AMC in Mutual Funds: Full Form, Definition & More
It is always a good idea to have a financial expert manage your money. A mutual fund firm or an Asset Management Company (AMC) is exactly that expert when it comes to investing.
- What are Asset management company(AMC)?
- How are the funds managed by an AMC?
- What criteria should an investor use to select an AMC?
- Are fund houses as reliable as banks?
- AMFI and SEBI’s role in AMC Operations
- Guidelines for investors from SEBI and AMFI
What are Asset management company(AMC)?
Asset Management Companies are businesses that collect money from different institutional and individual investors and invest it in a variety of securities.
The corporation uses the money to buy capital assets like stocks, bonds, and other types of property. The research team chooses the appropriate assets, and the asset management companies employ specialists known as fund managers to oversee the investments.
Fund managers discover investment possibilities that align with the fund’s goals. To safeguard the investment and generate a consistent return, they invest money in a debt fund such as bonds and government securities.
To maximize returns for investors, an equity fund is typically invested in company shares.
How are the funds managed by an AMC?
Direct mutual fund investments can be made through an AMC. The corporation is primarily in charge of managing the mutual fund and making choices that are beneficial to investors.
It makes investments as per the scheme’s set goals under the direction of a fund manager. The general steps are described below
The specific investment goal of mutual funds aids the fund manager in selecting the assets in which investments can be placed. As an illustration, the majority of debt-oriented funds manage a sizable amount of their assets in bonds and other fixed-income securities.
Another instance is how the majority of balanced funds blend their investments in stocks and fixed income assets.
Research and Analysis
A lot of research and analysis of the performance of the asset classes goes into building the fund’s portfolio. Experts conduct market, micro, and macroeconomic analyses and communicate their findings to the fund manager, who bases investment choices on the fund’s goals.
The fund manager is often updated on market trends and results by a team of researchers and analysts who work for the AMC. The fund manager then determines which securities to acquire or sell based on these results and the investing goals of the fund. This is how a business develops a portfolio.
AMCs are required to give their unit-holders information that directly affects their mutual fund investments. Additionally, it must regularly update investors on sales and repurchases, NAV, portfolio information, and other matters.
Simply put, AMCs have a responsibility to represent and protect the interests of mutual fund participants. Additionally, they must address client complaints about their mutual fund schemes.
What criteria should an investor use to select an AMC?
Before selecting an AMC, you must look into both the AMC’s track record and the assets it is currently managing. Selecting an AMC with substantial assets under management that can withstand rapid redemption demand from major investors is important.
When selecting an AMC, investors should take the following factors into account:
Credentials of the fund manager: You must look at the manager’s history and investment philosophy. The investment approach and expertise of the fund manager determine the performance of many mutual fund schemes.
The AMC’s reputation: It might take months or years for a fund house to establish its standing in the industry. An AMC usually develops a solid reputation after continuously performing for five or ten years.
Look at the ratings: Speaking with other investors will help you determine whether prior performance has been consistent and whether the AMC has had any complaints.
Read more: How to invest in bonds in India?
Are fund houses as reliable as banks?
There is a common misconception that mutual funds are less secure than bank accounts or bank-sponsored investing programs.
People worry that AMCs might go out of business or steal their money at any time. People frequently forget that AMFI is responsible for investor education and that SEBI, the capital market regulator, oversees mutual funds.
AMFI and SEBI’s role in AMC Operations
AMCs operate under the direction of a trustee board. However, they must answer to the Securities and Exchange Board of India (SEBI), which oversees the country’s capital markets.
Another regulatory organization that answers investor complaints and protects their interests is the Association of Mutual Funds in India (AMFI).
The set of risk management standards established by SEBI and AMFI must be followed by every mutual fund house.
The AMFI was created by mutual fund companies, whereas SEBI is a government organization. Together, they maintain the industry’s ethical foundation and transparency.
Mutual funds require clearance if they are establishing guaranteed schemes, and the RBI is crucial in regulating AMCs. Finally, all of these regulators are under the control of the Ministry of Finance.
Guidelines for investors from SEBI and AMFI
Some of the standards and regulations that SEBI, AMFI, and RBI prescribe for mutual fund firms include the following:
- SEBI has set some guidelines for the reports that AMCs must provide to the trustees.
- The trustees must receive the compliance certificate from AMCs every two months.
- They must provide the trustees with quarterly updates on their operations and adherence to these rules.
- The firm is not allowed to invest in any of its schemes unless the offer documents fully disclose the company’s intention to do so.
- The AMC Chairman is not allowed to serve as a trustee for any mutual funds.
- AMC’s top employees should have a spotless record (not convicted of any financial offense such as fraud or insider trading).
- The AMC should be under Rs 10 crores in net value.
- AMCs are not permitted to act as mutual fund trustees.
There are over 44 AMCs in India managing thousands of mutual funds. If you are interested in investing via AMC curated mutual funds for your child’s education then check out the EduFund App and select the top performers!