Asset Management Company Registration from SEBI

What Are Asset Management Companies (AMCs)?

An Asset Management Company is often referred to as AMC, is an entity that manages different sorts of funds of retail clients and invests them in several areas to maximise the returns on them. The funds could be invested in stocks, mutual funds, bonds, and properties. Lately, Asset Management Companies (AMCs) are commonly called asset or money managers. Such companies help investors in the diversification of their investments in several areas. An AMC has asset managers working to evaluate the framework of the investment that needs to be diversified. After evaluation, they conduct market research about the possible investment option to understand its viability as a possible investment destination. Supported by the results of this research, they plow ahead with the investment strategy.

How do Asset Management Companies work in India?

There are three stages involved in the standard service procedure of Asset Management Companies.

1. Asset Allocation/ Criteria

In this stage, the investment managers consider the shape of assets and research what amount will be suitable for allocation. The subsequent factors that need to be considered while Asset Allocation are:

• Evaluation of Market
• Portfolio Research
• Type of asset distribution- Equity or Debt 
• Professional Considerations and Practice in Management of Assets.

2. Portfolio Creation for Asset Management

In this stage, the manager formulates a portfolio for investments which is crucial for the correct management of assets. Asset managers research the market to consider possible downfalls and trends for creating an appropriate portfolio. The possible risk factors consistent with the marketing research are also considered. One of the primary areas of focus is where the investment should be made. For example, whether in high-rated securities or the other way around.

3. Performance Monitoring

The last stage of an asset management procedure is the constant evaluation of the portfolio. The portfolio is evaluated on parameters like the speed of returns on the investment. The asset manager creates a performance monitoring report of the portfolios based on various parameters to optimize the investment. The asset managers share these reports with their clients periodically to keep them aware of the performance of their investments.

Parameters for Investor to Choose Asset Management Company

1. Price-to-sales

This ratio is obtained by dividing the company’s market capitalization with its annual revenue.

2. P/E ratio

It gives information on how cheap or expensive the rates of the stock are and guides an investor on how much he should invest. 

3. PEG ratio

A company’s PEG ratio is obtained by dividing the P/E ratio with the expected earnings growth rate. It helps to level the field by considering projected growth.

4. Payout ratio

The company’s payout ratio is calculated by dividing the company’s annual dividend rate with the company’s earnings.

5. Debt-to-equity

The debt-to-equity ratio of a company is obtained by dividing the company’s total liabilities with its shareholder’s equity. It is used to compare the reliance of companies on debt to fund their operations.

6. Beta

The beta score gives the measurement of how reactive a stock is to the market’s ups and downs. The beta score of ONE indicates a stock is less reactive to market swings, while a beta of score over ONE indicates a volatile stock.

7. Free cash flow

The free cash flow is calculated from the cash flow statement of the company by subtracting it from capital expenditures. The free cash flow tells that information on money generated by the company.

8. Return on equity (ROE)

The ROE is obtained by dividing the company’s net earnings with its shareholder’s equity. It suggests the efficiency of a company in using its shareholder’s equity to generate profit.

9. Price-to-book

The price-to-book calculated by dividing the company’s stock price with net assets. 

Regulatory Bodies of Asset Management Company 

SEBI is responsible to regulate all Asset Management Companies (AMCs) in the country. When it comes to managing, supervision, and evaluating how the investment managers are working, SEBI is the main authority. SEBI also has a system for complaints and other grievances redressal related to asset managers. Further, the Association of Mutual Funds of India (AMFI) regulates AMCs passively. 

Eligibility Criteria for Registration of Asset Management Company

• The applicant must pay a non-refundable fee of Rs. 1, 00,000/-  for application to the board. They must also pay a registration fee of Rs. 1000000/- at the time of grant of registration certificate by the board.
• Apart from this, the SEBI would take other considerations, like whether the applicant entity has enough office infrastructure, etc.
• Professionals working as fund managers must have the requisite qualifications within the field of accountancy, law, people from the management in the companies of the same field or chartered accountants.
• The applicant should have at least 2 people with a minimum of 5 years of experience in investment or portfolio management.
• The manager must have a minimum net worth of Rs. 50,00,000/-.
• The certificate of registration for AMCs will be valid for three years and post that they will be required to apply for renewal.