In this economic world, investment banking, as well as mutual funds, play a critical role in a way to favor the investors at their best. Both tend to act as financial tools in the business sector by providing satisfactory capital and profit to the company. No matter the availability of funds, capital, wealth, assets, money, or other resources, these two terms play as backbones to the matter.
Investment Banking vs Mutual Funds
The main difference between Investment Banking and Mutual Funds is that Investment Banking tends to help the investor’s business through various financial services. Meanwhile, Mutual funds deal with the investor’s money-related concerns, with their firm hands on securities in investment areas.
Investment Banking acts as a financial resource of capital for various companies, government departments, and other firms. The foremost concern of investment banking is peddling the business for a fit value to the investor by providing financial services. Having that said, it enables the investors to inflate capital.
Meanwhile, Mutual Fund is a financial tool that tends to collect capital from the investor, eventually by giving rise to a huge amount of purchase. Subsequently, it helps the investor to spend it on securities such as stocks, bonds, property, and other assets. As a result, it renders the investor a portfolio regarding their so far investment.
Comparison Between Investment Banking and Mutual Funds
| Parameters of Comparisons | Investment Banking | Mutual Funds |
| Meaning | Investment Banking acts as a financial supporter or advisor to an individual or an organization to raise capital or any financial services. | Mutual Funds are collected from the investors as pool money based on period and later invested in securities, bonds, or short-term debts. |
| Introduced | Private Investment banking was ruling before Jay Cooke. A Philadelphia financier introduced the service- Investment Banking in the period of the Civil War. | Mutual funds were introduced in the 1890s in the USA until the 1960s. Mutual funds stand stalwart to many industries. Slowly in 1980, mutual funds were growing progressively till now. |
| Functions | IPOs- Investment banking play as an intermediate between issuers and banks. By merging share capital of two companies risk- providing financial support Research- Investment Banking guide in finding a way to invest the capital to gain profit. Merchant, Investment bank provides advice to private activities—investment management, trading securities to avoid any risk. | Income Funds, buying individual bonds from the Government. Investment, buying mutual funds to get access to securities in any reputed company. Funds, mutual funds, primarily focus on investing the money in buying stock, securities, or bonds. |
| Types | Merger and Acquisition, Underwriting, Private Equity, and Venture capital | Money market fund, bond funds, stock funds, Hybrid funds(bonds and stocks) |
| Interest | The interest rate varies in public and private banks, but investment banking’s best interest rate is considered 7.25 percent. | To estimate, the best rate of return on Mutual funds is 4-5 percent. |
What is Investment Banking?
The well-skilled Investment Banking companies usually assist two major activities, that is, either purchase the business or sell it. Not to mention, the mutual fund comes under the ‘buy the business side’ object of Investment Banking.
As this had earlier mentioned, investment banking is all about raising an investor’s capital by providing financial services. Their activities include serving in the securities’ sale, verification of the brand-new debts and parity securities for all types of businesses, helping to promote new mergers and acquisitions, and trades for both reputed companies as well as private investors.
Surprisingly, investment banking aids not only specified organizations but also the government, private, and big projects. It also operates as a guide to the investor’s business by alerting them about the imminent trouble and empowering them to choose the correct option. On the other hand, there are various investment bankers, such as Morgan Stanley, Goldman Sachs, and so on. The efficiency of an investment banker depends on how they support the investors to access financial and investment regions in the emerging economy.
What are Mutual Funds?
A mutual fund is a part of investment banking on the buy side, where investors invest their money here to gain securities in the future. Mutual funds may play the role of hero as well as villain depending on the investment. Coming to the advantages, they tend to provide diversification, services, daily liquidity, transparency, and Government oversight. On the contrary, they don’t have fixed fees, more cramped predictability of the outcome of the investment, and zero opportunity to customize.
Mutual Fund is a financial intermediary that tends to secure capital from the investor, ultimately, by proffering growth to a huge amount of their purchase. Consequently, the investor will be spending it on securities such as stocks, bonds, property, and other assets.
There are three types of mutual funds; open-end funds, closed-end funds, and unit investment trusts.
Main Differences Between Investment Banking and Mutual Funds
- The investment bank is an organization that espouses and aids financial services to individuals and companies to elicit any financial risk. Mutual Funds pool money to invest in securities or stocks and bonds etc.
- Both banking services play different functions. Investment banking acts as a financial supporter. On the other hand, Mutual funds as a collector from investors.
- Interest rate also varies. Investment banking has a decent rate of 7.25 percent, whereas Mutual funds’ good rate of return is considered 5 percent.
- Investment Banking and its types of merging companies, Underwriting, Capital venture and Private equity– where in olden days Investment banking underscore on the private sector. On the other hand, Mutual Funds types are money fund-collecting superfluous amounts, Bond funds, Stock Funds-Investing the money in securities or stock.
- Mutual Funds are happening in the family, where they save or invest money on an investment for the future purpose, whereas Investment banking helps a company to overcome the current financial crisis.
Conclusion
Investment banking plays as an intermediate between Individuals and banks to support the financial need. Mutual Funds are collected as pool money to invest in securities or bonds after the maturity ends.
Investment banking is useful for companies in case to accelerate their capital or cost of production, whereas Mutual funds are used in families also to reduce the risk factor in the future by holding an asset in any stock or bond.
References
- https://journals.sagepub.com/doi/abs/10.2307/41165273
- https://www.jstor.org/stable/2329866