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Asset management company
- 1. UNIT III -Asset management company
- 2. • An assetmanagement 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 ManagementCompany (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 withhigh-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 arecolloquially 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 theyhave 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 assetsand 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 isan 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 managersidentify 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 doesan 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 andAnalysis • 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 SEBIis 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 theAMC 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 understandthe 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 AMFIguidelines 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 personnelof 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 Doesan 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 AssetManagement 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 theAsset 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 isSell Side?
- 29. • So researchand 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 wheneveryou 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 isBuy Side?
- 32. • Think abouta 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 theyhave 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 thebrokerage 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.