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What is an Asset Management Company(AMC)?

Asset Management Company (AMC) manages investment portfolio and advice on financial matters. A company that manages the mutual fund is called an Asset Management Company (AMC). For the practical purposes, it’s a systematized form of the money portfolio manager. An AMC may have numerous mutual fund schemes with the similar or different investment objectives. The AMC hires the professional money manager, who buys & sells securities in the line with fund’s mentioned objective.

BREAKING DOWN ‘Asset Management Company – AMC’

Asset Management Company (AMC) offers their clients a diversification because they have the larger pool of resources than an individual investor could access on his own. Pooling assets together & paying out proportional returns allow investors to avoid minimum investment requirements often required while purchasing securities on their own, as well as an ability to invest in the larger set of securities with the smaller investment.

Understanding AMC Fees

In certain cases, the Asset Management Company (AMC) charges their investors a set fee. In other cases, these companies charge a % of total asset under the management. For example, in case an Asset Management Company (AMC) is taking care of the investment worth $4 million, & an AMC charges a 2% commission fee, it owns $80,000 of that investment. In case the value of investment increases to $5 million, the AMC owns $100,000, & if the value falls, so too does the Asset Management Company (AMC) stake. Some AMCs combine flat service fees & %-based fees.

How Do AMCs Work?

Typically, Asset Management Company (AMC) are considered as the buy-side firms. This simply refers to the fact that they help their clients to invest money or to buy such securities. They decide what to buy based on in-house research and data analytics^[1], but they also take public recommendations from sell-side firms.

So AMC principally collects the money from a public & makes it as a pool of funds. So subject to the size of a Mandate they invest the pooled funds of clients into various securities & an example could be an Asset Management Company could be from the Mutual Fund. So the Mutual Fund that invests in technology stocks. So there is a portfolio manager who directs these pooled funds into the various securities.

They make money by actually taking the commission or fees depending on the size of the fund which they are managing.

For example: So if it’s a 100 million, management fee may be around 2% – 3% of an overall asset under the management. So that’s how the asset management companies make money & a manager who manages the investments or takes investment decisions is called the portfolio manager or the fund manager ok & the important part of this Asset Management or an Asset Management Companies (AMC) is that they provide a lot of modification because they have a larger pool of resources as compared to the individual investors. So I may invest in only Microsoft or maybe Google. For knowledge, the Mutual Funds that invest in the technology stocks may provide more diversification as they have larger funds to invest across domains & they are professionals, they can do a lot of risk-return analysis & also kind of diversify their large portfolio which will in return ultimately mitigate my investment in Mutual Fund. So this is how the Asset Management Company works.

What Are Sell-Side Firms?

The Sell-side firms like investment banks & stockbrokers, in contrast, sell investment services to the Asset Management Company (AMC) & other investors. They do a lot of market analysis, looking at the trends & creating projections. Their objective is to generate trade orders, & they charge transaction fees on the orders.

What Is the Difference Between the Fiduciary AMC and Brokerage Houses?

Brokerage houses & fiduciary firms are both examples of the Asset Management Company (AMC). Brokerage houses accept nearly any client, regardless of an amount they have to invest, & these companies have the legal standard to provide suitable services. This essentially means as long as they make their best effort to manage the fund wisely, they aren’t responsible if their clients lose money. Fiduciary firms such as brokerages invest their clients’ funds in the range of assets, but they are held to a higher legal standard. Principally, fiduciaries must act in best of interest to their clients. They also tend to have the higher minimum investment thresholds, & they charge services fees rather than commissions.