Roles of Asset Management Company
An Asset Management Company, more known as AMC, is a company that manages different forms of funds of retail clients and invests it in different areas in order to enhance the returns on funds. The funds are invested in stocks, bonds, mutual funds and property. These days Asset Management companies are more known as asset managers or money managers. Such companies help in diversifying investments in different areas.
An Asset Management Company has asset managers who will evaluate the framework of the investment that has to be made. After evaluating this framework of investment, they would do market research and suggest possible investment options. Based on this, they would go ahead with the investment strategy.
How does an Asset Management Company work in India?
There are three main stages involved in an Asset Management Company/ Asset Management Service.
1. Asset Allocation/ Criteria
In these stages, the investment managers need to consider the form of assets that are available for allocation. The following factors have to be considered while Asset Allocation:
- Type of assets distribution- Equity or Debt Basis
- Evaluation of Market
- Portfolio Research
- Professional Considerations and Practice in Management of Assets.
2. Portfolio for Investment Management
In the next stage, formulating a portfolio for investments is crucial for proper management. Asset managers must research the market and consider possible downfalls and trends in the market. The possible risk factors that pose according to the market analysis also must be considered. One of the main considerations is where the investment must be made, whether in high rated securities or vice versa.
3. Performance Monitoring
The last stage of an AMC is the constant evaluation of the portfolio and what is the rate of return of investment the portfolio is providing. These must be given in the form of reports. The asset managers must provide their client performance reports of the assets.
Regulatory body of the Asset Management Company
The main authority / regulatory body for an Asset Management Company in India is the Securities Exchange Board of India (SEBI). Apart from the SEBI, the other regulatory authority for Asset Management Company is the Association of Mutual Funds of India (AMFI).
Pros and Cons of Asset Management Company
Documents required for an AMC
If the investor is a company, then board resolution/ board meeting must be passed that the company will be investing in the asset/assets. The following are the documents that are required for investing in an asset management company:
- 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
- The applicant has to pay a non-refundable application fee of Rs. 1, 00,000/- to the SEBI. The portfolio manager is required to pay a sum of Rs 10, 00,000/- as registration fees at the time of grant of certificate of registration by SEBI.
- Apart from this, the SEBI would take other consideration, such as the applicant having enough office space.
- Professionals who are working as fund managers must have requisite qualifications in the field of law, accountancy, the management or chartered accountants from a professional university.
- The applicant must have 2 people who have at least 5 years of experience in investment management or portfolio management.
- The manager has to have Rs. 50,00,000/- minimum net worth.
- The certificate of registration is valid for a period of 3 years.
Metrics on which investor chooses Asset Management Company
The essentials metrics that an investor must keep in mind before choosing an AMC are given as below:
- P/E ratio
It is to know about the cheap or expensive rates of the stock and guide how much an investor wants to pay.
By dividing the company’s market capitalization by its annual revenue provides the price-to-sales.
- PEG ratio
The company’s P/E ratio is divided by the expected earnings growth rate gives the PEG ratio, which helps to level the field by taking projected growth into account.
A company’s debt-to-equity ratio is calculated by dividing the company’s total liabilities by its shareholder's equity, that provides the comparison to companies reliance on debt to fund their operations.
- Payout ratio
The company’s payout ratio is calculated as the company’s annual dividend rate divided by the company’s earnings.
The beta is a measurement of how the reactive stock is compared to the overall market. The beta of less than ONE indicates that a stock is less reactive to market swings, while a beta of more than ONE indicates a more volatile stock.
- Return on equity
The return of equity is calculated by dividing the company’s net income/earings by its shareholder's equity. The ROE suggests that how efficiently a company is using its shareholder’s equity to generate a profit.
- Free cash flow
The free cash flow is calculated by the company’s cash flow statement, which is subtracted from its capital expenditures. The free cash flow tells that how much money is generated by the company.
The calculation of price-to-book is done when the company’s stock price is divided by its net assets. Tangible goods are the goodwill and other intangible assets on the balance sheet and help the investors willing to pay for a company’s assets.
Roles of SEBI and AMFI in Asset Management Company Operations
An Asset Management Company (AMC) is regulated by the capital market regulator, Securities and Exchange of India (SEBI). When it comes to supervision, managing and considering how the investment managers work, then SEBI is the main authority dealing with the asset managers.
SEBI also provides a proper system for complaints and other grievances related to asset managers. All the asset management companies in India are regulated and governed by the Securities Exchange Board of India. Further, AMCs are also passively regulated by the Association of Mutual Funds of India (AMFI).
How does an Asset Management Company manage its fund?
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