Asset Management Companies (AMCs)are attracting attention with their unique ways of handling risk and aiming for better returns.
Unlike traditional players, new AMCs often focus on innovation, using technology and exploring emerging trends.
In this article, we will discuss how these new AMCs function, what sets them apart from others, and why modern investors prefer such AMCs.
What are New AMCs?
New AMCs (Asset Management Companies) are fresh players in the investment world, offering innovative ways to manage funds.Â
Unlike traditional AMCs, they focus on unique strategies like investing in alternative assets (e.g., real estate or private credit), using advanced technologies like AI for smarter decisions, or prioritizing sustainable ESG investments.
They also develop tailored solutions such as thematic funds focusing on specific areas, for example, AI or renewable energy.
The goal of these AMCs is to assume some degree of risk and offer returns while being sensitive to the needs of present-day investors.
New AMCs Unique Approaches in Risk and Return
Over the past few years, AMCs have used innovative tactics to manage risk and return in line with changing market conditions and investor needs. Those major approaches comprise the following:
1. Thematic Investment Strategies
Thematic investment strategies focus on investing in specific long-term trends or themes that have the potential to grow significantly over time, like technology, sustainability, or urbanization.
These strategies allow fund managers to adapt to changing market conditions by targeting sectors or industries likely to perform well in the future. For example, Zerodha Mutual Fund, through initiatives like the Rainmatter Climate Fund is a thematic initiative that supports startups and projects focused on climate change and sustainability.
While not a traditional mutual fund, it showcases how thematic approaches can address niche areas like environmental impact, aligning financial returns with positive social and environmental outcomes.
This kind of strategy lets investors participate in future-focused opportunities while spreading risk across targeted sectors.
2. Introduction of ‘Investment Strategies’ Asset Class
The Securities and Exchange Board of India (SEBI) has introduced a new asset class termed ‘Investment Strategies’ under the mutual fund framework.
This category permits AMCs to offer products with a risk-return profile between traditional mutual funds and Portfolio Management Services (PMS). Features include:
- Higher Risk Exposure: Allows up to 25% exposure in derivatives for purposes beyond hedging, enabling speculative positions.
- Innovative Strategies: Facilitates long-short equity strategies and inverse Exchange-Traded Fund (ETF) strategies, providing avenues to benefit from market downturns.
- Investor Accessibility: Designed for investors with higher risk tolerance, with a minimum investment threshold of ₹10 lakh per investor per AMC.
3. Launch of Higher-Risk Investment Products
Recently, SEBI allowed AMCs in India to launch higher-risk investment products like long-short equity and derivative-based plans. These products are designed for investors willing to take more risk, with a minimum investment of ₹10 lakh.
They let fund managers use strategies like betting on stock prices falling (shorting) or trading in derivatives, aiming for higher returns. For example, JM Mutual Fund can introduce such innovative products to attract high-net-worth investors looking for advanced strategies.
These plans suit those who understand market risks and want more than traditional mutual funds can offer. This move helps AMCs diversify and provide tailored options for different types of investors.
Conclusion
New AMCs in India are introducing fresh ideas to manage risk and return effectively. They focus on flexible investments, use innovative strategies, and offer options tailored to different risk levels. These approaches make investing more dynamic and accessible, especially for those with higher risk tolerance.
These efforts reflect their commitment to creating smart solutions that match the needs of modern investors in a growing and competitive financial market.