Taking prudent investment decisions to manage wealth with asset management
- The goal of asset management is to maximise the value of an investment portfolio over time while maintaining risk.
- Financial institutions offer asset management services to cater to high net-worth individuals, government entities, corporations, and institutional investors.
- Asset managers make investment decisions on behalf of their clients.
- Asset managers consider stocks, bonds, real estate, commodities, mutual funds, and private equity investments.
- They charge significant fees for managing the assets.
For asset managers, the primary task is to understand an investor's investment goals, risk tolerance and investment timeframes. These requirements, when translated into an investment philosophy and approach, result in desired financial outcomes. Many Asset Management Companies offer their services to institutional investors and high net-worth individuals. Their well-timed investment decisions enable clients to build and maintain wealth. Let us decode Asset Management meaning in this article.
What is Asset Management?
The term 'Asset Management' refers to managing assets using investor capital by putting them to work in different investments. These may include Stocks, Bonds, Real Estate, Commodities, Mutual Funds and Private Equity. Typically, portfolio managers select positions based on the client's income needs, tax circumstances, and liquidity expectations.
For the service provided, they charge their clients a fee. The fee is determined as a percentage of the total assets under management (AUM). Asset management fees cover various expenses, including portfolio management, advisory services, and administrative costs.
Asset Management Companies come in many different forms and structures, such as Hedge Funds, Mutual Funds, Index Funds, Exchange-traded Funds and Private Equity Funds.
Importance of Asset Management
- If you are earning decently well, it would be prudent to optimise your earnings by investing wisely. You should invest your earnings into schemes and investment tools that multiply your money based on your financial goals.
- Not everyone is adept at financial matters, so it is advisable to take help from an expert. With the help of asset managers, you can invest in various alternatives, such as capital markets, Mutual Funds, NPS, Pension Funds etc., that would help generate good returns.
- Astute asset managers suggest funds or investment picks to suit your portfolio, bearing in mind the market trends and risks involved.
- Asset Management Companies usually have a group of investment professionals with broad market expertise. With a large amount of pooled capital, they can utilise diversification and complex investment strategies to generate returns for investors.
- All the investment activities are driven by the investment mandate to manage a certain pool of assets in a particular manner. These mandates weigh in the risk parameters within which the investment should be made and what strategy should be used.
- Some firms offer their financial services to cater to smaller investors as well. Many of these companies create pooled structures such as mutual funds, index funds, or exchange-traded funds. These can then be managed in a single portfolio. Smaller investors can then invest directly in the fund.
- Apart from asset management, these financial institutions provide alternative investment vehicles as well.
People often use the terms wealth management and asset management interchangeably. While both are used in managing financial resources, wealth managers go a step further beyond just investments. Asset management firms help investors manage their assets with investment advisory services. Wealth management assists with all financial aspects of the client, including asset management, financial planning, tax planning, retirement planning, and real estate planning.
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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.