Foundations of Investment Banking, Key Functions, Types, Role, Salary
Shruti Kumari8 Sept, 2025
Foundations of Investment Banking: Finance changes quickly, and one important part of it is investment banking. It is the link between businesses, investors, and financial institutions. Investment banking deals with corporate finance, markets, and advisory services. It helps companies raise money, manage mergers and acquisitions, and handle risks.
Below, we’ve explained the basics of investment banking. Students will learn its meaning, functions, services, and how it is different from commercial banking. We will also look at the role of investment bankers, career options, and salary in this field.
What is Investment Banking?
Investment banking is a part of banking that helps companies raise money and manage big financial deals. Commercial banks take deposits and give loans. But investment banks do something different. They act as advisors and help companies work with investors. They help businesses sell shares and bonds.
They also guide companies during mergers, acquisitions, or when they want to change their structure. The main idea of investment banking is to connect companies that need money with investors who want to invest. This helps businesses grow and supports the economy.
Key Functions of Investment Banks
Understanding the key functions of investment banks is important to understanding the Foundations of Investment Banking. Below, we’ve mentioned the main functions:
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Capital Raising: Investment banks help companies raise funds through equity (shares) or debt (bonds). They manage the process of issuing securities and ensuring compliance with regulations.
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Advisory Services: They provide advice on mergers, acquisitions, divestitures, and restructuring. This includes valuation, negotiation, and strategic guidance.
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Market Making and Trading: Many investment banks are active in trading financial instruments such as equities, bonds, and derivatives. They also provide liquidity in markets by acting as market makers.
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Underwriting: Investment banks underwrite securities, which means they take the risk of buying unsold shares. Therefore, during an issue and reselling them to investors.
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Research and Analysis: They offer detailed research reports on industries, companies, and financial trends. This guides investors and businesses in making informed decisions.
Types of Investment Banking Services
Investment banking provides a wide range of financial services that support businesses, governments, and institutions. These services are structured to meet the different requirements of clients and investors.
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Mergers and Acquisitions (M&A): Investment banks manage the process of buying, selling, or merging companies. They calculate assets, negotiate deals, and make sure that transactions meet the regulatory standards.
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Capital Raising: Companies often need funds for the expansion or restructuring. Investment banks help companies to raise money through equity (shares) and debt (bonds or loans).
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Underwriting of Securities: Banks guarantee the sale of new securities issued by companies. This service provides businesses with financial stability while entering markets.
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Advisory Services: Banks guide the clients on corporate restructuring, business valuation, and financial planning. These services make sure that informed decision-making.
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Trading and Sales: Investment banks trade securities, bonds, and derivatives on behalf of clients. This supports liquidity in financial markets.
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Asset Management: Banks manage investment portfolios for institutions and high-net-worth individuals. The focus is on generating returns while reducing risks.
Role of an Investment Banker
The role of an investment banker is crucial in supporting the financial and strategic goals of businesses and governments. Below, we’ve mentioned the role of an Investment Banker:
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Deal Structuring: They design financial deals such as acquisitions, partnerships, and funding plans that suit the client needs.
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Valuation Analysis: Investment bankers determine the value of companies or projects through financial models.
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Capital Market Guidance: They advise the clients on when and how to raise funds from equity or debt markets.
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Risk Assessment: The investment bankers analyze the market trends. It helps the clients to reduce financial risks.
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Client Representation: They act as a link between the companies, investors, and regulators.
Investment Banking vs Commercial Banking
As both sectors operate in finance, but they serve different purposes. Below, we’ve mentioned the difference between Investment banking and commercial banking:
| Investment Banking vs Commercial Banking | ||
| Aspect | Investment Banking | Commercial Banking |
| Primary Function | Provides advisory, underwriting, mergers and acquisitions, and capital raising | Offers savings accounts, loans, and credit facilities to individuals/businesses |
| Clients | Corporations, governments, and institutional investors | General public, small businesses, and individuals |
| Revenue Source | Advisory fees, underwriting commissions, and trading profits | Interest income on loans, service charges, and deposits |
| Risk Level | High, due to involvement in capital markets and complex transactions | Moderate, focused on credit risk and loan defaults |
| Regulatory Focus | Securities and Exchange Board, global financial regulators | Central banks and financial regulators |
| Example Services | IPO management, mergers, acquisitions, restructuring, and portfolio management | Savings deposits, mortgages, personal loans, and business loans |
Career Opportunities in Investment Banking
Investment banking offers various career paths, and each has unique responsibilities and growth opportunities. Below, we’ve mentioned career opportunities in Investment Banking:
| Career Opportunities in Investment Banking | ||
| Career Role | Key Responsibilities | Growth Potential |
| Analyst | Conducts research, prepares financial models, and supports senior bankers | Entry-level, leads to associate role |
| Associate | Manages client presentations, supervises analysts, and supports deal execution | Mid-level, pathway to vice president |
| Vice President (VP) | Maintains client relationships, executes transactions, and manages teams | Senior role, leads to director or MD |
| Director / Executive Director | Oversees major deals, negotiates with clients, and drives business development | Leadership role with higher stakes |
| Managing Director (MD) | Sets strategic goals, manages high-value clients, and leads global deals | Top leadership position in investment banking |
Salary Scope in Investment Banking
The salary in investment banking depends on the role, experience, and the market. It is generally on the higher side compared to other financial services due to the workload and skills needed.
| Salary Scope in Investment Banking | ||
| Position | Average Annual Salary in India (2025 Estimate) | Global Average Salary (2025 Estimate) |
| Analyst | ₹8 – 15 Lakhs | $80,000 – $120,000 |
| Associate | ₹15 – 30 Lakhs | $120,000 – $180,000 |
| Vice President (VP) | ₹30 – 60 Lakhs | $180,000 – $250,000 |
| Director / Executive Director | ₹60 Lakhs – ₹1.2 Crore | $250,000 – $400,000 |
| Managing Director (MD) | ₹1.5 Crore+ | $400,000+ |
Foundations of Investment Banking FAQs
What is investment banking in simple terms?
What are the key functions of investment banks?
How is investment banking different from commercial banking?
What career opportunities exist in investment banking?
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