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What is a Fund House?
Alternatively known as Asset Management Companies (AMC), fund houses are organizations that invest pooled in money from investors into financial instruments like equities, mutual funds, securities, etc. These companies have qualified fund managers who decide where to invest money depending on the conditions of the market. In simple words, these companies manage the money pooled from a number of investors.
The main role of mutual fund houses is to decide when, where and how to invest the money in lieu of their declared goals. Fund managers meet investment goals by assessing various metrics like industry risks, market risks, etc. and deciding on funds to invest in.
For example, with equity funds, the focus is mostly on shares of various companies. While with debt funds, investments include government securities, bonds, etc. The ultimate goal is to make investments as lucrative as possible to maximise the returns of investors.
How do These Mutual Fund Houses Work?
When investors choose to avail services of an AMC, they purchase the portfolio offered by them. Thus, AMCs are responsible for driving the mutual fund and consequently make pertinent decisions to benefit investors.
Fund managers also have the responsibility of handling finances of investors to ensure that financial objectives of respective schemes are fulfilled.
The process of an AMC’s fund management includes the following steps –
- Allocation of assets
Each mutual fund has a certain benchmark to fulfil. These benchmarks act as guidelines for fund managers to choose the assets to invest in. For example, when a mutual fund is debt-oriented it does not allocate more than 20% of its total assets in equities. Again, in case of balanced mutual funds, equities portion makes up about 60% of the scheme. The process of doing so is known as asset allocation.
- Analysis and research of the money market
Constructing a proper portfolio takes involves an in-depth study of the financial market on daily basis. Market analysts under mutual fund houses are responsible for studying micro and macro-economic aspects of a market, fund performances and other related information and report them to fund managers. The managers in turn, select stocks based on these reports to invest in, which decides a fund’s performance.
- Constructing the portfolio
The main role of top fund houses is to construct an investment portfolio that can bring maximum benefits to investors. Fund managers, based on findings of market analysts and investment objectives of the company, choose securities to sell, purchase and hold. The company’s portfolio depends mainly on the expertise and experience of a manager.
- Providing performance reviews
It is also the responsibility of fund house to inform their customers about various sales, repurchases, portfolio details, NAV, etc. This is to ensure that unit holders are aware of the information may impact their holdings directly.
Factors Investors should Look for to Choose the Best Fund House
To make sure that they avail services of the best AMCs, investors should check their track record and portfolio. Those familiar with workings of the market can also check the performance of different schemes chosen by that particular AMC in previous years.
Following are a few other parameters that can help investors to choose the best mutual fund house –
- Check the value of the AMC
Most investors select funds to invest in by looking at their price. Even though it makes sense, it is crucial to pay attention to the value of the AMC. After all, even if a fund is cheap, it will not matter unless investors profit from it.
- Credentials of the fund manager
Fund manager is a person who is going to make all the crucial decisions about your investment. That is why it is crucial to check on the credentials of the manager. Top fund houses only employ managers with experience and ample expertise to manage assets.
- The company’s reputation
Investors should check the review of AMC and talk to other investors before deciding on the company to hire. Since the money market is quite risky, it is best only to avail services of a reputed AMC.
Thus, AMCs play an important role in determining how an individual’s investments are going to fair for them. Investors should make sure that they conduct a thorough research before deciding on the AMC whose services they want to avail.