What is Assest Management Companies ?
An asset management company (AMC) is a business that manages client funds that are pooled together and invests them in a variety of assets, such as stocks, bonds, real estate, master limited partnerships, and other investments. AMCs oversee high-net-worth individuals’ (HNWIs’) portfolios in addition to managing hedge funds, pension plans, and pooled structures like mutual funds, index funds, or exchange-traded funds (ETFs), which they can oversee in a single centralised portfolio to better serve smaller investors.
AMCs are also known as money managers or money management companies informally. Investment firms or mutual fund companies are other names for businesses that provide publicly traded mutual funds or ETFs. These companies include T. Rowe Price, Fidelity Investments, and Vanguard Group, among many more.
Assets under management (AUM), or the total value of the assets an AMC manages, serve as a defining characteristic of AMCs.
Roles of Asset Management Company
An asset management company, or AMC for short, is a business that invests different types of assets from retail clients in a variety of markets to maximise profits. The money is put to work buying stocks, bonds, mutual funds, and real estate. Companies that handle assets are more commonly referred to as asset managers or money managers these days. These businesses support investment diversification across several sectors.
Asset managers at an asset management company will assess the parameters of the required investment. After assessing this investment framework, they would conduct market research and make suggestions for potential investment opportunities. They would proceed with the investment plan in light of this.
How does an Asset Management Company work in India?
There are three main stages involved in an Asset Management Company/ Asset Management Service.
- Asset Allocation/ Criteria
The type of assets that are available for allocation needs to be taken into account by the investment managers throughout this phase. When allocating assets, the following factors must be taken into account:
- Evolution of Market
- Portfolio Research
- Professional Considerations and Practice in Management of Assets.
Asset management best practises and professional considerations.
2. Portfolio for Investment Management
The creation of an investment portfolio is essential for proper management in the following phase. Asset managers must conduct market research and take market trends and potential downturns into account. The market analysis’s potential risk elements must also be taken into account. Where the investment must be made, whether in highly rated securities or the opposite, is one of the key factors.
3. Performance Monitoring
The constant assessment of the portfolio and the rate of return on investment it is offering is the final stage of an AMC. Reports must be provided for these. Asset managers are required to deliver client performance reports.
Regulatory body of the Asset Management Company
The Securities Exchange Board of India (SEBI) is the primary authority or regulating agency for an Asset Management Company in India. The Association of Mutual Funds of India (AMFI) is the second regulatory body that oversees Asset Management Companies in addition to the SEBI.
Pros and Cons of Asset Management Company
Pros
- Assets managed by professionals
- Improved investment option
- Specialized services to association
- Well diversified portfolio
- Brings economies of scale and buying power
- Statically analyses of the trends and market
- Provide a wild range of financial services
Cons
- Risk of underachieving market
- Risk of criminal liabilities
- May rise conflicts of interest
- Higher minimum standards
- High fee for clients
Documents required for an AMC
When a firm is the investor, a board resolution or board meeting must be held to approve the company’s investment in the asset or assets. The following papers must be submitted in order to invest in an asset management firm:
- For a Private Limited Company – Memorandum of Association, Articles of Association, Scheme of Investment.
- Directors Identification Number (DIN).
- KYC (Know Your Client Documents).
- Proof of Identity- Passport.
- Proof of Address (Aadhar Card).
- PAN Card.
- Aadhar Card
Eligibility Criteria and Fees
- A non-refundable application fee of Rs. 1,000,000 must be paid by the applicant to SEBI. At the moment the SEBI issues the certificate of registration to the portfolio manager, Rs 10,000 is required as registration costs.
- In addition, the SEBI would take other factors into account, such as whether the applicant had sufficient office space.
- Professionals working as fund managers must possess the necessary credentials from a professional university in the areas of law, accountancy, management, or chartered accounting.
- The applicant must have two individuals with a combined experience of at least five years in portfolio management or investment management.
- The management must have a minimum net worth of Rs. 50,000,000.
- The registration certificate is good for three years.
How does an Asset Management Company manage its fund?
P/E ratio:
Knowing the stock’s cheap or pricey rates will help an investor decide how much to spend.
Price-to-sales
The price-to-sales is calculated by dividing the company’s market value by its annual revenue.
Ratio of PEG
The PEG ratio, which levels the playing field by taking predicted growth into account, is calculated by dividing the company’s P/E ratio by the forecasted earnings growth rate.
Debt-to-equity
The debt-to-equity ratio, which compares how heavily a firm relies on debt to finance its operations, is determined by dividing the total liabilities of a corporation by the equity held by its shareholders.
Rate of return
The payout ratio of a corporation is determined by dividing its yearly dividend yield by its earnings.
Beta
A measurement of how the reacting stock compares to the entire market is called the beta. A stock with a beta of less than ONE is less sensitive to changes in the market, whereas one with a beta of more than ONE is more volatile.
Revenue from equity
Divide the company’s net income or earnings by the equity held by its shareholders to get the return on equity. The ROE denotes how effectively a business uses shareholder equity to produce profits.
Generous cash flow
The cash flow statement of the business is used to compute free cash flow, which is then divided by capital expenditures. The free cash flow indicates how much revenue the organisation generates.
Price-to-book
When the stock price of the company is divided by its net assets, price-to-book is calculated. The goodwill and other intangible assets that appear on the balance sheet as tangible products aid investors in determining the value of a company’s assets.
Roles of SEBI and AMFI in Asset Management Company Operations
Securities and Exchange of India (SEBI), the capital market regulator, oversees Asset Management Companies (AMCs). SEBI is the primary organisation responsible for managing, managing, and overseeing how asset managers conduct their business.
Additionally, SEBI offers a suitable procedure for handling complaints and other concerns regarding asset managers. The Securities Exchange Board of India oversees and controls all asset management firms in India. Additionally, the Association of Mutual Funds of India (AMFI) passively regulates AMCs.
The management of the funds is analysed by the Asset Management Firm on the following aspects, which are:
- Allocation of Assets
- Research and Analysis
- Formulating an Investment Portfolio
- Assessment of Performance
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