Who invest in the capital of AMC?
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. The asset management companies have professionals called fund managers who manage the investment and the research team selects the right securities.
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 maximize return for the investors.
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.
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.
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.
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.
Performance Review
AMCs must provide unitholders with information that has a direct impact on their mutual fund holdings. It must also send regular updates on sales and repurchases, NAV, 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.
On what basis should an investor choose an AMC?
You must check the track record of the AMC and also the assets under management (AUM) before choosing an AMC. It helps if you choose an AMC with large assets under management that can handle the sudden redemption pressure of large investors. Market savvy investors can also check the performance history of various mutual fund schemes managed by the AMC during both market ups and downs to get an idea of performance across market cycles.
Investors can consider the following points while choosing an AMC:
The reputation of the AMC: A fund house does not earn its status in a day; it takes months or years to do so. For example, an AMC gets a good reputation after performing consistently over 5 or 10 years.
Check the reviews: You must talk to other investors, and check if the past performance has been consistent and if there are any grievances against the AMC.
Fund manager’s credentials: You must check the track record of the fund manager and the investment style. There are many mutual fund schemes whose performance is dictated by the investment style and skill of the fund manager. You must never invest in a mutual fund if you are not comfortable with the investment style of the fund manager. Moreover, mutual funds display the style box to help you gauge the investment style of the fund manager.
