One time Offer Get ET Money Genius at 80% OFF, at ₹249 ₹49 for the first 3 months.

Get a free quote

Scan the QR Code to download the ET Money app
  • To scan the QR code you can use a QR code scanner app or your smartphone camera using Google lens.
  • After downloading the app, explore our products to help you live your choices.
ET Money one link

Great! You have sucessfully subscribed for newsletters for investments

Subscribed email:

Asset Management Company (AMC)

Earn up
Earn up to 25 lacs extra with us!

What is an Asset Management Company?

An Asset Management Company (AMC) is a SEBI-registered financial institution that pools funds from multiple investors and invests in various financial instruments, such as stocks, bonds, and real estate, to generate returns for the investors.

The distinguishing factor for AMCs is their assets under management (AUM). It indicates the total value of investments that the fund house manages on investors' behalf. When the AUM of an AMC grows, it represents the faith and confidence that investors have in the fund house to manage their money. A bigger AUM also allows AMCs to gain economies of scale, and increase their profitability.

The role of a fund house is to make investment decisions on its investors' behalf and manage the assets in their portfolios. This involves choosing a suitable mix of investments and helping investors grow their money.

To achieve this, an asset management company appoints professionally qualified fund managers with investment expertise and experience to manage the assets. Fund managers employ investment strategies and use financial tools, such as risk management techniques, to help manage the portfolio and protect investors' assets.

Additionally, AMCs have a support system in place in the form of research analysts who assist the fund managers.

How an Asset Management Company Manages The Funds?

When you invest with an asset management company, you invest in a portfolio that the AMC manages on your behalf. It is AMC's responsibility to make sure that your financial goals are met. This is achieved through the following steps:

  • Research and Analysis:
    To build a portfolio for an investor, the fund manager conducts extensive research on market trends, macroeconomic & microeconomic factors, and political aspects. Based on this research, the appropriate securities are selected that will outperform the return expectations of the investors.
  • Asset Allocation:

    Based on market research and the investor's financial objectives, the asset manager allocates the funds to different assets. For example, a debt-oriented fund might invest only 20% in equity-oriented funds to keep risk levels low, while an equity-oriented fund might invest more than 70% in equity and the rest in debt. A balanced fund might end up with 60% in equity and 40% in debt to balance return and risk.

    Having said that, AMCs have to follow the asset allocation approved by the Securities Exchange Board of India (SEBI) for every scheme as per its respective category.

  • Portfolio Creation:
    The creation of a portfolio is a crucial decision made by the AMC. A fund manager aims to create a balanced portfolio that can perform well even in adverse market conditions. The portfolio is constructed considering the risk factors associated with each asset class.
  • Performance Review:
    AMCs are accountable to their investors for the investments they make. To avoid a negative reputation and criticism from investors, it is crucial to regularly evaluate the fund's performance, considering factors such as the net asset value (NAV) and fund returns. This helps AMCs maintain a good reputation and keep their investors satisfied.

How to Choose a Fund House?

When selecting a mutual fund company, investors need to examine its track record thoroughly. Although AMCs are obligated to make investments that align with the investment objective, it is wise for investors to stay informed about news related to the AMC, such as changes in the fund manager or the performance of the schemes managed by the fund.

Here are some points to consider when choosing an AMC:

  • The Reputation of an AMC
    The market reputation of an AMC takes time to establish, and it is influenced by factors such as consistent performance, stability in management, and a clean track record. Investors need to gather information about AMC's reputation, which can often be found on the company's website.
  • The Credibility of a Fund Manager
    The fund manager is responsible for making investments on behalf of the investors. As a market expert with years of experience in the capital market, AMC would want a highly experienced professional to manage their investment decisions. Therefore, investors must review the credentials and work history of the fund manager.

Governing Bodies for an AMC

Under the oversight of a board of trustees, Asset Management Companies (AMCs) operate in India under the guidance of two major regulatory bodies:

  • The Securities and Exchange Board of India (SEBI)
  • The Association of Mutual Funds in India (AMFI)

SEBI, as the capital market regulator, oversees and regulates the functioning of all mutual fund companies in India. AMFI, on the other hand, is a statutory body formed by mutual fund companies with the goal of promoting transparency and ethical practices within the financial industry.

All fund houses must abide by AMFI's regulations. Additionally, banks serving as sponsors are also regulated by the Reserve Bank of India (RBI), along with SEBI and AMFI. Ultimately, all these regulatory bodies - SEBI, AMFI, and RBI - are governed by the RBI.

Guidelines for an AMC by Governing Bodies

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

  • An AMC must not serve as a trustee for any mutual fund
  • An AMC must have a minimum net worth of ₹10 crores
  • The Chairman of an AMC cannot hold a position as a trustee for any mutual fund company
  • The company is prohibited from investing in its schemes, except with full disclosure in the offer documents
  • The key personnel of the company must maintain a positive and untarnished reputation

Reliability of AMC compared to Banks

Contrary to popular belief, mutual fund companies, are just as reliable and secure as banks. Like banks, they are governed by the Reserve Bank of India and the Ministry of Finance, ensuring the safety of the investment.

AMCs are appointed by a sponsor and trustee to manage a pool of funds and operate under the oversight of trustees regulated by SEBI and AMFI. This ensures transparency, accountability, and impartiality, making it a safe and advisable choice for optimizing wealth and maximizing tax savings.