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Asset Management Companies (AMC)

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As mutual funds are growing in popularity, asset management companies have become pivotal in the financial market. These companies collect investors' funds and invest the pool in diversified portfolios across equities, debts, and other asset classes.

What is an Asset Management Company (AMC)?

Simply put, an Asset Management Company (AMC) manages the funds of individuals and companies. They invest funds pooled from individual investors in various securities to generate optimal returns.

An AMC helps investors to invest in diversified portfolios ranging from high to low-risk securities, like stocks, debentures, bonds, real estate, etc. They employ seasoned and experienced professionals to design investment schemes, taking into consideration various risks such as market risks, industry risks, return risks, and political risks to meet return targets on investment.

AMCs in India invest pooled funds in different asset classes to meet the financial objectives of their clients. A debt fund will invest in low-risk bonds and low-risk debt securities, while an equity fund invests in stocks and targets higher returns by investing in stocks.

As of October 2023, there are 45 asset management companies of various sizes registered in India. Recently, the popularity of AMC mutual funds increased significantly, which boosted the total assets under management or AUM of these companies. AMCs in India recorded 5x growth in total AUM from February 2012 to February 2022.

How Do Asset Management Companies Function?

An asset management company manages the funds of its investors against fees. So basically, when you invest in AMC mutual funds, you invest in a portfolio offered by the AMC company.

The AMC company invests the corpus in different securities to generate returns matching the objective of the fund. The AMC company accomplishes the task by adopting the following measures.

Market research

AMC companies in India depend heavily on market research to study current trends, macro and micro economic factors, and political aspects to select investment securities. They also dive deep into the investment requirements of investors and personal finance needs to design investment schemes.

AMC mutual funds engage the services of fund managers and research teams to choose the best investment options from the market.

Asset allocation

An important role of an asset management company is to allocate the asset to various asset groups. The company will distribute the capital depending on whether the scheme is a debt or an equity fund.

Creating portfolios

Depending on the market findings and theme of the fund, the fund manager creates portfolios of securities. In the case of AMC mutual funds, the asset managers make decisions on which securities to purchase or sell, backed by the research done by the internal team.

Tracking performance

Monitoring portfolio performance is one of the primary roles of fund managers.

Asset managers provide regular updates on the fund's performance with regards to buys and sell, repurchases, NAV, return on risk, and portfolio changes which will impact the performance of your investor.

The role of Asset Management Companies in India

The AMC companies perform the role of mediators. Their primary task is to invest funds collected from investors into different securities to generate returns. The profit earned gets distributed among all investors. The AMC mutual funds operate in a regulated market which helps maintain a high degree of transparency and authenticity. It makes mutual fund investment a safe option for small investors.

Investing in mutual funds offers several benefits.

  • Access to a diversified investment portfolio. The fund deposited is invested in various securities.
  • It allows investors to earn decent returns without directly participating in the market.
  • Investors can enter or exit at their convenience.
  • One doesn’t have to open special accounts to invest in AMC mutual funds.

How to Choose an AMC?

Choosing a fund house for your investments is a critical decision that can significantly impact your financial goals. Here are four key pointers to consider when making this choice:

  1. Performance Track Record: Examine the fund house's historical performance across various funds. Look for consistency in delivering returns and compare their performance against relevant benchmarks. A solid track record suggests a capable management team.
  2. Investment Philosophy: Understand the fund house's investment philosophy and strategy. Ensure it aligns with your risk tolerance and investment goals. A fund house with a transparent and disciplined approach is preferable.
  3. Fund Diversification: Assess the fund house's various funds. Diversification allows you to create a well-rounded portfolio. A fund house with a wide range of options provides flexibility for your investment needs.
  4. Costs and Fees: Consider the expense ratios and fees associated with the funds. Lower expenses can significantly impact your overall returns over time. Look for a fund house that offers competitive costs.
  5. Reputation and Credibility: Research the reputation and credibility of the fund house. Check for any regulatory or compliance issues. A well-established and reputable fund house is more likely to safeguard your investments.

Governing Bodies for an AMC

Asset Management Companies (AMCs) in India are under the supervision of two primary regulatory entities:

  1. Securities and Exchange Board of India (SEBI): SEBI plays the role of regulating and overseeing the operations of all mutual funds companies in India.
  2. Association of Mutual Funds in India (AMFI): AMFI is a statutory body created by SEBI-registered mutual fund companies, and its main aim is to promote transparency and ethical practices within the financial industry.

All mutual fund companies are required to adhere to AMFI's regulations. Furthermore, in the case of banks that act as sponsors, they are subject to regulation by the Reserve Bank of India (RBI), in addition to SEBI and AMFI. It's worth noting that the RBI serves as the overarching authority that governs these regulatory bodies, including SEBI and AMFI.

Guidelines for an AMC by Governing Bodies

Mutual fund companies are subject to stringent regulations by SEBI, AMFI, and RBI. These guidelines ensure transparency and ethical conduct in the industry. Key provisions include:

  1. The Chairman of an AMC cannot simultaneously serve as a Trustee of any mutual fund.
  2. Key personnel must maintain a clean record without involvement in fraudulent or offensive activities.
  3. AMCs cannot assume the role of a Trustee for a mutual fund.
  4. AMCs must maintain a minimum net worth of ₹10 crore.
  5. Disclosure of investment intentions in offer documents is mandatory.
  6. Quarterly reports detailing regulatory compliance must be submitted to trustees.

Reliability of AMC compared to Banks

Many wonder whether mutual funds are as safe as traditional bank accounts or the investment schemes offered by banks. A common fear is that mutual fund companies might suddenly shut down or mismanage the funds, leaving investors in a lurch. The confidence in banks often comes from their regulation by the Reserve Bank of India (RBI), which provides a sense of security.

However, what often gets overlooked is that mutual funds are regulated by the Securities and Exchange Board of India (SEBI), the capital market regulator. Additionally, the Association of Mutual Funds in India (AMFI) plays a crucial role in educating investors and safeguarding their interests.

Here's how the system is structured to ensure safety and transparency in mutual fund operations:

  1. Sponsor and AMC: A sponsor establishes an AMC under the Companies Act, of 1956. The AMC charges a fee for its services and operates under the supervision of trustees.
  2. Trustees: The trustees who oversee the operations of the AMC are themselves regulated by SEBI. This ensures that there is an extra layer of supervision to protect investors' interests.

This regulatory framework is designed to provide objectivity and transparency in the functioning of AMCs, giving investors peace of mind.

Angel One offers a diverse range of mutual fund direct plans, with over 1,000 schemes to choose from. Explore these options and make informed investment decisions with Angel One today!

Final words

All asset management companies in India are regulated by AMFI and need to follow government guidelines to invest in the market, which makes AMC companies safe for investing. Over the years, mutual funds have emerged as an excellent investment option with flexible investment options, compounding returns, and rupee cost averaging.

FAQs

What is a mutual fund investing?

Mutual funds are simple investment products that allow investors to invest in a large variety of assets through a professionally managed pool of funds. Mutual funds are offered through AMC companies in India. The AMFI website defines mutual funds as a trust that collects funds from different investors sharing a common investment goal to invest in securities like equity, bonds, etc. The income/returns generated from the investment get distributed among investors.

How to choose a mutual fund?
Keep the following in mind.

Investment objective:Investment objective: Invest according to your financial goal.

Net Asset Value (NAV):The performance of a mutual fund is measured by the NAV, which refers to the market value of the securities held by the fund.

Expense ratio:Depending on the type of fund you have selected for investing, the expense ratio will be higher or lower. It is the cost of managing your money charged by the AMC company.

Fund manager’' track record: Fund manager’' track record: The fund manager's ability to study the market and make sound investment decisions is the key to your profit. So, you must always check the fund manager's performance before investing in AMC mutual funds.

How to redeem mutual fund units?

AMC companies in India, like Angel One, allow investors to redeem their mutual fund units online. You can raise a redemption request anytime by login into your account.

Alternatively, you can download and submit a duly signed Redemption Request form at the AMC's or the registrar's designated office. The details you must provide in the form are listed below.

  • Holder's name
  • Folio number and/or PAN card details
  • Scheme name with plan details
  • Units to be redeemed
What is an AMC company?
An asset management company manages and invests investors’ money in mutual funds. The purpose of an AMC company is to help investors grow their wealth through investing in mutual funds - pooled funds from individual investors invested in diversified portfolios. AMC companies offer their services against charges.
Who regulates the AMC companies in India?

The AMC companies are governed by the RBI and Ministry of Finance like banks. The AMCs are required to follow government guidelines for investing in various securities.

Is mutual fund investment safe?
The AMC companies in India are governed by the RBI and the Ministry of Finance. However, it is vital to note that mutual fund investment carries risks like an equity investment. So, one must understand the risk factors before investing.
How many asset management companies are there in India?
There are forty-four registered asset management companies in India. These companies manage investors’ funds - invest in various securities to generate optimal returns. Always check the registration and track record of the AMC company before you invest.
Which is the largest Indian AMC company?
The SBI Mutual Fund is the largest AMC in India with a total Asset Under Management (AUM) of ₹7.22 lakh crore on December 31, 2022.

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