Mutual funds have become a crucial part of investment instruments in India. Its investment patterns seek to potentially suit different types of investors. As of September 2024, the average asset under management (AAUM) of the mutual fund industry has grown to ₹67 trillion. An integral reason behind this success is its multifaceted schemes that can fulfil diverse purposes.
The asset management companies (AMCs) or the fund houses are the minds behind designing innovative schemes based on the mutual fund categories. They are responsible for the core operation of a mutual fund. However, the term ‘asset management company’ is broad and may include varied instruments. Therefore, let’s explore what is an AMC and how it functions holistically.
Check this out! Ajay Lakhotia reveals Nilesh Shah’s mutual fund success blueprint
What is an asset management company?
The entity responsible for the management of investor’s funds and their proper allocation in their desired investment is termed an asset management company. The term is popular with reference to mutual funds, which pool investor’s money through schemes and invest it based on the scheme category. They are key stakeholders in the whole mutual fund process. As of October 2024, there are 44 registered AMCs in India.
These entities appoint professional fund managers to allocate the pooled funds into different assets like equity, real estate, debt, gold, etc. Moreover, they look over their designed schemes and market compliance. The Association of Mutual Funds in India (AMFI) is a collaborating body of all AMCs which helps fund houses in various functional areas.
However, the asset management company meaning is not restrained only to mutual funds. Other instruments are also managed by AMCs, such as stocks, exchange-traded funds (ETFs), bonds, etc.
Types of asset management company
Based on the types of assets under management, there are different types of AMCs:
| Instrument type | Core functions |
| Hedge funds | They design complex investment strategies based on the product. |
| Private equity firms | They invest in unlisted companies through private placement. |
| Wealth management funds | In this, AMCs have a holistic function to timely allocate the funds throughout the process of wealth building. |
| Pension fund management firms | AMCs focus on income-creation instruments for future pension payments. |
Must read: Mutual Funds vs Stocks: Pros & Cons
Functions of an asset management company
Mutual fund investment is a product of various parties like trusts, AMCs, sponsors, etc. Among these, AMC is specifically concerned with the core function of navigating the investments in different assets and managing them to provide returns to the investors. Apart from this, AMCs are concerned with many other tasks, such as:
- Product creation
AMCs are the origin of various investment schemes that can cater to investors with varied profiles. They design an appropriate mix of assets based on the fund category, regulatory requirements, and market conditions.
The fund houses also focus on portfolio rebalancing at the required intervals to align with investor’s aspirations and market dynamics. To facilitate all these functions, the AMCs appoint fund managers and experts.
- Investment management
The core function of pooling investor’s funds and managing them throughout its life cycle is the responsibility of AMCs. Moreover, these entities are also concerned with risk management and mitigation plans that can ensure steady management of funds.
Further, the functions of custody and transfer of assets are allocated to intermediaries such as registrars and transfer agents (RTAs). AMCs charge fees for such operation and management as total expense ratio (TER).
- Research and analysis
It is the sole responsibility of the asset management company and the fund manager of its specific schemes to employ relevant techniques and strategies for the research of viable market opportunities.
They use tools such as fundamental, technical, and quantitative analysis that can provide them with a holistic view of the market. Apart from researching for fund management, due analysis is also carried out for purposes like investor communication, education, and regulatory norms.
- Regulatory compliance
AMCs, being the central entity for investment product generation and fund management, are in direct liability for fulfilling the required compliances asked by market regulators such as the Securities Exchange Board of India (SEBI).
Moreover, maintaining legal and ethical standards that can protect the investor’s interest should be one of the key focus areas for the asset management company. To facilitate this, the fund house provides regular investment details, disclaimers, and updates regarding market norms.
How to select a suitable asset management company?
There are ample options available for AMCs in the market. However, investors should responsibly select a suitable asset management company before allocating their funds. Here are some of the factors that can be considered by the investors to select an AMC:
- Investors should check the available schemes and products by an AMC and check if they align with their required investment.
- The historical performance of AMC and the appointed fund manager can reflect details about its investment strategies and psychology.
- Usually, investors prefer a popular asset management company for investment to minimise the credibility risk.
- Investors should track the compliance fulfilment by AMC.
- Details like fund size, liquidity, redemption policies, and TER of the scheme may be analysed based on the investor’s perspective.
Future of asset management companies in India
These entities play a crucial role in driving innovation in investment products, enhancing fund management service quality and attracting investors with their schemes. The growth in AUM of the prominent fund houses in the past few years has been reaching new heights. It paves the path for new AMCs. Based on a report, India may add 4-5 new AMCs per year in the upcoming years.
India has a large prospective market owing to its population, and due to this, innovation is needed. Experts suggest that the asset management industry may grow by 25% in the upcoming 10-20 years, which is a positive indication of the growth of the overall investment market in the country.
Summary
An asset management company is a crucial stakeholder in overall investment innovation and plays a significant role in assets like mutual funds, ETFs, pension funds, etc. Their functions revolve around investment management, asset allocation, research and analysis, etc. The significance of AMC is high, and investors should select a suitable entity after wise analysis.
An interesting read: How to build wealth with asset allocation strategies?
FAQs
- What is the meaning of AMCs in mutual funds?
The asset management company is a broad term stretching to various assets. It deals with collecting/pooling investor’s funds and investing in its products or schemes. These entities are popularly known as fund houses for mutual funds. They create varied schemes that can suit different investors and manage their portfolios.
- What do asset managers do?
The asset managers or fund managers are mainly concerned with the creation or modification of investment portfolios as schemes. They manage investments in these schemes and perform regular research and analysis to stay updated with market conditions. Moreover, they fulfil the regulatory requirements as indicated by their asset management companies.
- How are AMCs different from brokerage firms?
Asset management companies are mainly concerned with the management aspects, while brokerage firms facilitate transactions. These entities differ in their services and fees charged. AMCs charge fees in the form of expense ratio, while brokerage firms charge commissions on the transaction.
- Who regulates the AMCs in India?
The norms regarding the establishment, functioning and management of AMCs are laid by the market regulator SEBI. Mutual funds operate their investments directly or indirectly in the stock market, and SEBI regulates these functions.
- Which fee is charged by AMCs?
In the case of mutual fund investments, the fund houses or asset management companies charge the expense ratio with respect to the scheme’s net asset value (NAV). Apart from this, they also charge the exit load in case of early redemption.
