How to Choose a Fund House?
When choosing a mutual fund company (AMC), investors should consider the following:
- Reputation of the AMC: Look for consistent performance, stability in management, and a clean track record. Research the company's reputation, often available on their website.
- Credibility of the Fund Manager: The fund manager plays a crucial role in investment decisions. Evaluate their credentials, experience, and past performance.
By checking these factors, investors can make informed decisions about which AMC to trust with their investments.
How are the funds managed by an AMC?
When you invest with an asset management company (AMC), the AMC takes responsibility for managing a portfolio to meet your financial goals. This involves:
- Research and Analysis: The fund manager conducts in-depth research to select securities that outperform investor expectations.
- Asset Allocation: Based on research and investor goals, the asset manager allocates funds to different assets, adhering to SEBI-approved guidelines.
- Portfolio Creation: The AMC makes crucial decisions to construct a balanced portfolio capable of performing well in various market conditions, considering risk factors.
- Performance Review: AMCs regularly evaluate the fund's performance, including factors like net asset value (NAV) and returns, to maintain a positive reputation and keep investors satisfied.
How do Asset Management Company functions?
An Asset Management Company (AMC) gathers funds from diverse investors with varying financial objectives. By investing this substantial pool in a highly diversified portfolio, the AMC leverages economies of scale, securing discounts on purchases. The resulting returns from the portfolio are distributed among individual retail investors.
AMCs offer services with charges structured either on a fixed basis or commission-based. The fixed fee involves a regular, predetermined amount paid monthly or quarterly for maintaining the fund.
Governing Bodies for an AMC
Asset Management Companies (AMCs) in India operate under the oversight of two key regulatory bodies, with governance provided by a board of trustees:
Securities and Exchange Board of India (SEBI):
SEBI, as the capital market regulator, regulates and supervises the operations of all mutual fund companies in India.
Association of Mutual Funds in India (AMFI):
AMFI is a statutory body established by mutual fund companies to promote transparency and ethical practices within the financial industry. All fund houses must adhere to AMFI's regulations. In addition, banks serving as sponsors are subject to regulation by the Reserve Bank of India (RBI), SEBI, and AMFI. It's important to note that the overall governance of these regulatory bodies, including SEBI, AMFI, and RBI, is overseen by the RBI itself.
Reliability of AMC compared to Banks
Contrary to common perceptions, mutual fund companies are equally reliable and secure as banks. They fall under the regulatory purview of the Reserve Bank of India and the Ministry of Finance, ensuring the safety of investments.
These companies, appointed by sponsors and trustees, manage funds and operate under the scrutiny of trustees regulated by SEBI and AMFI. This structure guarantees transparency, accountability, and impartiality, making mutual funds a safe and advisable choice for wealth optimization and maximizing tax savings.