Finance & Accounting

Eligibility Criteria of an Asset Management Company

An organisation that manages various types of funds from retail clients and invests them in various sectors to maximise returns is known as an asset management company, or AMC. The money might be used to buy bonds, equities, mutual funds, properties, and more. Asset management companies, or AMCs, are now frequently referred to as asset or money managers. These businesses support investors in diversifying their investments across many sectors.

Asset managers at an AMC are assessing the structure of the investment that requires diversification. They perform market research on the potential investment alternative after evaluation to determine its viability as a potential investment location. Generally speaking, it is a good idea to have a financial professional manage your finances, especially if you are unfamiliar with how the stock markets operate. 

What is an Asset Management Company? 

In order to maximise return on investment, an asset management company simply manages several types of assets for retail clients and invests them in various sectors. Stocks, bonds, mutual funds, the stock market, or properties are purchased as an investment with that money.

What exactly does an Asset Management Company (AMC) do?

Each client has an asset manager or money manager assigned to them by the AMC (Asset Management Company). They are experts who assess the investment framework and adjust the plan as necessary.

They take the following actions to achieve this goal:

• Distribute the Assets
• Examine and study the market
• Develop the Portfolio
• Review the performance

Eligibility requirements for Asset Management Company Registration

• A non-refundable application fee of Rs. 1,000,000 must be paid by the applicant to the board. At the moment the board issues the registration certificate, they must additionally pay a registration cost of Rs. 1000000.
• The SEBI would also take other factors into account, such as whether the applicant business has enough office infrastructure, etc.
• Professionals working as fund managers must possess the necessary qualification in the fields of law, accounting, management in organisations in the same industry, or chartered accountants.
• The applicant should have a minimum of two individuals with five years of investment or portfolio management expertise.
• The manager’s net worth must be at least Rs. 50,000,000.
• AMCs’ certificates of registration will be valid for three years, after which they must apply to have them renewed.

The documents needed for an AMC

When a firm is the investor, a board resolution or board meeting must be held to approve the company’s investment in the asset or assets. The following documents must be submitted in order to invest in an asset management company:

• Memorandum of Association, Articles of Association, and Investment scheme for a Private Limited Company.
• Directors Identification Number (DIN).
• KYC (Know Your Client Documents).
• Passport as identification proof.
• Proof of Address (Aadhar Card).
• PAN card.

How to launch an asset management company in India?

• The most recent CIC-ND-SI application form must be downloaded and filled out by all applicants from the RBI website.
• Submit the application to the regional office of the Department of Non-Banking Supervision (DNBS).
• The application form includes the most recent document checklist, although additional papers may be required in some circumstances.
• The Company is required to invest at least 90% of its net assets in a variety of investments, including shares (equity or preference), bonds, debentures, debt, or loans in group companies, as per the Company’s most recent audited balance statement. Land or other fixed assets required for the functioning of the business are among the 10% of Net assets that CICs may hold outside the group.
• It can only sell its holdings in shares, bonds, debentures, debt, or loans of group companies through block sales with the intention of diluting or dis-investing.
• A minimum of 60% of the company’s total net worth must be invested in the shares of the group companies.
• According to the Act, businesses with assets under Rs. 100 crores are exempt from registration. The combined asset size of an investment company is calculated by aggregating the individual asset values of all CICs in a given group. If the entire asset worth is greater than Rs. 100 crore, the core investment company must register.
• CICs that don’t employ public funds and have a valuation of at least Rs. 100 crore are excluded.
• The Act states that Investment Companies^[1] must apply for a certificate of registration within three months of reaching a balance sheet total of Rs. 100 crores if their assets are less than that amount.

Regulatory Bodies for Asset Management Company

SEBI must regulate all Asset Management Companies (AMCs) in the nation. SEBI is the primary authority when it comes to managing, overseeing, and assessing how investment managers operate. Also, SEBI has a framework in place for handling complaints and other issues pertaining to asset managers. Moreover, AMCs are passively regulated by the Association of Mutual Funds of India (AMFI).

Obligations of Asset Management Company:

1. Asset management companies have a duty to ensure that the investment of funds related to any scheme does not conflict with the terms of the trust deed and these laws by taking all necessary precautions and using due diligence.
2. It should make all of its investment decisions with the same level of care and diligence that other people in the same industry would use. The asset management firm shall be liable for any commissions or omissions made by its employees or by individuals whose services have been retained by the asset management company.
3. Quarterly reports on its operations and adherence to these rules must be submitted to the trustees every year. The specifics of any securities transactions made by the asset management business’s main employees in their individual names or on the company’s behalf should be filed with the trustees, and the company also needs to report to the SEBI when it is needed.
4. The asset management companies should not use the services of the sponsor or any of its associates, employees, or relatives for the purpose of any securities transaction, distribution, or sale in order to maintain an arm’s length relationship between the various constituents of the mutual fund.

SEBI and AMFI’s role in AMC operations

AMCs operate under the direction of a trustee board. But, they are answerable to the Securities and Exchange Board of India, which oversees the country’s capital markets (SEBI). Another regulatory body that answers investor complaints and protects their interests is the Association of Mutual Funds in India (AMFI).

Every mutual fund business must follow the set of risk management standards established by SEBI and AMFI. The AMFI was created by mutual fund companies, whereas SEBI is a government organisation. Together, they maintain the industry’s ethical foundation and openness. Mutual funds require clearance to establish guaranteed schemes, and the RBI is crucial in regulating AMCs. Eventually, all of these regulators are under the control of the Ministry of Finance.

Conclusion

All asset management companies in India are governed and supervised by the SEBI (Securities Exchange Board of India). The AMFI (Association of Mutual Funds of India) also acts as a passive regulator of Asset Management Companies. Asset managers at asset management firms determine how diversified an investment structure should be. After the evaluation, they conduct market research on the potential investment alternative to ascertain whether it will be a viable investment location. They are encouraged by the results of this investigation and decide to carry out their investment strategy.

Also Read: What is an Asset Management Company(AMC)?