Asset management

1. UNIT III - Asset management
company

2. • An asset management company (AMC) is a firm
that invests pooled funds from clients, putting
the capital to work through different
investments including stocks, bonds, real
estate, master limited partnerships, and more.

3. • Asset Management Company (AMC) The AMC
actually manages the funds of the various
schemes.
• The AMC employs a large number of
professionals to make investments, carry out
research and to do agent and investor
servicing.
• In fact, the success of any Mutual Fund
depends upon the efficiency of this AMC.

4. • Along with high-net-worth individual (HNWI)
portfolios, AMCs manage hedge funds and
pension plans, and—to better serve smaller
investors—create pooled structures such as
mutual funds, index funds, or exchange-
traded funds (ETFs), which they can manage in
a single centralized portfolio.

5. • AMCs are colloquially referred to as
money managers or money management
firms. Those that offer public mutual
funds or ETFs ( exchange traded fund)
are also known as investment companies
or mutual fund companies.

6. • Because they have a larger pool of resources
than the individual investor could access on
their own, AMCs provide investors with
more diversification and investing options.
Buying for so many clients allows AMCs to
practice economies of scale, often getting
a price discount on their purchases.

7. • Pooling assets and paying out proportional
returns also allows investors to avoid
the minimum investment requirements often
required when purchasing securities on their
own, as well as the ability to invest in a larger
assortment of securities with a smaller
amount of investment funds.

8. • What is an Asset Management Company?
• Asset management companies (AMCs) are firms
pooling funds from various individual and
institutional investors and investing in various
securities. The company invests the funds in
capital assets such as stocks, real estate, bonds,
and so on.

9. • Fund managers identify the investment options
that are in line with the objectives of the fund.
For instance, a debt fund invests mostly in
bonds and government securities to protect the
investment and earn a steady return.
• An equity fund mainly focuses on investing in
shares of companies to maximise return for the
investors.

10. • How does an AMC manage the funds?
• You may invest in mutual funds directly with an
AMC or asset management company.
• The company is principally responsible for
driving the mutual fund and making decisions
that benefit the investors.
• Under the leadership of a fund manager, it
invests the money in line with the
investment objectives of the scheme.
The process is broadly listed below.

11. • Asset Allocation
• Mutual Funds have a particular investment
objective, which helps the fund manager decide
on the assets in which the investments can be made.
For example, most debt-oriented funds have a
sizable proportion of their assets under
management in bonds and other fixed-income
securities.
• Another example is that most balanced funds
invest in a mix of stocks and fixed income
securities

12. • Research and Analysis
• Building the fund’s portfolio rides a lot on
research and analysing the performance of the
asset classes.
• Experts study the market, micro and macro-
economic aspects and pass on the reports to
the fund manager, who then makes investment
decisions based on the funds objectives.

13. • Portfolio Construction
• An AMC typically has a team of researchers and
analysts who report their market findings and
trends to the fund manager. Based on these
findings and investment objectives of the fund,
the fund manager then chooses the securities
to buy or sell.
• This is how a company builds a portfolio, which
depends predominantly on the experience and
expertise of the fund manager.

14. • Performance Review
• AMCs must provide unit holders with
information that has a direct impact on their
mutual fund holdings. It must also send regular
updates on sales and repurchases, NAV (Net
Asset Value) portfolio details, and so on to
investors. In simple terms, AMCs must answer
to the investors of the mutual funds and look
after their interests. Moreover, they must
attend to customer grievances regarding their
mutual fund schemes.

15. Role SEBI & AMFI in AMC Operations
• An AMC works under the supervision of the
board of trustees.
• But, they are answerable to India’s capital market
regulator, the Securities and Exchange Board of
India (SEBI).
• The Association of Mutual Funds in India (AMFI)
is another statutory body that addresses
investors’ grievances and looks after their
interests.
• Every mutual fund house must comply with the
set of risk management guidelines by SEBI and
AMFI.

16. • While SEBI is a government body, mutual fund
companies have formed the AMFI.
• Together, they keep the functioning of the
industry ethics-driven and transparent.
• RBI also plays an essential role in regulating
AMCs, and mutual funds need approval if they
are launching guaranteed schemes.
• Finally, the Ministry of Finance works as the
authority for all these regulators.

17. Where does the AMC stand in the overall
mutual fund structure?
• The Government of India and RBI formed the
Unit Trust of India (UTI) in 1963.
• Later, when the government permitted public
sector banks and institutions to set up mutual
funds, the need for an impartial regulator
arose.
• As a result, they passed the SEBI Act (1992)
and made AMCs integral to the mutual fund
structure in India.

18. • To understand the functions of an AMC better,
you must know where the AMC stands in the
mutual fund structure.
• All the entities mentioned in the box work in
tandem to create different mutual fund
types catering to different sets of investors.

20. SEBI and AMFI guidelines investors should
know
• An AMC shall not serve as the trustee of any
mutual fund.
• The company shall not invest in any of its
schemes unless full disclosure of its intention
to invest has been made in the offer
documents.
• They shall submit quarterly reports on its
activities and the compliance with these
regulations to the trustees.

21. • Key personnel of an AMC should have a clean
record (not convicted of any economic offence
such as fraud or insider trading).
• The Chairman of the AMC shall not be a trustee
of any mutual fund.
• The AMC should have a net worth of less than
Rs 10 crores.
• SEBI has guidelines for the reports that must be
submitted by AMCs to the trustees.
• AMCs must submit the compliance certificate to
the trustees on a bi-monthly basis.

22. • How Does an Asset Management Company
Work?
• While investing in an AMC, basically you are
investing in a fund managed by the AMC.
• The returns of the funds are market-linked and
therefore depend on the performance of the
fund.
• A well-managed fund has the potential to
deliver relatively higher returns.

23. • In return, the fund would charge a small fee
called a fund management fee. It is a prime
source of revenue generation for the AMC.
• A fund is expected to generate competitive
returns in its category to maximize its
subscribers and hence, the revenue.

24. • Top Asset Management Companies in India
• Currently, there are 44 asset management
companies operating in India.
• All of the AMCs are registered under AMFI.
Here are the top asset management
companies in India:

26. • So the Asset Management Company (AMC)
essentially collects money from the public and
makes it a pool of funds.
• So maybe 100 million dollar fund or maybe 200
million or multi-billion fund.
• So depending on the size of the Mandate they
invest the pooled funds of clients into various
securities and an example could be an Asset
Management Company (AMC) could be like
a Mutual Fund.

27. • What is Sell Side?

29. • So research and advice for whom?
• So research and advice for clients like
institutional clients, investors who can
individually investors.
• So we’re saying that the investment bank
research department will produce research that
will be consumed by clients. So the clients
would be institutional and individual investors.

30. • So whenever you see this report you about a
buy-sell recommendation from a brokerage firm
think of this as a sell-side because what they are
doing is essentially selling ideas ok so they are
not selling reports so please not there could be
some neutral brokerage firms, independent
brokerage firms who sell reports as well as price
tag but when we talk about sell-side in the
context of investment banking they sell ideas
ok. So they are selling ideas to the clients and in
most cases, these ideas are communicated for
free. So that’s how a sell-side comes, the selling
ideas ok.

31. • What is Buy Side?

32. • Think about a buy-side, buy-side is nothing but
the client who is on the institutional side. So
one side is a sell-side selling idea, selling ideas
to whom?
• To the clients and the clients are called as buy-
side because what they essentially do is that
they have a pool of funds, they invest in stocks
and bonds.
• So a buy side are the one who is buying stocks
and bonds and they do that in large quantities
of securities for money marketing purposes.

33. • So they have a Mandate and they invest as per
their Mandate.
• So who are the examples of a buy-side? So let’s
look at a couple of them. Hedge Funds, Mutual
Funds, Insurance Companies, Pension Funds to
name a few actually buy-side because if you
look at individually Hedge Funds, Mutual Funds
in every place you will find a fund manager who
will interact with the brokerage firms for ideas.

34. • So the brokerage firm is giving ideas to Mutual
Funds. Mutual Fund is hearing those ideas they
may be appreciating those ideas and looking
forward to making investments.
• So whose portfolios are these companies
actually managing on the buy-side managing
they are basically the clients.
• So investor Mutual Funds is a pool of funds
from their own investors.

35. THANK YOU