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What is an asset management company, and what are its functions?

Asset Management Company (AMC) is a company that pools investments from various individuals and institutional investors. The AMC manages the money by investing in capital assets. Capital assets like equities, bonds, etc. The company employs professional fund managers to manage the money. Fund manager researches and identifies investment options that are in line with the investment objective of the fund and investors.

The AMC is responsible for driving the mutual fund and making investment decisions that benefit the investors.

Following are the functions of an Asset Management Company:

Asset Allocation

A Mutual fund has an investment objective that helps the fund manager to decide on the assets they invest in. For example, equity funds invest at least 65-80% of their assets in equity securities. Similarly, debt funds do not invest more than 20% of their assets in equities.

Research and Analysis

Building a mutual fund portfolio requires an in depth research and analysis on the assets. The research team studies and analyses the market, macro and micro economic factors. Furthermore, even after investing the team continuously monitors the fund’s performance and create reports. These reports help the fund manager and the fund house in taking the right investment decisions to generate significant returns.

Portfolio Construction

The researchers and analysts at the AMC create reports on their market findings and trends. The fund manager leverages these reports and makes investment decisions that are in line with the fund’s investment objective. The buy and sell decisions are upon doing thorough research and understanding of the market and securities. Therefore, the AMC builds a mutual fund portfolio that predominantly depends on the fund manager’s experience and expertise.

Performance Review

The AMC on a regular basis publishes the fund’s performance reports. Despite the disclaimers, the AMCs face hostility from trustees and investors. Hence, the company is required to provide the unitholder with the information that has a direct impact on their holding. For example, it sends regular updates on sales, purchases, NAV and portfolio details to the investors.

What are the types of asset management?

Asset management is the process of planning, managing, operating and maintaining assets in the most cost effective way. There are seven types of asset management:

  • Financial asset management
  • Enterprise asset management
  • Infrastructure asset management
  • Public asset management
  • IT asset management
  • Fixed asset management
  • Digital asset management

Financial asset management: Financial asset management is a sector of the financial services industry. It includes planning, buying, and selling. It also manages and maintains clients investment funds to maximize returns with minimum risk.

Enterprise asset management: Managing the fixed assets of an organization is enterprise asset management. It also involves acquisition, operation and maintenance of assets of an organization. Sometimes the assets include intangible assets.

Infrastructure asset management: Managing public infrastructure assets like bridges, roads, electric grids and waterways is infrastructure asset management. It also involves construction, maintenance, repairs, replacement and rehabilitation of infrastructure.

Public asset management: It is similar to infrastructure asset management. However, the assets under these include parks and public spaces. Public asset management aims to increase the life of public assets.

IT asset management: Managing the IT assets, including the hardware and software, is IT asset management. It also includes acquiring and maintenance of IT assets.

Fixed asset management: The process of sourcing, tracking, selling, maintaining and preserving physical assets is fixed asset management.

Digital asset management: Digital asset management is the process of managing the information and data collections of a firm.

What is meant by asset management?

An asset management company is a firm that pools and invests money in various assets on behalf of its clients. The primary function of an asset management company is asset management. Asset management is a process of planning, managing, operating, and maintaining assets in an efficient manner. Hence, the main aim of asset management is to maximize returns at minimum costs.

Asset management has a dual purpose, aiming at capital appreciation over time and mitigating the risk. Furthermore, it includes deciding on the type of asset to invest and avoid. Asset managers also perform rigours research using micro and macro tools. They do statistical analysis of prevailing market trends and predict future trends with the aim of capital appreciation.

Why is asset management important?

Asset management is essential for any business. It enables the firm to keep tabs on all assets. Also, helps in identifying and managing the risk, guarantees the accuracy of amortization rates and removes ghost assets from the inventory.

Keep tabs on all assets

Asset management will help a firm to keep a record of all the assets they own. Therefore, by knowing the record of all assets, a firm can easily manage them. They will also know the asset’s location, how is it put to use and is there a need to replace it etc. By doing so, one can maximize returns through efficiency.

Identifying and managing risk

There can be certain risks in owning and managing a particular asset. Asset management helps in identifying them. This will prepare an organization to counter the risks as and when they arise.

Guarantees amortization rates

Asset management involves keeping track of all assets. It is usually maintains the financial statements. Since assets are regularly checked, it helps a firm to identify the working condition of an asset. The same can be also double checked in financial statements.

Removes ghost assets from inventory

There can be assets that are lost, unrecorded, damaged or stolen. Asset management helps in identifying these, and also the same can be recorded in the financial statements.

What is the difference between asset management and property management?

Asset management is a process of managing assets not restricted to one class. Asset management includes overseeing capital market investments, real estate investments, among others. The goal is to enhance the value while maximizing the return to the investor. Asset management is not a one time activity. Also, it requires constant monitoring of assets and decisions to be taken to keep the investment portfolio in line with the investment goals. Additionally, asset managers create a long term financial forecast. They also perform due diligence before buying or selling a security.

On the other hand, property management primarily focuses on the daily operational aspects of a property. The operational aspects such as repairs, renovations, physical maintenance, rent collect, bill payments, etc.

Published on November 9, 2020