Asset Management Company (AMC)

Introduction

An asset management company (AMC) is a firm that invests pooled funds from clients, putting the
capital to work through different investments including stocks, bonds, real estate, master limited
partnerships, and more. Along with high-net-worth individual (HNWI) portfolios, AMCs manage
hedge funds and pension plans, and—to better serve smaller investors—create pooled structures
such as mutual funds, index funds, or exchange-traded funds (ETFs), which they can manage in a
single centralized portfolio.

AMCs are colloquially referred to as money managers or money management firms. Those that offer
public mutual funds or ETFs are also known as investment companies or mutual fund companies.
Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others.

AMCs are generally distinguished by their assets under management (AUM)—the amount of assets
that they manage.

Understanding Asset Management Companies (AMCs)

Because they have a larger pool of resources than the individual investor could access on their own,
AMCs provide investors with more diversification and investing options. Buying for so many clients
allow AMCs to practice economies of scale, often getting a price discount on their purchases.

Pooling assets and paying out proportional returns also allows investors to avoid the minimum
investment requirements often required when purchasing securities on their own, as well as the
ability to invest in a larger assortment of securities with a smaller amount of investment funds.

Different Types of Asset Management Companies

Asset management companies come in many different forms and structures, such as:

 Hedge funds

 Mutual funds

 Index funds

 Exchange-traded funds

 Private equity funds

 Other funds

In addition, they invest on behalf of various types of clients, such as:

 Retail investors

 Institutional investors

 Public sector (government organizations)

 Private sector

 High-net-worth clients
How does an AMC operate?
[1]
With more than 40 mutual fund companies in India, there are certain conditions to be met to set
up an AMC and these conditions are laid down by SEBI which is the regulatory body for all the AMCs
in India. SEBI holds the rights to grant the AMC license to a corporate body.
There are various stakeholders involved in a multi-tier structure to ensure transparency and
accountability for all the operations carried out.

1. Sponsor: Sponsor means any person who either individually or with any other body
corporate establishes the Mutual Fund. The sponsor should have a sound track record and
general reputation of fairness and integrity in all their respective business transactions as per
SEBI MFRegulations. When the sponsor approaches SEBI for a Mutual Fund license, there is a
highly stringent license approval process.

2. Trustees: “Trustees” as defined in the MF Regulations as the Trustee Company that holds the
property of the Mutual Fund in trust for the benefit of the unit holders. This means that they
are responsible for protecting the interest of the mutual fund unit holders and also make
sure that the Asset management Company (AMC) functions with the right principles and
ethics and is compliant with all regulatory guidelines at all points and times.

3. Asset management Company (AMC): The AMC is responsible for the operation and
management of different mutual fund schemes, in compliance with the SEBI MF Regulations
and guidelines issued by SEBI from time to time. The AMC is responsible for the design of
these schemes as per the SEBI MF regulations and floating it out in the market. It also has a
legal and compliance team, fund management team that also includes investment officers
and analysts that help in the effective functioning of day-day operations.

4. Custodian: It is generally a financial institution registered with SEBI that holds the securities
bought by the mutual fund.

5. RTA: The ‘Registrar and Transfer Agent’ is appointed by the AMC. They process investment
applications and maintain the record of investor’s transactions such as buying and selling of
Mutual Fund units, updating personal information etc.

Functions of an AMC:

There are numerous operational roles an AMC takes up but some of their primary
responsibilities are:

1. Research and Analysis: Before an AMC decides which mutual fund product to offer, there is a
thorough analysis conducted on which type of fund would make more sense for the
investors. They also try to understand the associated risks considering the landscape of the
capital markets.

2. Professional fund management: AMCs employ fund managers who use their professional
experience in managing investments. They allocate investor money to the respective
financial instruments based on the investment objective of the scheme(s).

3. Clarity and Transparency: AMCs are accountable to disclose the portfolio composition,
performance details, Assets Under Management (AUM), expense ratios etc periodically. This
 helps both the existing investors and the potential investors to understand if investing in the
scheme is aligned with their financial goals or not and helps them make an informed
decision.

Role of Asset Management Companies

AMCs are financial institutions responsible for the creation, management, and administration
of mutual funds. They function as stewards of investors' money, pooling funds from various
individuals and institutions to create diversified investment portfolios.

The benefit of AMCs for investors is that they bring professional expertise to the investment. A strict
regulatory framework under which AMCs function also safeguards the interests of investors by
ensuring transparency, fairness, and accountability.

Some of their core functions are:

 Fund creation: AMCs design and launch various types of mutual funds, catering to different
investment objectives and risk profiles.

 Investment management: AMCs employ experienced fund managers who make investment
decisions on behalf of the fund's investors.

 Administrative services: AMCs handle the day-to-day operations of mutual funds, including
customer service, record-keeping, accounting, and regulatory compliance.

 Performance tracking and reporting: AMCs regularly track the performance of their mutual
funds and provide periodic reports to investors.

SEBI Guidelines on constitution and management of an Asset Management Company

and Custodian:

SEBI is responsible for protecting the interests of investors in securities and to promote the
development of, and to regulate the securities market. The SEBI is also responsible for registering
and regulating the working of mutual funds. Below are few of the steps laid down by SEBI for the
AMCs:

1. Application by an asset management company

2. Appointment of an asset management company

3. Eligibility criteria for appointment of asset management company

4. Terms and conditions to be complied by the asset management company

5. Restrictions on business activities of the asset management company

6. Asset management company and its obligations

7. Appointment and Agreement of Custodian

[3]
Asset Management Company (AMC) and Association of Mutual Funds in India (AMFI):
Association of Mutual Funds in India (AMFI) is a non-profit industry body of the asset management
companies (AMCs) of all Mutual Funds in India that are registered with Securities and Exchange
Board of India (SEBI).

AMFI functions under the broad guidance of the AMFI Board, comprising fifteen Directors, elected
from various categories of AMCs and operates on a co-operative model with the help of various
standing committees and working groups. Since the time it was established, AMFI has evolved as a
highly respected representative body of the MF industry, owing to active involvement of its
members. One of the primary roles of AMFI is to introduce best practices and standardised
operational guidelines for being uniformly followed by all AMCs.