Asset Management Sector in India
Asset Management Companies
A Beginner’s Perspective
The essential purpose behind writing this article is to provide you with:
1. A perspective on how Asset Management companies (commonly known as Mutual Fund houses) run
2. What their business & revenue model is; and
3. A beginner’s perspective on various positions/roles benchmarked as part of annual C&B survey.
Getting Started
Before I dive into the definition of an Asset Management Company, it is important that we have a basic understanding of stocks, bonds & a couple of other terms commonly used in the context of an AMC.
(A) Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ITC, Tata Motors, Satyam (God knows its future( ). Stocks are the most common ownership investment traded on the market.
(B) Bonds
Bonds are basically a chance for you to lend your money to the government or a company. You can receive interest and your principle back over predetermined amounts of time. Bonds are the most common lending investment traded on the market.
There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
(C) Net Asset Value (NAV)
It is defined as a mutual fund's price per unit. The per-unit rupee amount of the fund is derived by taking the weighted average of all the securities in its portfolio. Example: If a mutual fund has 20 shares of ICICI Bank (value per share= INR 500), 10 shares of Reliance Industries (value per share= INR 1800) and 5 shares of Satyam (value per share = INR 20), the NAV of that fund becomes= (500*20 + 1800*10 + 20*5)/(20+10+5)
In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual fund’s buy and sell orders are processed at the NAV of the trade date.
The Beginning…
A Beginner’s Perspective
The essential purpose behind writing this article is to provide you with:
1. A perspective on how Asset Management companies (commonly known as Mutual Fund houses) run
2. What their business & revenue model is; and
3. A beginner’s perspective on various positions/roles benchmarked as part of annual C&B survey.
Getting Started
Before I dive into the definition of an Asset Management Company, it is important that we have a basic understanding of stocks, bonds & a couple of other terms commonly used in the context of an AMC.
(A) Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ITC, Tata Motors, Satyam (God knows its future( ). Stocks are the most common ownership investment traded on the market.
(B) Bonds
Bonds are basically a chance for you to lend your money to the government or a company. You can receive interest and your principle back over predetermined amounts of time. Bonds are the most common lending investment traded on the market.
There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
(C) Net Asset Value (NAV)
It is defined as a mutual fund's price per unit. The per-unit rupee amount of the fund is derived by taking the weighted average of all the securities in its portfolio. Example: If a mutual fund has 20 shares of ICICI Bank (value per share= INR 500), 10 shares of Reliance Industries (value per share= INR 1800) and 5 shares of Satyam (value per share = INR 20), the NAV of that fund becomes= (500*20 + 1800*10 + 20*5)/(20+10+5)
In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual fund’s buy and sell orders are processed at the NAV of the trade date.
The Beginning…