Investment products of banks

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Investment products of banks is a fairly new opportunity offered by financial institutions of various levels. Their essence is quite extensive, because there are many options for working with investments, but the role of the bank in most cases is approximately the same - mediation. He himself will relatively rarely risk his own funds, preferring to use the money of clients and for this providing them with a part of the income received.

Features and causes of appearance

The need for such a tool as investment products has arisen relatively recently. Up to this point, banks have been quite successful at making profits by taking out loans at a low interest rate and then providing them to their own customers at a higher rate. In addition, these organizations actively used their own funds, because the rate on a deposit is always less than on a loan. However, the situation on the market gradually stabilized, andnow, if you can earn on such a difference, then only relatively small, by the standards of banks, money. As a result, financial institutions began to look for alternative ways of existence and came to the conclusion that the sale of investment products is the most profitable method to earn money and carry out further activities.

Investment banking products and services

Not all banks provide at least some of the possible services, there are a lot of varieties. For example, most often the investment products of a financial institution consist exclusively of trust management services. That is, the bank simply takes the client's money and, with his consent, begins to use it on the stock exchange.

As a rule, the organization prefers not very profitable, but reliable projects that will most likely consistently generate a certain income. This approach allows you to pay the client in time and in full, and he, in turn, will risk his own money less. However, this is far from the only way to work with this financial instrument. The Bank may also accept securities, which it will subsequently place on the stock exchange and dispose of them at its own discretion, but with the consent of the owner. Also, a financial institution can simply provide services for the purchase or sale of those same securities at the request of customers. Among other things, the bank itself can issue securities, issueloans for investment activities and so on.

Product implementation and creation

In order for a financial structure to be able to use investment products in its activities to generate income, it must first meet certain requirements. So, the very first stage is obtaining a state license. Without this important document, any such activity cannot be considered legal, and the client should ideally immediately clarify the existence of this paper and demand its presentation. Most banks do this without prompting, posting such licenses for the public to see. It is not too easy to get a document, and you still need to prove that in the process of working with investments, the organization will not burn out, will be able to make a profit, and so on.

The next step is the bank's entry into the international trading platform. In some cases, he must also provide access to it for his own clients, but this is not always done already. It cannot be said that this is a difficult stage, because such sites are interested in a constant increase in the number of players, but some efforts will still have to be made.

After all this is done, you need to hire or train specialists who know exactly how to work in this direction and make a profit. Otherwise, instead of the expected income, you will get solid expenses, and for the bank it is almost fatal.

As a consequence of this requirement arisesthe need to create a certain structure in an organization that will deal with financial investments, on the one hand, and provide investment products to potential clients, on the other. As a rule, such structures are divided into at least two more branches, but these are the features of the activities of each individual bank.

The last step is the technical side of the issue. A bank can be registered in the system, obtain all the required licenses, hire excellent specialists and attract a huge number of clients for servicing, but if these very specialists are not physically able to work with trading platforms, all of the above actions will turn out to be pointless.

Possible problems

Like any activity, there are certain problems in investing. So, it is more risky in comparison with classical income generation systems, there are many legislative restrictions, as well as tight control by the Central Bank. The latter can simply prohibit the most profitable (but also risky) transactions, as this will disrupt the overall stability of the country's financial system.

Investment loan products

This is another option for a banking-type financial institution, which is often offered to legal entities. Its essence lies in the fact that the bank acts as an intermediary between the client and the investment object, issuing a loan to the first, and at the expense of himmaking an investment. A rather risky system, however, with luck and / or accurate calculation, it allows a legal entity to quickly repay the debt, the investment object - to receive the required amount, and the bank - its part of the profit. In general, all parties are usually happy with the transaction, if it went well and there were no problems.

Benefits

The benefits that new investment products provide are quite numerous. The first of these can be considered the amount of profit received. It is clear that the bank receives, as a rule, more income than the client himself. But it also carries risks on its own (at least in most cases). The second advantage is the help of specialists. Theoretically, anyone can independently become a player on the stock exchange and invest at their own discretion. However, in fact, such an approach will most often lead to the fact that a person or legal entity will simply lose his money if he does not use the services of specially trained employees.

Flaws

Of course, there are always disadvantages. So, investment products still remain not only the most profitable financial instrument of all existing, but also the most dangerous in terms of possible risks. Most often, the bank still returns the client the amount that he deposited, but you can not wait for the profit. Moreover, in some cases, when the situation with the income of the organization is very difficult, the return of money can be expected verylong.

Results

In general, taking into account all the above, we can conclude that investments are profitable investments, but only if there are guarantees for income generation and the general reasonable disposal of funds received from customers by the bank. Unfortunately, most often all this can only be determined empirically or, at best, from the reviews of other people or organizations that have already risked their money.