Here we guide you through various aspects of careers in finance, using simple examples..
What was the last thing you bought?
Suppose you bought some apples. You have to go to proper market to buy apples. You cannot buy apples from a stationery or a dairy. You have to visit fruit market for the same.
Taking the same analogy in finance – from left to right in the picture below
Fruits market (capital markets)
Apple (financial product i.e. equity or debt security)
Seller (company who is raising money)
Leftmost side is the buy side – while the rightmost side is the sell side.
Investors in this case will not be only retail investor like you – but also the institutions like Banks, MFs, PFs, Insurance, Endowment funds etc. These institutions in turn will invest into capital markets. So, your money goes either in consuming goods or into capital markets.
To be able to decide whether the careers in finance you’ve heard about are your life’s purpose, you must first understand with what you are dealing.
If I was to place the jobs in the figure above – I would keep Portfolio Management towards the left side – buy side and Investment Banking towards the right – sell side.
Portfolio Manager is the king here in finance – as customer is the king. Portfolio manager is the pseudo customer as he will be taking on the decision of buy/sell on behalf of either private client or on behalf of institutions.
Every client has unique circumstances and different required return and willingness to take risk. Portfolio Manager has to take that into consideration. He has to ask the investor certain set of questions to come up with client’s risk and return characteristics.
Then, once he gets the risk return of the client, he asks for risk return of asset classes (equity, debt, alternatives). Now he has risk return characteristics of client as well as asset classes – his only job left is to do strategic asset allocation – i.e. to match the risk return of client with risk return of asset classes and choose assets on that basis.
Now, coming towards the right side i.e. sell side. Company wants to raise money and many a times face difficulties in doing so. This might be because of their low earning quality or high debt etc.
So, Investment Banker comes into the picture.
Investment Banker helps the company raise money by selling their products i.e. Equity Security and Debt Security. Client for the Portfolio Manager is the Investor and for Investment Banker is the Borrower.
Investment Banker helps the company in coming up with valuation for making an IPO (Initial Public Offering) and also with FPO (Follow on Public Offering). He also helps company to make private placements of their securities in front of qualified institutional investors. Not only this, he makes pitch decks to present the story of his client in a better manner; in front of the investor – sometimes to raise debt and sometimes for private equity.
Other careers in finance assist portfolio managers and investment bankers.
Credit rating companies provides them with the credit rating of their clients.
Research firms provides them with research on asset classes.
These guys know the most about the market. Equity Research Firms are one of them which provides the research report on companies to both portfolio manager and the investment banker. These are very popular careers in finance.
So, now you’ve to decide which firm is that you’re aiming for and prepare accordingly
- Portfolio Management Firms
- Investment Banking Firms
- Research Firms
- Credit Rating Agencies