Updated Feb 09, 2022

What is an Asset Management Company (AMC)?

What is an Asset Management Company (AMC)?

 

It's usually a good idea to have a financial expert manage your money, especially if you don't understand how the stock markets function. This is where a mutual fund house, also known as an Asset Management Company (AMC), comes in.

 

 

Asset Management company

 

An asset management company is known as AMC, which controls various types of funds of retail clients and invests it in several areas to improve the fund return. In stocks, property, bonds, and mutual funds are invested.in current times, Asset Management companies are more known as money managers, asset managers. These companies assist in spreading the investment in diverse areas. 

 

An asset management company contains an asset regulator who will manage and evaluate the system of the investment that has to be made. They would do some market investigation and recommend certain conceivable investment selections after evaluating the system of investment. Depending on this, they would go forward with the investment master plan. 

 

 

What are the methods used by an AMC to manage funds?

 

You can invest directly in mutual funds through an asset management company or AMC. The firm is principally in control of handling the mutual fund and constructing decisions that profit investors. It invests the money under the scheme's investment objectives, under the direction of a fund manager. 

 

Allocation of Assets

 

Mutual funds have an explicit investing objective, which helps the fund manager in determining which assets to invest in. Most debt-oriented funds, for example, control an important proportion of their assets in bonds and other fixed-income products. Various balanced funds, for example, invest in a combination of stocks and fixed-income securities.

Analyses and investigations

 

The fund's portfolio is greatly dependent on investigation and examination of asset class performance. Specialists inspect the market, micro, and macroeconomic factors and submit their discovery to the fund manager, who then makes investment decisions, depending on the fund's goals.

 

Portfolio Creation

 

An AMC often employs a staff of investigators and forecasters who report to the fund manager on market findings and trends. The fund manager then selects which securities to purchase or sell based on these results and the fund's investment objectives. This is exactly how a business makes a portfolio, which is severely based on the fund manager's understanding and capability.

 

Review of Performance

 

AMCs are required to offer unitholders with info that straight affects their mutual fund investments. It must also provide investors with daily updates on sales and repurchases, NAV, portfolio data, and so on. In basic terms, AMCs must respond to mutual fund investors and defend their interests. Moreover, they must address client complaints about their mutual fund plans.

 

What factors should an investor consider while selecting an AMC?

 

Before choosing an AMC, you should look into their track record as well as their assets under management (AUM). It's best if you choose an AMC with a lot of assets under management that can handle major investors' sudden redemption pressure. Market-savvy investors can also look into the performance history of AMC's numerous mutual fund schemes during both ups and downs in the market to get a sense of how they performed over time.

 

When selecting an AMC, investors should consider the following factors:

 

The image and profile of AMC:  A fund house does not achieve its position overnight; it takes months or years. For example, an AMC earns a strong reputation by regularly performing for 5 or 10 years.

 

Take a look at the feedback: You should speak with other investors to see if AMC's prior performance has been consistent and if there have been any complaints filed against it.

 

Credentials of the fund manager: You should look into the fund manager's track record and investment style. The investment tactics and skills of the fund manager are to control the performance of many mutual fund schemes. If you are not pleased with the fund manager's investment technique, you should never invest in a mutual fund. Additionally, mutual funds offer a style box to assist you to control the fund manager's investment technique.

 

Are fund houses as dependable as banks?

 

There is a prevalent belief that mutual funds are not as secure as bank accounts or bank-sponsored investment plans. People are concerned that AMCs may close at any time or disappear with their money. This is due to the Reserve Bank of India's (RBI) and people's regulation of banks. However, many individuals are unaware that mutual funds are governed by SEBI, the capital market regulator, and that AMFI is responsible for investor education and protection.

 

The sponsor creates or establishes an AMC under the Companies Act, 1956. The AMC demands a fee and acts under the supervision of the trustees, who are, in turn, regulated by SEBI. The chief motive for this is to ensure objectivity and transparency with the procedures of the AMC. 

 

 

Role SEBI & AMFI in AMC Operations

 

An AMC functions under the observation of the board of directors. But, they are responsible to India’s capital market controller, the Securities and Exchange Board of India (SEBI). The Association of Mutual Funds in India (AMFI) is an alternate constitutional body that addresses investors’ grievances and looks after their interests. All mutual fund houses should obey the set of risk management guidelines by SEBI and AMFI. 

 

Under the Companies Act of 1956, the sponsor creates or establishes an AMC. The AMC is paid a fee and operates under the supervision of trustees, who are regulated by SEBI. The main reason for this is to ensure that the AMC's operations are objective and transparent.

 

Investors should be aware of the SEBI and AMFI guidelines.

 

SEBI, AMFI, and RBI have mandated the following practices and principles for mutual fund companies:

 

• An AMC cannot act as a trustee for a mutual fund.
• The company will not invest in any of its schemes unless it has given a complete disclosure of its investment intention in the offer documents.
• They must report to the trustees on their activities and compliance with these regulations quarterly.
• An AMC's key personnel should have a spotless record (not convicted of any economic offense such as fraud or insider trading).
• The Chairman of the AMC must not be a mutual fund trustee.
• The AMC's net worth should be less than Rs. 10 crores.
• AMCs must produce reports to the trustees following SEBI requirements. The compliance certificate must be submitted to the trustees every two months.

 

 

Where does the AMC stand in the overall mutual fund structure?

 

The Government of India and RBI shaped the Unit Trust of India (UTI) in 1963. Later, while the government allowed public sector banks and institutions to established mutual funds, the requirement for an impartial regulator arose. As a result, they approved the SEBI Act (1992) and made AMCs integral to the mutual fund structure in India. 

 

To comprehend the roles of an AMC better, you must know where the AMC stands in the mutual fund structure. 

 

 

Conclusion

AMC operates several mutual fund schemes in which investors put their money to earn rewards. The funds were invested in a variety of financial products, including debt and equity securities. The AMC is in charge of the investment portfolio formulation.