Buy-side analyst
An analyst employed by an asset manager — a mutual fund, pension fund, hedge fund, AIF, FPI or portfolio manager — whose recommendations are written for the employer's own fund managers, not the public.
In plain language
Chapter 1 sorts research analysts by who reads their work. The buy-side analyst works inside an institution that actually buys and sells securities with its own or its investors' money.
Their reports go to the fund managers and top management of that institution, who decide what the fund will hold. The reports are for internal consumption and are generally not available in the public domain. A buy-side analyst is judged by whether the fund makes money on the ideas, not by how widely the report is read.
How it works
The workbook (section 1.1) names three main categories:
| Buy-side | Sell-side | Independent | |
|---|---|---|---|
| Employer | Mutual funds, hedge funds, pension funds, AIFs, FPIs, portfolio managers | Firms offering investment banking, broking and advisory services | Research originators and boutique firms |
| Reader | The employer's fund managers and top management | The public, with a specific recommendation | Paying subscribers, or a client who commissions a custom report |
| Public? | Generally not | Yes | Sold on subscription |
A buy-side report still ends in a view on whether to buy, hold or sell — the workbook says so explicitly. What differs is the audience.
That audience matters under the SEBI rules in Chapter 13 and 14. The communications that do not count as a "research report" include internal communications that are not given to current or prospective clients, and periodic reports prepared for unit holders of a mutual fund or AIF or for clients of portfolio managers. And an asset management company or fund manager that issues or distributes research reports to the public does not need separate RA registration under regulation 3, provided it complies with Chapter III (the conflict-of-interest and disclosure rules).
A worked example
Illustrative figures. Kavita is the cement analyst at a mutual fund AMC. After three plant visits and a dealer survey she writes a two-page note: raise the weight in a mid-sized cement maker from 1.0% to 2.5% of the fund.
| Equity scheme size | Rs 12,000 crore |
| Current holding at 1.0% | Rs 120 crore |
| Target holding at 2.5% | Rs 300 crore |
| Buying required | Rs 180 crore |
The note goes to the fund manager and the investment committee, nowhere else. No price target is published, no rating appears on a broker platform, and nobody outside the AMC knows the view existed — until the next portfolio disclosure shows a bigger holding.
The same week, Rahul, a sell-side analyst at a broking house, publishes a report on the same company: Buy, price target Rs 2,400 against a market price of Rs 2,000, an expected return of (2,400 − 2,000) ÷ 2,000 = 20%. Kavita will read Rahul's report. Rahul will never see Kavita's.
Why NISM asks about it
Chapter 1 (Introduction to Research Analyst Profession) defines buy-side, sell-side and independent analysts, and the classification is a reliable one-mark question. Chapter 13 (Qualities of a Good Research Report) lists the communications excluded from "research report", and Chapter 14 (Legal and Regulatory Environment) carries the regulation 3 proviso for asset managers and fund managers.
Common exam traps
- "Buy-side" does not mean the analyst only recommends buying. Buy-side reports recommend buy, hold or sell. The name describes the employer — the institution that does the buying and selling.
- Buy-side reports are generally not public; sell-side reports are. An option saying buy-side research is "published with a price target" describes the sell side.
- Independent analysts are a third category, not a kind of sell-side analyst: they work for boutique firms separate from full-service investment firms and sell research on subscription.
- An internal note that never reaches clients is not a "research report" under the SEBI list of exclusions — but that does not exempt the institution from the insider trading rules.
- Newspapers, media and consolidators of information also publish research, but the workbook places them outside the three main categories.
Check yourself
1.Research reports of buy-side analysts are:
- a)Published in the public domain with price targets
- b)Generally for internal consumption and not available in the public domain
- c)Sold to subscribers on an annual basis
- d)Filed with SEBI before circulation
Show the answer
Answer: (b) Generally for internal consumption and not available in the public domain
These analysts generate investment recommendations for their internal consumption viz. used by the fund managers within organization. These reports are usually only for internal consumption and are not available in public domain.
Who they work for: Buy-side Analysts generally work for Asset managers like mutual funds, hedge funds, pension funds, Alternative investment funds, Foreign Portfolio investors or portfolio managers that purchase and sell securities for their own investment accounts or on behalf of their investors/clients. Their reports are circulated among the top management/investment managers of the employer firms.
Option A describes the sell-side: Sell-side Analysts typically publish research reports in public domain on the securities of companies or industries with specific recommendation to buy, hold, or sell the subject security, including the analyst's expectations of the future earnings of the company and future price performance of the security ("price target").
Option C describes independent analysts, who sell their research to others on a subscription basis.
The simplest way to keep the three apart is by where the report goes: public domain, internal only, or sold on subscription.
2.An analyst who works for a boutique firm and sells sector reports by subscription to institutions and stock exchanges is:
- a)A sell-side analyst
- b)A buy-side analyst
- c)An independent research analyst
- d)A portfolio manager
Show the answer
Answer: (c) An independent research analyst
Independent Research Analysts work for research originators or boutique firms separate from full-service investment firms and sell their research to others on a subscription basis. Their clients could be investors, institutions, investment bankers, regulators, stock exchanges, fund managers etc.
Note the breadth of that client list — regulators and stock exchanges appear on it, which is distinctive to the independent category.
They also do commissioned work: they also provide customized research reports on the businesses or industries or sectors on specific requests. The purpose of these reports could vary from investment activity to understanding competition landscape to mergers and acquisition etc.
The defining contrast with the sell-side is the employer: independent analysts are at firms separate from full-service investment firms, whereas sell-side analysts work for firms that provide investment banking, broking, advisory services for clients.
And with the buy-side: buy-side analysts work for asset managers... that purchase and sell securities for their own investment accounts or on behalf of their investors/clients, and their reports are not available in public domain.
Where this is taught
- Series XXI-B · Chapter 3: Investing in Stocksintroduced here
- Series XV · Chapter 1: Introduction to Research Analyst Professionintroduced here
- Series X-A · Chapter 8: Investing in Stocksintroduced here
Related terms
- Chinese WallAn enforced separation inside a firm between departments holding confidential price-sensitive information and those dealing with clients, sales or public research.
- Conflict of interestAny interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
- Research AnalystUnder the SEBI (Research Analysts) Regulations, 2014, a person who, for consideration, is engaged in the business of providing research services — including a part-time research analyst.
- Research reportA document presenting an investment idea — analysis plus a recommendation. SEBI excludes market commentary, index discussion, internal notes and statistical summaries from the definition.
- Sell-side analystAn analyst at a firm offering investment banking, broking or advisory services who publishes research in the public domain with a buy, hold or sell call and a price target.
- Independent research analystThe third of the workbook's analyst categories: one who works for a research originator or boutique firm separate from full-service investment firms, and sells research on subscription.