INVESTOR GUIDE
What is a merchant bank?
A Merchant Bank is a bank or financial institution that handles all the tasks related to incorporation of a company as well as marketing corporate and other securities.
own as “accepting and issuing houses” in the UK and “investment banks” in the US, modern merchant banks offer a wide range of activities, including portfolio management, credit syndication, acceptance credit, counsel on mergers and acquisitions, insurance, etc. Of these two classes of merchant banks, the U.S. variant initiates loans and then sells them to investors. Even though these companies call themselves “merchant banks,” they have few, if any, of the characteristics of former merchant banks.
In Bangladesh, holder of a full merchant bank license is restricted to do portfolio management, issue managing, and underwriting and margin-loan services.
What is a portfolio manager?
A portfolio manager is a person who makes investment decisions using money other people have placed under his or her control. In other words, it is a financial career involved in investment management. They work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.
Portfolio managers are presented with investment ideas from internal buy-side analysts and sell-side analysts from investment banks. It is their job to sift through the relevant information and use their judgment to buy and sell securities. Throughout each day, they read reports, talk to company managers and monitor industry and economic trends looking for the right company and time to invest the portfolio’s capital.
Portfolio managers make decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.
What is underwriting?
Securities underwriting refers to the process by which investment banks raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt capital).
This is a way of selling a newly issued security, such as stocks or bonds, to investors. Merchant banks underwrite the transaction, which means they have taken on the risk of distributing the securities. Should they not be able to find enough investors, they will have to hold some securities themselves.
What is issue managing?
It refers to the management of securities offering of companies to the general public and existing shareholders on rights basis. Merchant bankers act as lead managers and assists companies in arriving at quantum and nature of issue and obtaining consent/clearance from various statutory authorities, preparing draft prospectus, obtaining approval from appropriate authorities etc.
Issue managers also assists companies in tying up with underwriters for the issue, appoint other intermediaries like brokers, bankers, advertising agents, registrar to the issue and co-ordinates the activities of these agencies and institutions from the successful flotation of the issue. It also helps in listing the securities in stock exchange, finalizing basis of allotment, arranging for refund, handling investor complaints etc.
How do you select the company Before You Invest?
Don’t put in your money until you have understood all relevant information regarding the investment. Prepare yourself for the vigorous homework of analyzing company’s annual reports, EPS (Earning per Share), accounts and other statements while keeping abreast of what’s happening in the industry, country and elsewhere that may affect your investment. Consult your investment adviser/broker to get latest market information about shares you intend to buy or sell. Be skeptical of anything picked up from rumors, particularly if you cannot rationally explain their choice.
Why Do Investors Think For Long-term Investment?
Bear in mind that even in the best of securities/shares, there can be short-term aberrations. It is important to have the power to hold your investments for longer periods. Studies have shown that investments properly timed and based on strong fundamentals have been very profitable for investors in the longer term.
What is margin loan?
In finance, a margin is collateral that the holder of a position in securities contract has to deposit to cover the credit risk of his counterparty (most often his portfolio manager). This risk can arise if the holder has borrowed cash from the counterparty to buy securities.
Margin buying is buying securities with cash borrowed from a broker, using other securities as collateral. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value, i.e. the difference between the value of the securities and the loan, is initially equal to the amount of one’s own cash used. This difference has to stay above a minimum margin requirement.
What is technical and fundamental analysis?
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets.
Technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume.
What is 'Book closure' / 'Record Date'?
While a company a dividend, right/ bonus shares or intends to hold any AGM/ EGM; it declares a book legislature closer provider/ Record Date to register the name of shareholders.
Only shareholders whose names appear on the register after the book closure/ Record Date are eligible to attend in the AGM/ EGM and also to receive dividends & bonus shares and entitlement to right shares, if any.