An asset management company pools funds from multiple institutional and individual investors and invest in different securities. Investing your funds in AMC is like hiring a financial expert to manage and invest your money for higher gains. If you are looking for a secured investment instrument, consider reading this article for a detailed overview of AMCs.
Types of Asset Management Company
Asset management companies assist you in taking better financial decisions by investing your funds in different securities. They are also known as buy-side firms as they help clients to buy investments. These companies employ expert fund managers and research teams to assess the right securities for investors. Investing your funds through AMCs enhances the scope of earning maximum returns.
However, before investing your money in AMCs, you should know their types for a better selection. There are six types of asset management companies in India. They are as follows:
- Index funds
- Mutual funds
- Private equity funds
- Hedge funds
- Exchange-traded funds
- Other funds
Apart from these, AMCs also invest on behalf of clients like the private sector, institutional investors, government organisations, high-net worth clients etc.
Working Principle of Asset Management Companies
Investing in AMC basically implies you are investing in a fund managed by an asset management company. As a result, the returns you earn from this investment entirely depend on how well-managed the fund is.
Here comes the importance of a fund manager. These experts possess years of experience in managing funds optimally for maximum returns. When a fund earns maximum profits, it helps maximise subscribers and generates revenue for the AMC in form of a fund management fee.
Fund managers follow a comprehensive working principle to maintain their reputation and generate maximum profits from a fund. They are as follows:
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Effective Asset Allocation
An asset management company invests in multiple investment instruments to maintain their versatility, and reputation and gain trust. However, fund managers should always focus on the investment objectives while allocating funds to a particular asset class.
This is because, market conditions, prospective interest rates, etc. play a major role in determining the asset distribution between debt and equity funds. So, an efficient asset allocation is ideal for generating maximum returns for both the investor and the company.
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Adequate Research and Analysis
Proper asset allocation is only possible through detailed market research and performance analysis of an asset class. Every minute detail, macro, and micro-economic aspects, market condition, etc., can affect the investment. So, fund managers should have a detailed report on the mentioned factors while making investment decisions.
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Portfolio Construction
A company portfolio depends on the securities it chooses to invest in a fund. The maximum profit generated through investment, the more a company gains credibility. However, this is not an easy task; efficient teamwork by analysts, researchers, and fund managers can only make it happen.
Generally, researchers analyse the market trends and findings closely and report them to the fund manager. An experienced and skilled fund manager handles the rest by choosing profitable securities and building a perfect portfolio.
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Performance Assessment
An asset management company needs to answer its investors about the investment decisions they make. So, they need to share a review sheet including portfolio details, NAV, regular sales, and repurchase updates with the investors. If you have any grievances regarding the investment schemes or securities, AMC will attend to that as well.
Factors to Consider While Choosing an AMC
Before choosing an AMC, you should assess past records of the company and the assets under management. It will help you make better investment decisions and earn considerable profit. Take a look at the factors you should consider before investing in an AMC:
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Company’s Reputation
When invested in a reliable company, you can be sure of a safe and profitable return. Renowned asset management companies in India have gained their reputation over the years. So, when you plan to invest your hard-earned money, consider checking the company's performance. You can assess their reputation from AMC's annual reports, and compliance reports to RBI, SEBI, and AMFI.
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Fund Manager’s Expertise
The fund manager's performance plays a major role in assessing the company's performance. This is because a company's reputation depends on the financial decision its fund manager takes. So, before you invest in an AMC, check the fund manager's investment style and track records.
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Commission and Fees
AMCs may either charge you a fixed management fee or commission in return for their service. You may opt for the commission charges but in that case, you cannot predetermine the amount you need to pay. However, a fixed charge is preferable as you are aware of the amount an AMC will charge from you.
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Company Reviews
Reviews from other investors count a lot when selecting an asset management company. You can collect information from previous investors and know if they have any grievances regarding the company’s operation procedure, etc.
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Price and Value
You must invest in a fund after checking its price, value creation, and the returns it offers. It will help you make better investment decisions and earn accordingly.
Advantages of Asset Management Company
You can choose asset management companies for investing your funds considering the following benefits they offer:
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Economies of Scale
It indicates the profit a company earns by increasing its operation scale. Generally, larger operations come with a lower operating cost on a per-unit basis.
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Provides Access to Broad Asset Classes
When investing individually, you cannot invest in broad asset classes like multi-billion-dollar infrastructural projects. However, asset management companies in India help you invest in such broad asset classes seamlessly.
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Professional Expertise
As an individual investor, you may not have adequate expertise in managing investments but with AMCs, you get professional expertise. They hire experienced financial professionals to manage your funds, thereby providing specialised expertise in investments.
AMC Investment Guidelines by SEBI, AMFI, and RBI
SEBI (Securities and Exchange Board of India), AMFI (Association of Mutual Funds in India), and RBI (Reserve Bank of India) work hand-in-hand in regulating AMCs. So, you should follow their guidelines before investing in an asset management company:
- Asset management companies are not allowed to serve as mutual fund trustees
- AMCs should provide an activity report quarterly and regulation compliances to the trustees
- Any mutual fund trustee cannot be the AMC’s Chairman
- An AMC cannot invest your funds in its schemes if it has not fully disclosed its intention of investing in the offering documents
- The chief personnel of an AMC should not have been convicted of any fraud or other economic offence
- As per SEBI’s guidelines AMCs need to submit a bi-monthly compliance certificate to the trustees
- The net worth of an AMC should be less than ₹10 crore
Bottom Line
AMCs undoubtedly provide you with better investment opportunities but you must keep an eye on several factors before selecting an asset management company. Like an AMC assess the market trends before allocating your funds to a proper asset class, you should research the company's nature and proceed accordingly.