How to Start a Fund Management Firm? Generally speaking, it is a good idea to have a financial professional manage your finances, especially if you are unfamiliar with how the stock markets operate. An asset management company (AMC), generally known as a mutual fund house, can help in this situation. This article will cover all relevant topics regarding AMCs (Asset Management Companies), such as “What is an Asset Management Company?” and “How to Start an Asset Management Company in India?”
What is a Fund Management Firm?
A fund management firm is also known as Asset Management Company or AMC. It is an organization that distributes different kinds of retail investment money and invests funds in various locations to increase its profits. An organization known as an asset management company (AMC) makes investments on behalf of its clients using a pooled amount of resources. To finance varied investments across a range of asset classes, capital is used. Money managers or money management firms are other terms that are frequently used to refer to asset management companies.
The money might be invested in a variety of assets, including mutual funds, stocks, bonds, and property. Fund managers or asset management firms can be used interchangeably. Such businesses assist investors in distributing their assets across various industries.
Main Functions of the AMC (Asset Management Company)
It is always advisable that you should initially attempt to determine the depth of a pool before diving in. It’s the same when beginning a business. Therefore, it is essential to do extensive study on the industry you are entering. To create an asset management company, you should be aware of the following:
- Distribute the Assets
- Examine and study the market
- Create the portfolio
- Evaluate the results
Advantages of Fund Management Firm
- Unpredictable asset management
- Professional asset management
- Various financial services
- Brings scale economies
- Purchasing power
- Statistical market analysis report
Disadvantages of Fund Management Firm
- Criminal liability danger
- Higher needed minimum investment
- Risk of financial loss
- High fees for professionals
- Competing interests
Considered Before Starting The Fund Management Firm
To create an asset management company, you should be aware of the following: There are some important things one should keep in mind before starting the wealth management firm:-
1- Consider the Legal Aspect
When leaving their current work, aspiring wealth management entrepreneurs must make sure they are doing it appropriately and according to the laws of business etiquette. Financial services employees frequently have contractual responsibilities to their employers that limit them from working on or for a competitive firm or from soliciting clients for outside services.
Even though these agreements are frequently disregarded in certain situations, certain employees’ contracts may contain non-compete clauses that prohibit them from working in the financial services sector for a certain amount of time after leaving their current jobs.
To avoid litigation and uphold decency, business owners should carefully evaluate these contractual obligations. For example, business owners should avoid working on their new venture during normal business hours, wait to contact clients until they have left their current employer and approach former clients politely after the event to avoid any issues with their current employers.
2- Analyse the Cost
Independent financial advisors who want to grow their own business must unavoidably incur significant upfront fees as a kind of risk. Advisory firms must comply with a lot of intricate regulatory standards, which may be highly expensive, unlike the majority of small enterprises. A new business’s first significant outlay is compliance, which includes setting up an ADV (client brochure) and obtaining a state license.
A huge amount can easily be spent on expenses such as insurance, office supplies, letterheads, websites, banking fees, association dues, subscriptions, and a host of other things. Since some of their current clients are unlikely to follow them, financial advisors must also weigh the potential cost of starting their independent practice.
Furthermore, a lot of recommendations could opt to stick with a bigger business than switching to a new practice. Even though these expenses can run into tens of thousands of dollars, they are more profitable per client.
3- Create a Pitch
To pay their employees and maintain their new business, most entrepreneurs need to get started right once after leaving their previous jobs. Reaching out to former customers while keeping the guidelines in mind is frequently the first step. Entrepreneurs should prepare a persuasive proposal for these former clients that explains why they should transfer their accounts before they get to this point.
Entrepreneurs face difficulties when dealing with these former clients and trying to draw in new customers because newly founded enterprises have no reputation (apart from the owner’s) and a high amount of early solvency risk.
The most effective pitches showcase the entrepreneur’s skill sets and advantage over bigger organizations. For instance, the new company might be an expert in finding the finest prospects using computer algorithms. The smaller client base of smaller wealth management companies allows them to offer more individualized client service, ensuring that their account receives more attention and maximizing results. This is something a new owner may also bring up.
4- Involve Experts
The process of starting a new wealth management company can be difficult, time-consuming, and require substantial legal, regulatory, and compliance work. While many of these concepts may be familiar to financial advisors, setting them up frequently necessitates expert assistance. The good news is that more businesses are emerging to assist financial advisors in starting their practices.
In return, these businesses can demand a consultancy fee, a share of the company’s assets, or even an equity investment. The expert assists ambitious business owners with everything from office space selection and design to registered investor advisor /broker-dealer registration and credit and lending facilities.
Independent financial advisors should think about hiring professionals to create professional-looking websites, business cards, and other marketing materials in addition to having a strong legal foundation. Professional consultants can help avoid the hiring of full-time staff to undertake straightforward activities like bookkeeping, accounting, or even secretarial chores, which can help keep expenses low initially without compromising quality.
5- Utilise Technology
How technology is quickly altering the entire sector’s function. Although the financial services industry has been sluggish to accept new technology, it is now a vital component of the ecosystem. Independent advisers can enhance their client services and maximize their profits by utilizing a variety of instruments.
Other parts of the organization, like payroll, accounting, or marketing, can also employ technology to cut costs. Automated phone systems provided by firms can eliminate the need for a dedicated secretary, while do-it-yourself payroll services can help keep payroll costs lower compared to hiring an internal accountant. Even though these services might not be advisor-specific, they can undoubtedly increase profitability.
Three Steps to Start a Fund Management Firm:
1- Analysis and Planning
You initially attempt to determine the depth of a pool before diving in. It’s the same when beginning a business. Therefore, it is essential to do extensive study on the industry you are entering.
2- Company Registrations
To legally launch an asset management company, you must register your business after completing all corporate formalities. The Ministry of Corporate Affairs (MCA) in India must issue you a Certificate of Incorporation. This certificate attests to the fact that your company is legitimately registered as a private limited company. Details about the shareholders and directors are also included.
3- Registration with SEBI and Other Licences
The SEBI (Securities and Exchange Board of India) regulates asset management firms. As a result, it must adhere to all of its legal recommendations. The primary organization in India that deals with, controls, monitors, and decides how an asset management business will operate is SEBI.
Eligibility Criteria and Fee Required for Registration of Fund Management Company
- The applicant must give the SEBI a non-refundable application cost of Rs. 1 lakh. When SEBI issues the registration certificate, the manager of the portfolio must pay a charge of Rs. 10,000 as registration fees.
- Two members of the candidate’s team should each have at least five years of portfolio or investment management expertise.
- The SEBI would also consider other factors, such as whether the nominee had enough office space.
- Three years are allowed for the Certificate of Asset Management Company Registration to remain in effect.
- The management has the least Rs. 50 lakhs in net worth.
- Professional or subject-matter expertise in accountancy, law, chartered accounting, or management from a professional university should be a requirement for those operating as fund managers.
Documents Required for Starting a Fund Management Firm
- Certificate of Company Registration,
- Memorandum of Association
- Articles of Association
- Directors’ Identification Number (DIN)
- KYC Records
- Identity proof (passport, Driving Licence, etc.)
- Aadhar card as proof of address
- PAN Card
Individual investors typically lack the knowledge and resources necessary to consistently generate high investment returns over time. As a result, many investors rely on asset management firms to make investments on their behalf. Most asset management firms are made up of a diverse mix of financial experts.
They can use complex investment techniques and diversification to provide returns for investors since they have access to a lot of pooled funds. Although starting a wealth management company is a challenging process, entrepreneurs can find great success with the correct support and resources. Financial advisors can improve their chances of success, prevent expensive lawsuits, and steer clear of other challenges that come with leaving the corporate world and starting their own practice by adhering to these fundamental guidelines.