What is AMC in Mutual Fund?

AMC stands for Asset Management Company. It invests the money of investors in securities. The goal is to give the best returns to investors by taking fees. Understand What is AMC in Mutual Fund in simple steps. Firstly let's understand the meaning of AMC.

AMC Definition

As the name suggests the company is responsible for managing the assets. There is diversification in the investments. The money is taken from the pool of large investors. On behalf of the investor, AMC makes investment decisions. An asset management company invests in two types of securities. The first one is high-risk securities and the other one is low-risk securities.

The high-risk securities are initial public offerings (IPO), currency trading, real estate investment trusts, and hedge funds. The low-risk securities are corporate bonds, public provident fund(PPF), and cash management accounts. Before any type of investment risk assessment is done. The risks are market risk, legal risk, credit risk, currency risk etc.

For example: AMC invests in government bonds because government bonds have less risk. However, the investment in an equity fund will give a higher return with higher risk.

Role of AMC Fund Management

The main role of AMC is to manage the funds. The fund managers are responsible for maintaining the investment portfolio. An asset management company is accountable for meeting the investment goals of investors. 

AMC does the following 4 things to manage the funds of investors : 

1. Building Portfolio: The analysis is done before finalising the investments. Analysts do the proper research. After that, the fund manager creates a portfolio according to the market outcomes. The Fund manager can do the three things while investing. The first one is to buy the securities. The second one is to sell them. And the last one is to keep them on hold. So all of these decisions are taken by the fund manager. The financial experts do a complete analysis of the market that aligns with the investor's target.

2. Asset Allotment: An investment portfolio should have a balance. If a portfolio has more assets in equity and very few in debt then there is unbalance in the portfolio. Therefore it is important to maintain the equity and debt part.

Let's say the investors invest in more equity. Now the investor needs to have a little investment like 30% in the debt to maintain the risk. In the same way, if the investor is debt-oriented then a 15-20% in equity will balance out the risk. But to have a balance then 40% in equity and 60 % will work out very well. But again it depends on the investors' aim. What the investor wants to get out of the investment.

3. Analysing Market: The market analysis is done to know the pros and cons of investment. The market is subject to change therefore it's necessary to check the market risks. A finance analyst takes charge of studying the market conditions. And on that basis, the fund manager decides.

4. Performance Evaluation:  Without evaluating the performance, handling an investment portfolio is difficult. After the investments are made a frequent check is necessary to know how the portfolio is performing. The asset manager has to give valid reasons regarding the investment decisions.

Asset Management Companies

Following is the list of asset management companies in India:
1. SBI Mutual Fund
2. HDFC Asset Management Company Ltd.
3. ITI Mutual Fund
4. DSP Mutual Fund
5. ICICI Prudential Asset Management Company Limited.
6. Axis Asset Management Company Limited.
7. Aditya Birla Sun Life AMC Ltd.

How Does AMC Work?

Asset management companies follow the Security Exchange Board of India (SEBI) rules and regulations. Asset Management Company works by investing the money as a representative of investors. However, the process is different for different investors. Because the aim of every investor is different. The return distribution is done to the small investors.

Asset Management Company Working
For any type of investment, there is a charge. The first thing is to understand the investor's requirements like the orientation of investors. If the orientation is toward debt then investment decisions are taken on that basis. If the investor is equity oriented then the investment scenario will be different.

The asset manager manages the mutual funds of the investors. A maintenance fee is taken monthly or quarterly to manage the fund.

Also, Check - Types of Stock Brokers in Share Market

How To Choose The Asset Management Company

Do the proper research before selecting the asset management company. An investor can easily know by keeping the following factors in mind :

1. Credibility of Fund Manager: Check the credibility of the fund manager. If the fund manager’s performance is ok then it means AMC is also doing good. But if the results are the opposite then be careful. Therefore going through the history of the fund manager shows how credible the employer is.

2. Cost And Fees: Cost needs to be considered. Checking the cost of funds gives an idea about how the asset management company is. Also, the service fee and the asset management fee are charged. Therefore knowing cost and fees helps the investor in making strategic decisions.

3. AMC’s Reputation: The reputation of an asset management company matters a lot. Choosing the most reliable and trustable AMC is important. And a company with a good track record of 5-10 years can be considered. The method is simple: just look at the annual reports and reviews of the company.

4. Regulatory Compliance: The SEBI registration is a must for the company. And also have to follow the guidelines of the Security Exchange Board of India.

5. Risk Management:  A company should be good at handling risks. Because the greater the risk management better the returns.

Conclusion

Investing in funds requires both time and effort. Also picking the right funds comes in it. So AMC plays a major role in investments. Investors can rely on fund managers for their investments. What is an AMC in a mutual fund? is a confusing term for a beginner. Therefore to make things easy this article explains everything about AMC.