What is Asset Management Companies (AMC)
An Asset Management Companies (AMC) is a company that invests its clients' pooled funds into securities that match declared financial objectives. Asset Management Companies provide investors with more diversification and investing options than they would have by themselves. AMCs manage mutual funds, hedge funds and pension plans, and these companies earn income by charging service fees or commissions to their clients.
Asset Management Companies (AMC) offer their clients diversification because they have a larger pool of resources than the individual investor could access on his own. Pooling assets together and paying out proportional returns allow investors to avoid minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
In some cases, AMCs charge their investors set fees. In other cases, these companies charge a percentage of the total assets under management. For example, if an AMC is taking care of an investment worth $4 million, and the AMC charges a 2% commission fee, it owns $80,000 of that investment. If the value of the investment increases to $5 million, the AMC owns $100,000, and if the value falls, so too does the AMC's stake. Some AMCs combine flat service fees and percentage-based fees.
Typically, Asset Management Companies are considered buy-side firms. This simply refers to the fact that they help their clients invest money or buy securities. They decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms. Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees.
Brokerage houses and fiduciary firms are both examples of Asset Management Companies. Brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide suitable services. This essentially means that as long as they make their best effort to manage the fund wisely, they are not responsible if their clients lose money. Fiduciary firms like brokerages invest their clients' funds in a range of assets, but they are held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients.
Let’s look at the Asset Management Companies (AMC) in a bit more detail. Now let us understand the meaning of an Asset Management Company (AMC) in this regard. So while we have discussed research on one side, we said that the research may have different kinds of clients. One could be the individual investors, the other one could be institutional investors and Asset Management Companies can be classified as one of the institutional investors. So what do they exactly do? So institutional investors like Asset Management Company (AMC) what they do is they basically invest pooled of funds of clients into various securities.
So Asset Management Companies (AMC) essentially collects money from the public and makes it as a pool of funds. So maybe 100 million dollar fund or maybe 200 million or multi-billion fund. So depending on the size of the Mandate they invest the pooled funds of clients into various securities and an example could be an Asset Management Company (AMC) could be like a Mutual Fund. So a Mutual Fund that invests into technology stocks. They make money by actually you know taking a commission or fees depending on the size of the fund that they are managing. So if it is 100 million, for example, management fee may be around 2% – 3% of the overall asset under management or AUM.
Asset Management or the Asset Management Companies is that they provide lot of diversification because they have larger pool of resources as compared to the individual investors. So I may invest in only Microsoft or maybe Google. You know the Mutual Funds who invest into technology stocks may provide more diversification because they have larger funds to invest across domains and they are professionals, they can do lot of risk-return analysis and kind of diversify their large portfolio which will in return ultimately mitigate my investment in the Mutual Fund. So that’s how basically the Asset Management Company (AMC) actually works.
Asset Management Companies (AMC) offer their clients diversification because they have a larger pool of resources than the individual investor could access on his own. Pooling assets together and paying out proportional returns allow investors to avoid minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger set of securities with a smaller investment.
In some cases, AMCs charge their investors set fees. In other cases, these companies charge a percentage of the total assets under management. For example, if an AMC is taking care of an investment worth $4 million, and the AMC charges a 2% commission fee, it owns $80,000 of that investment. If the value of the investment increases to $5 million, the AMC owns $100,000, and if the value falls, so too does the AMC's stake. Some AMCs combine flat service fees and percentage-based fees.
Typically, Asset Management Companies are considered buy-side firms. This simply refers to the fact that they help their clients invest money or buy securities. They decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms. Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees.
Brokerage houses and fiduciary firms are both examples of Asset Management Companies. Brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide suitable services. This essentially means that as long as they make their best effort to manage the fund wisely, they are not responsible if their clients lose money. Fiduciary firms like brokerages invest their clients' funds in a range of assets, but they are held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients.
Let’s look at the Asset Management Companies (AMC) in a bit more detail. Now let us understand the meaning of an Asset Management Company (AMC) in this regard. So while we have discussed research on one side, we said that the research may have different kinds of clients. One could be the individual investors, the other one could be institutional investors and Asset Management Companies can be classified as one of the institutional investors. So what do they exactly do? So institutional investors like Asset Management Company (AMC) what they do is they basically invest pooled of funds of clients into various securities.
So Asset Management Companies (AMC) essentially collects money from the public and makes it as a pool of funds. So maybe 100 million dollar fund or maybe 200 million or multi-billion fund. So depending on the size of the Mandate they invest the pooled funds of clients into various securities and an example could be an Asset Management Company (AMC) could be like a Mutual Fund. So a Mutual Fund that invests into technology stocks. They make money by actually you know taking a commission or fees depending on the size of the fund that they are managing. So if it is 100 million, for example, management fee may be around 2% – 3% of the overall asset under management or AUM.
Asset Management or the Asset Management Companies is that they provide lot of diversification because they have larger pool of resources as compared to the individual investors. So I may invest in only Microsoft or maybe Google. You know the Mutual Funds who invest into technology stocks may provide more diversification because they have larger funds to invest across domains and they are professionals, they can do lot of risk-return analysis and kind of diversify their large portfolio which will in return ultimately mitigate my investment in the Mutual Fund. So that’s how basically the Asset Management Company (AMC) actually works.
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