How are the funds managed by an AMC?
Basically, when you invest with an AMC (Asset Management Company), you invest in a portfolio that AMC maintains for you. It is the responsibility of AMC to ensure an investor’s financial objective is met.AMC ensures this by the following means:
1. Market Research and Analysis
To build a portfolio for an investor the asset manager needs to do a lot of research on the market trends, macro-economic and micro-economic factors, political aspects. On the basis of this research, the appropriate securities are selected which will outperform the return expectations of the investors.
2. Asset Allocation
On the basis of market research and investor’s financial objective, the asset manager allocates the funds to different assets. For example, a debt-oriented would invest just 20% in equity-oriented funds to keep the risk levels low. However, an equity-oriented fund would invest more than 70% in equity and rest in debt. A balanced fund would end up with just 60% in equity and 40% in debt to balance out return and risk.
3. Creating a Portfolio
After research and analysis by analyst and decision of asset allocation are done, the asset manager on the basis of market findings creates a portfolio. Here the asset manager will take decisions like which security to sell, buy or hold for a period. The entire creation of portfolio is solely based on the market expertise of professionals, research and study and investment goals of the investor.
4. Review of Performance
Since the fund of an investor is at stake, the performance measurement of the portfolio becomes very important. At every point, the asset manager has to justify a buy, sell or hold securities to investors and trustees. Every asset manager generally provide regular updates investor regarding sales, repurchases, NAV, Return on risk, portfolio changes and factors which might affect their portfolio.