Investment products of banks - a fairly new opportunity that offer financial institutions at 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 - intermediation. 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
The need for an instrument such as investment products has arisen relatively recently. Until that moment, banks quite successfully made a profit by taking loans at a small percentage and then providing their own customers at a higher interest rate. In addition, these organizations actively used their own funds, because the deposit rate is always lower than the loan rate. However, the situation on the market gradually stabilized, and now, if it is possible to earn on such a difference, then only relatively small money by the standards of banks. As a result, financial institutions began to look for alternative possibilities of existence and came to the conclusion that the sale of investment products is the most profitable method that allows you to earn money and carry out further activities.
Investment banking products and services
Not all banks provide at least some of the possible services, of which there are a lot of varieties. For example, most often the investment products of a financial institution consist solely of trust management services. That is, the bank simply takes the money of the client and, with his consent, begins to use it on the stock exchange.
As a rule, the organization prefers not too profitable, but reliable projects that will most likely consistently bring a certain income. This approach allows you to timely and fully pay the client, and he, in turn, will risk less with his own money. However, this is far from the only option for working 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, issue loans for investment activities and so on.
Product implementation and creation
In order for the financial structure to have the opportunity 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 ideally, the client should immediately clarify the availability of this paper and require its submission. Most banks do this without reminder, posting such licenses for general viewing. Obtaining a document is not too simple, 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 stage is the bank’s access to the international trading platform. In some cases, he must also provide access to it for his own customers, however, this is not always the case. This can not be said that this is a difficult stage, because such sites are interested in a constant increase in the number of players, however, some efforts will still have to be made.
After all this is completed, you need to hire or train specialists who know how to work in this direction and make a profit. Otherwise, instead of the expected income, it will result in continuous expenses, and for the bank it is almost fatal.
As a consequence of this requirement, there is a need to create a certain structure in the organization that will deal with financial investments, on the one hand, and provide investment products to potential customers, on the other. As a rule, such structures are further divided into at least two branches, but these are already features of the activities of each individual bank.
The last stage 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 mass of customers for servicing, but if these same specialists are physically unable to work with trading floors, all of the above actions will be meaningless.
Possible problems
As with any activity, there are certain problems in investing . So, it is more risky in comparison with the classical systems of generating income, there are many legislative restrictions, as well as tight control by the Central Bank. The latter may simply prohibit the implementation of the most profitable (but also risky) transactions, as this will violate 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 investee, giving the first loan, and at the expense of it making investments. Rather risky system, however, with luck and / or accurate calculation, it allows the legal entity to quickly pay off the debt, the investee - to get the required amount, and the bank - its share of the profit. In general, usually all parties are satisfied with the transaction, if it was successful and no problems arose.
Benefits
The benefits that new investment products provide are numerous. The first of them can be considered the size of the profit. It is clear that the bank, as a rule, receives more income than the client himself. But he also carries risks on his own (at least in most cases). The second advantage is the help of specialists. Theoretically, any person can independently become a player on the exchange and invest at their own discretion. However, in fact, such an approach most often leads to the fact that a person or a legal entity simply loses its money if it does not use the services of specially trained employees.
disadvantages
Naturally, there are always disadvantages. Thus, 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 will still return to the client the amount that he put, but you can’t wait for the profit. Moreover, in some cases, when the situation with the organization’s income is very complicated, a money back can be expected for a very long time.
Summary
In general, taking into account all of the above, it can be concluded that investment is a profitable investment, but only subject to the availability of guarantees for income and general reasonable management of the bank funds received from customers. Unfortunately, most often all this can only be determined empirically or, at best, by the feedback of other people or organizations who have already risked their money.