Insurance Products in India

Role of Intermediaries

In any economy, individuals and institutions want to invest their savings which in turn is needed by companies to grow their businesses. Capital markets bridge this gap by providing an avenue for companies to issue equity or debt to investors who in turn invest in them with an expectation of earning sufficient returns. However, there lacks an information gap between the two since investors lack the requisite expertise to choose good investments from the bad ones. This is where intermediaries step in. These intermediaries include venture capitalists, investment banks, lawyers, regulatory bodies, accountants, money management firms and also media. The intended function of some of these intermediaries are:

1. Venture capitalist (VCs): VCs ensure that the companies form good management teams and sustainable business model. They provide capital at an early stage of company’s development. They demand a very high return since they enter the new business at a risky phase. They usually exit the venture through selling stakes in an IPO or to another company in a trade sale. Their job primarily includes screening good business ideas and entrepreneurial teams from bad ones. VC firms are made up of very experienced team who helps a company turn business idea into a well-managed, fully functional venture ready to go public

2. Investment Bank underwriters: They provide their expertise with advisory services for IPO and subsequent transactions such as pricing the issue, underwriting the shares, and introducing the companies to investors through road shows

3. Sell-Side Analyst: Their clients include portfolio managers. Their primary role is to continuously monitor the performance of listed companies and determine whether the stocks are good or bad at any given point of time. They undertake monitoring through management discussions, trend analysis of the industry, making recommendations, and analysing various parameters affecting the company. One of their roles also include providing research to buy side analyst before the company goes public

4. Buy-Side Analyst: These analysts do actual buying and selling of securities and belongs to houses such as mutual funds, insurance companies and hedge funds. They are responsible to study a group of companies under certain industries, talk to the management, come up with earnings estimates, conduct valuation analysis and more importantly convince the sell-side analyst to follow their recommendation.

5. Portfolio Managers: Portfolio managers are the ones who actually manages the money for mutual funds or institutional accounts. Acting on favor of investors, they will buy stocks that are fairly priced and sell those stocks which are overvalued. They are responsible for establishing an investment strategy, selecting appropriate investments, and allocating each investment properly for asset management vehicle.

6. Auditors: