Before investing, you need to know the details about your investment and the entities associated with it. Whether you are a novice or a seasoned investor, an asset management company is a common entity you will hear about.
An asset management company (AMC), as the name suggests, is a firm/ company that manages your funds. The company pools money from multiple investors via different schemes and invests it into stock and shares of companies that align with the purpose of the scheme.
These firms primarily manage different types of mutual funds schemes and make decisions on your behalf, the investor. The decisions are to drive the performance of the scheme and ensure that you get good returns.
To ensure that you get the returns, AMCs like the SBI mutual fund have processes in place to make calculated, data-driven decisions. Given the role that these companies play, understanding these functions will give you better insights into how your funds are dealt with.
Read on to know these functions of an AMC and more to invest smartly.
4 Crucial Functions of an Asset Management Company
There are several functions that a majority of AMCs have in place to ensure your investment is well-managed and regulated. This, in turn, ensures the safety and growth of your finances.
Here are the 4 critical functions of an AMC:
Research and Analyse
Before an AMC invests funds in different companies, it will conduct thorough research to determine which are the most promising ones. After this research, they will study and analyse the avenues to understand the associated risks.
Once the research and analysis are done, the company will shortlist the assets. Both of these functions allow the company to understand the current financial market situation and choose the ideal options for them and their investors.
Asset Allocation
AMCs offer different financial schemes and products with different investment objectives and risk levels. As such, they need to finalise avenues that align with these goals and risks. To accomplish this, the companies will start asset allocation once the avenues are finalised.
For example, if the mutual fund scheme has a high-risk level, the company will invest a certain percentage in the avenues that are high-risk. The asset allocation ultimately decides the overall risk of the portfolio and the returns you can earn.
Portfolio Formation
This function of an AMC depends on the experience and decisions of the fund manager. The fund manager constructs the portfolio of the scheme by choosing securities that align with the end-goal. The decision to buy or sell depends on the research and analysis of the market trends.
Performance Review
An asset management company is responsible for your funds and thereby answerable to the decisions they make. As such, they regularly review the performance of their schemes and send updates to the investors.
With regular reviews, the fund managers stay ready to justify their buy, sell, and retain decisions. This performance review depends on the NAV, returns, asset allocation, and more.
How to Choose the Right AMC?
Choosing an asset management company is a vital decision as it influences the performance of your investment. So, evaluate the following factors before making a decision.
Reputation of the Company
If the company has good reviews and a reputation, chances are that its schemes are performing well, ensuring the security of your financial growth. For example, SBI mutual fund is among the top AMCs, as implied by its reputation among investors of all ages.
The best way to understand the reputation of the company is to check its reviews and customer satisfaction.
Fund Manager
An AMC hires a team of professional fund managers that oversee the schemes offered by them. These managers drive the performance of the scheme by making decisions based on the market movement. Ensuring that the fund manager has a similar style helps you ensure that it aligns with your investment goals.
Fees and Other Costs
AMCs levy fees and costs like administration fees for the services they offer. These costs can vary from one company to another. Since the cost affects the returns on your investment, knowing this before you choose is crucial. These details are available on the official website of the AMC.
Important Guidelines You Should Know
The Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and The Association of Mutual Funds in India (AMFI) have put forth a set of guidelines that AMCs need to abide by.
Listed below are some of the top guidelines you should know:
Now that you know the functions of an asset management company, remember the above guidelines and tips to choose the best firm for your funds. Remember to choose a scheme based on your risk tolerance and investment goals.
You also need to remember to diversify your investments to mitigate the risk. Invest in multiple avenues that carry different risk levels and have different maturity to make the most of your funds.
Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.