Introduction to Asset Management Company
Asset management companies (AMC) are firms that collect a pool of funds from individuals as well as corporate investors and invest them in diverse securities like stocks, bonds, real estates, fixed interest securities etc. The professional who is given the responsibility of managing the portfolio of assets of the client is known as a fund manager. These managers get paid through fees, which is usually a percentage of total assets under management.
Explanation
Most Asset management companies need to be compliant with fiduciary standards. Since these companies have access to a larger pool of funds than an individual, therefore they can provide investors with diverse options in the portfolio. These companies deal with a number of clients which help them achieve economies of scale apart from price discounts on purchases.
There is a pool of funds managed by these asset management companies, which pay proportionate returns to investors without placing the restriction of making minimum investment amount, which would have been the case if investors had invested on their own.
Role of Asset Management Company
- They manage client assets/funds on their behalf and invest them in the diverse nature of securities.
- They help in the growth of clients’ asset portfolio and finances.
- They give them the option of investment in high -value securities while mitigating the risk associated with these securities, leading to better growth prospects.
- They direct these funds to different channels, like bonds, shares, real estate according to the objective and risk appetite of the client.
How does it Work?
Asset management companies offer a number of portfolios according to the client’s financial objective. The company allots a fund manager for a particular portfolio, who is mainly responsible for taking investment decision regarding those portfolios which are in benefits of the client. Every portfolio is built with the different financial objective which caters to the needs of different clients. For example, some portfolios majorly have debt securities as the client’s requirement is consistent return, in this kind of portfolio, investment in equities does not increase more than 20%. Similarly, if the client has opted for a balanced approach, then investment in securities can reach up to 60%.
A Fund manager through its research and analysis team undergo a lot of research like noting market trends, studying micro and macro aspects of the economy, fund performances, and so on, before they construct different portfolios for the clients. They also need to send periodical performance review report of the portfolio of investment to their clients, including NAV of the funds, trend analysis, etc.
Examples of Asset Management Company
Following are the names of few Asset Management Companies (AMCs) that are in the list of top ten as per the value of asset managed by them:
- Blackrock, the US
- The Vanguard Group, the US
- Charles Schwab corporation
- Fidelity Investments
- J. P. Morgan Asset Management
Functions of the Asset Management Company
Below can be listed as functions:
- Asset Management company helps in managing the investment portfolio of their clients.
- They provide a diverse choice of investment to individual investors while mitigating the risk associated with these securities.
- They act as an intermediary between investors who want to invest their funds and companies like insurance companies, pension funds, who want investment funds to grow their capital.
- They help companies in meeting their capital requirement, short term as well as long term.
Difference between Asset Management Company and Mutual funds
- A Mutual fund is a pool of funds or trust created from the funds of investors with similar financial objectives and is invested in diversified portfolios accordingly.
- On the other hand, the pool of funds is invested by Asset Management Company in a diversified securities portfolio, like bonds, fixed interest securities, real estate, etc
- So, we can say that a Mutual fund is one of the investment options provided to the clients by Asset Management Company for managing the client’s portfolio.
Benefits
Benefits are given below:
- They help in providing a systematic asset management framework for the investment of funds.
- They help in providing their clients with effective investment strategy and thus growth of their funds and finances.
- They provide their clients with a diverse choice of investment with reduced associated risk.
- They have access to a large pool of funds leading to the achievement of economies of scale.
Disadvantages
Disadvantages are given below:
- Most of the time Asset Management Company cater only to the needs of high net worth or wealthy customers, so in reality, it doesn’t help the individual investors with limited means.
- Asset management companies charge a hefty amount of fees from their customers which puts an extra burden on them.
- If they are not able to manage the funds properly and mitigate the risk associated with the securities, clients will have to bear the loss.
Conclusion
Asset Management company is an important part of the investment banking system. They play an integral role in collecting funds from investors and investing a pool of funds in the diverse portfolio according to the need and requirements of their clients. They help individual investors to take the benefit of investment in high-value securities with minimum investment amount restriction and with mitigation of the risk associated with the securities.
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