Investment Banking vs Mutual Funds: Difference and Comparison

In this economic world, investment banking, as well as mutual funds, play a critical role in a way to favour investors at their best. Both tend to act as financial tools in the business sector by providing sufficient capital and profit to the company.

No matter the availability of funds, capital, wealth, assets, money, or other resources, these two terms play as backbones to the matter.

Key Takeaways

  1. Investment banking is a service offered by financial institutions that assist companies in raising capital by underwriting and selling securities. In contrast, mutual funds are investment vehicles that pool money from investors to invest in a portfolio of securities.
  2. Investment bankers advise companies on corporate finance, mergers and acquisitions, and other strategic transactions. In contrast, mutual funds are managed by professional fund managers who invest the pooled money into a diversified portfolio of securities.
  3. Investment banking focuses on capital market activities such as IPOs, bond issuances, and private placements. In contrast, mutual funds provide investors with a diversified investment portfolio to generate long-term returns.

Investment Banking vs Mutual Funds

The difference between Investment Banking and Mutual Funds is that Investment Banking tends to help the investor’s business through various financial services. Meanwhile, Mutual funds deal with the investor’s money-related concerns, with their firm hands on securities in investment areas.

Investment Banking vs Mutual Funds

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Investment Banking is a financial resource of capital for various companies, government departments, and other firms. The foremost concern of investment banking is peddling the business for a fit value to the investor by providing financial services.

Having that said, it enables investors to inflate capital.

Meanwhile, Mutual Fund is a financial tool that tends to collect capital from the investor, eventually giving rise to a massive purchase. Subsequently, it helps the investor to spend it on securities such as stocks, bonds, property, and other assets.

As a result, it renders the investor a portfolio regarding their so far investment.

Comparison Table

Parameters of ComparisonsInvestment BankingMutual Funds
Meaning Private Investment banking was ruling before Jay Cooke. A Philadelphia financier introduced the service-  Investment Banking during the period of the Civil War.Mutual Funds are collected from the investors as pool money based on period and later invested in securities, bonds, or short-term debts. 
Introduced Money market funds, bond funds, stock funds, Hybrid funds(bonds and stocks)Mutual funds were introduced in the 1890s in the USA until the 1960s. Mutual funds stand stalwart in many industries. Slowly in 1980, mutual funds grew progressively till now. 
FunctionsIPOs- Investment banking play as an intermediate between issuers and banks. By merging the share capital of two companies, risk- providing financial support Research- Investment Banking guide in finding a way to invest the capital to gain profit. Merchants, Investment banks advise private activities—investment management and trading securities to avoid risk.Income Funds, buying individual bonds from the Government. Investment, buying mutual funds to get access to securities in any reputed company. Funds, mutual funds, primarily focus on investing the money in buying stock, securities, or bonds. 
TypesMerger and Acquisition, Underwriting, Private Equity, and Venture capitalMoney market funds, bond funds, stock funds, Hybrid funds(bonds and stocks)
Interest The interest rate varies in public and private banks, but investment banking’s best interest rate is 7.25 per cent.To estimate, the best rate of return on Mutual funds is 4-5 percent.

What is Investment Banking? 

The well-skilled Investment Banking companies assist two major activities, that is, either purchasing the business or selling it. The mutual fund comes under the ‘buy the business side’ object of Investment Banking.

As mentioned earlier, investment banking is about raising an investor’s capital by providing financial services. Their activities include serving in the securities’ sale, verifying the brand-new debts and parity securities for all types of businesses, helping to promote new mergers and acquisitions, and trades for both reputed companies and private investors.

Surprisingly, investment banking aids not only specified organizations but also the government, private, and big projects. It also operates as a guide to the investor’s business by alerting them about imminent trouble and empowering them to choose the correct option.

On the other hand, there are various investment bankers, such as Morgan Stanley, Goldman Sachs, and so on. The efficiency of an investment banker depends on how they support the investors to access financial and investment regions in the emerging economy.

investment banking

What are Mutual Funds? 

A mutual fund is a part of investment banking on the buy side, where investors invest their money here to gain securities in the future. Depending on the investment, mutual funds may play the role of hero and villain.

Coming to the advantages, they tend to provide diversification, services, daily liquidity, transparency, and Government oversight. On the contrary, they don’t have fixed fees, more cramped predictability of the investment outcome, and zero opportunity to customize.

Mutual Fund is a financial intermediary that tends to secure capital from the investor by proffering growth to a huge amount of their purchase. Consequently, the investor will spend it on securities such as stocks, bonds, property, and other assets.

There are three types of mutual funds; open-end funds, closed-end funds, and unit investment trusts.

mutual funds

Main Differences Between Investment Banking and Mutual Funds

  1. The investment bank is an organization that espouses and aids financial services to individuals and companies to elicit any financial risk. Mutual Funds pool money to invest in securities or stocks and bonds etc.
  2. Both banking services play different functions. Investment banking acts as a financial supporter.
  3. On the other hand, Mutual funds are collectors from investors.
  4. Interest rate also varies. Investment banking has a decent rate of 7.25 per cent, whereas Mutual funds’ reasonable return rate is 5 per cent. 
  5. Investment Banking and its types of merging companies, Underwriting, Capital venture and Private equity– where, in the olden days, Investment banking underscored the private sector.
  6. On the other hand, Mutual Funds types are money fund-collecting excessive amounts, Bond funds, and Stock Funds-Investing the money in securities or stocks.
  7. Mutual Funds are happening in the family, where they save or invest money on an investment for future purposes. In contrast, Investment banking helps a company to overcome the current financial crisis.
Difference Between Investment Banking and Mutual Funds

Last Updated : 13 July, 2023

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