many investment banks have experienced losses since this time. The United States was the primary source of investment banking income in 2007, with 53% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 32% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 15%. Over the past decade, fee income from the US increased by 80%.[citation needed] This compares with a 217% increase in Europe and 250% increase in Asia during this period. The industry is heavily concentrated in a small number of major financial centers, including City of London, New York City, Hong Kong and Tokyo. Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. New products with higher margins are constantly invented and manufactured by bankers in the hope of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins.

WHAT IS STOCK BROKING


The process of investing in the share market, either individually or through a broker is known as stock broking, in simple terms. This is primarily done by opening a Demat account. If done through a broker, he opens an account, helping you to operate through online stock broking facility. Going ahead the broker suggests investment ideas and strategies suiting individual requirements and based on his objective of investment. Tenure of investment, the selected financial instruments and their respective companies, the schemes, the risk taking ability, the sum available for investment, all are considered while forming investment choices.

After the amount is invested, the broker tracks and monitors the investments, changes or reinvests depending on the performance and generates reports for them. This entire process is known as stock broking.

WHO IS A STOCK BROKER


A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors. A broker may be employed by a brokerage firm.A transaction on a stock exchange must be made between two members of the exchangean ordinary person may not walk into the New York Stock Exchange (for example), and ask to trade stock. Such an exchange must be done through a broker. There are three types of stockbroking service. Execution-only, which means that the broker will only carry out the client's instructions to buy or sell. Advisory dealing, where the broker advises the client on which shares to buy and sell, but leaves the final decision to the investor. Discretionary dealing, where the stockbroker ascertains the client's investment objectives and then makes all dealing decisions on the client's behalf.

USING STOCK BROKING SERVICES TO BUY AND SELL SHARES


Investing in the stock market appears to be an attractive avenue of savings growth and regular income to you. You have been deluded with news on TV channels and newspapers regarding the rise or fall in the Dow or the BSE Sensex, about company shares rising in value and dividends announced. Now, you want to jump on the stock market bandwagon. But how does one buy shares? It is not possible to just contact the stock exchange and request shares. Neither can an investor go to the stock market and start buying and selling shares. To trade in the stock market, you need the services of a stock broking firm or stock broker. Apart from buying and selling of shares on your behalf, the stock broking firm can also offer other stock market-related services.

This article deals with the basics of using stock broking services firms or stock brokers to trade in shares in the stock market.

What is a Stock Broking Services Firm or Stock Broker?


You may have seen in the television news and newspapers images of crowded stock exchanges where stock brokers are busy before numerous computer terminals or shouting orders. Let's take a look at what stock broking actually is all about. Stock exchanges do not allow members of the public or individual investors to directly deal in the stock market to buy or sell shares listed in the market. The trading of shares in the stock exchange has to be done via a registered stock broker or stock broking firm. Stock brokers are registered members of the stock exchange. Only members of a stock market are authorised to trade in the stock market. The members or stock brokers can trade for themselves or on behalf of other investors who are not members. The members are further grouped into stock broking services firms who offer a wide variety of stock market services. The stock broking firm or stock brokers charge a commission from the general investor for trading on their behalf. Some examples of stock broking services firms or stock brokers in India are Karvy (www.karvy.com), Sharekhan (www.sharekhan.com) and TD Ameritrade (www.tdameritrade.com )and Schwab Brokerage (www.schwab.com) in the US.

How is Trading Done by Stock Broking Firms or Stock Brokers?


The pre-cursor to the stock exchange operated as gathering of the traders in coffee houses to buy and sell shares. That's how the London Stock Exchange initially was. With the building of formal stock exchanges with trading floors, the practice continued and still continues in many exchanges, though on a much larger scale.

Then stock brokers started predominantly using the telephone as the means to trade in shares and place orders to buy, sell or hold. Now, with advances in communication technology, in stock exchanges such as the NASDAQ, stock brokers and stock broking firms use sophisticated computer networks to facilitate online trading. This has enabled the creation of an online or virtual stock market. The Bombay Stock Exchange (BSE) too has a private computer network connecting 417 cities to enable online share trading. Stock broking firms extend online trading services to their clients - the investors. Share trading by stock brokers has come a long way from the vocal -based system of yesteryears to the virtual stock market of today.

What are the Services Offered by a Stock Broking Firm?


The standard services of buying and selling shares on behalf of the investor is offered by the stock broking firm. Some other market-related services offered by Stock broking firms may be:

Online Share Trading or the Virtual Stock Market - The facility allows investors to open an online account with the stock broking firm to utilise their services. All investor transactions can be via the internet, therefore functioning as virtual stock market. Stock Portfolio Management - While some investors may like to choose stocks to invest in on their own and wish to make own trading decisions, inexperienced investors can avail the services of stock portfolio managers of the stock broking firm. The portfolio managers may advise the investor as to which stocks to invest in, and when to buy or sell stocks. Initial Public Offerings (IPO) issue purchase - The stock brokerage can inform the investor regarding upcoming IPOs and bid for IPO shares on behalf of the investor.

Mutual Fund investment - Investors can choose and invest in a variety of mutual funds through the stock brokerage. The stock broking firm may advise the investor on the type of mutual fund to invest in. Market Advisory Services - The stock broking firm may offer its own analysis from its market experts. It may issue reports and advise on areas such as choosing stocks, stock market trends, analysis regarding specific companies and general economic analysis. Margin Funding Services or Margin Trading - When an investor starts an account with a stock broking firm and starts trading, he or she has to deposit a certain amount called margin in the account. For purchase of shares, some stock broking firms provide margin funding where the investor pays only 50% (percentage varies) of the share value, and the rest is funded by the stock broking firm as a loan. Interest rates are charged on margin funding. This procedure is referred to as margin trading. Some experts advise inexperienced investors to be cautious of margin trading, as it is a risky strategy.

The selection of a reputed stock broking firm with the required services is very important for an investor to trade wisely in the stock market and get good returns on their investment.