What is Merchant banking ?
Merchant banking is the financial services to companies in which Merchant banker not only provide company fund for functioning but also take part in management decision making and acts as advisory body. Merchant banker provides loan and become equity shareholder of company.
Merchant banking is very useful for new companies which are unregistered in stock exchange. Merchant banking provide them fund and working guideline until they become profitable and registered to stock exchange and start raising fund from public investors. Merchant bankers follow certain guidelines before investing in any company. Their main motive is to increase production and services within economy however the work according to SEBI guidelines and do not support any illegal activities.
Merchant banking functions
Fund for new companies- They provide loan or raise fund through stock market shares investment or prepare loan facility from banks. They give advice to their client about which share is performing well in the market, from where he can get loan with ease etc.
Advisor in various matters- They act not only as financial advisor but as overall advising body for company. They suggest which plant or asset would be beneficial for company. How can company perform expansion and modernization? In project management matter like which project is to be taken, what other necessaries would be there. Merchant banker helps company in project management by his sources. Perform forecasting about the project and explain the expected outcome to clients.
Banking service and Stock Broker- Merchant banker act as stock broker and banking service provider to his client. They trade in the stock market in the place of their client. They advise their client about shares performance, which is to buy, when to sell etc. They maintain banking services like loan facility, depositing money, investing money behalf of their client in various equity and debt securities.
Portfolio Management- Merchant banker gives advice in investment decision in the way that his client can get maximum profit. Portfolio management mean maintains all the investment in more liquid and in profitable form. It is necessary in building up company image among investors.
Merchant banker performs all this and charges his fee in the form of profit sharing. However sometimes merchant baker provides only desire services and gets his predefined fee. Merchant banking service specially focuses on new entrepreneur and help in establishment. It mentions them about various opportunities and provide require services.
Some of the Merchant Bankers are- ABN Amro Securities, SBI capital market ltd, Tata Finance Merchant Banker services, Punjab and Sindh Bank etc.