Understanding the role of Asset Management Companies in Mutual Fundsby Rudra Raghavan Financier
When it comes to investments, most new investors are typically confused about the right instruments to invest in. They are not well versed with several technical aspects of investments such as asset allocation, portfolio construction and diversification and are often clueless about choosing the right instruments that can help build a corpus. While many understand that mutual funds can help them achieve their financial goals, they are often unsure about how to choose the right funds. Such investors can benefit from hiring experts who can help them invest in the right instruments. Let’s understand what an asset management company is and know its role in selecting mutual funds.
What are Asset management companies?
Asset management companies or AMCs simply manage funds collected from various investors and determine how, when and where to invest these funds. These decisions correspond to their investment goals, which is why they typically invest in stocks, equities, securities, bonds and similar cash equivalents. Fund managers evaluate several factors such as market and industry risks and investor risk appetites before investing in the above-mentioned instruments. For instance, fund managers invest in government securities and bonds for investors with low-risk appetites. They typically aim to provide their investors with maximum returns based on their financial goals.
AMCs and fund management
When investors opt for asset management services, they purchase the portfolios offered by AMCs. The AMC in turn makes decisions that are meant to benefit investors. Fund managers typically follow the below-mentioned process to help investors achieve their financial goals.
Asset allocation: Each mutual fund is aimed towards fulfilling a definite financial goal and fund managers shortlist and invest in funds that can help achieve these goals. For example, most debt-oriented funds put only 20% of their AUMs in equities, whereas balanced funds generally invest about 60% assets in equity funds. Fund managers are experts in asset allocation since they do this on a daily basis.
Research and analysis: Mutual fund companies and their fund managers conduct extensive research and analysis before investing in a particular fund. They study the market and the performance of funds regularly before they select stocks for investment. A novice investor may not be able to conduct this kind of in-depth research before investing in a fund.
Portfolio construction: An AMC can also help you construct your investment portfolio since they have an army of analysts and researchers who report market trends and findings to their fund managers. These reports are used to choose investment securities and determine the right time to purchase or sell them. As such, AMCs can expertly construct investor portfolios because of this access they have to experts in the field.
Performance review: AMC service providers not only invest your funds in profitable instruments but also send investors regular reports informing them about the performance of the funds in which investments are made. This helps investors understand how their investments are performing and realign their investment goals if needed.
Created on Feb 28th 2019 01:11. Viewed 554 times.