Asset management refers to the management of a client's financial investments. Usually, asset management firms pool the collective funds of several investors and place them on their behalf in different types of instruments. These firms are also called mutual fund companies, and they issue "units" of their mutual fund schemes to their investors. All asset management firms put a premium on risk management and maximization of returns and deploy different investment strategies depending on the ultimate goal of the client. Different strategies result in different investment schemes, the most popular of which are listed here.
Fixed income: These investments are meant to generate a regular stream of income and bring stability to the portfolio. Generally, the funds underlying a fixed income scheme are invested in safe instruments such as government bonds.
Equity: As the name suggests, equity schemes are those where the funds are primarily invested in the stock market. These carry a higher risk than fixed income schemes, but also hold the promise of better returns. Equity schemes could be industry specific, wherein most of the investment is in companies of a particular industry; could be restricted to certain geographies, for example an Asia Pacific fund; or diversified. Experts conduct in-depth research to explore the potential of various stock markets, profile the top firms and assess the risks and volatility with the objective of giving the investors the best possible returns.
Balanced: Such funds tend to invest in a mix of assets such as preferred shares, bonds and common stock with the intention of providing stability in income as well as growth. In this strategy, investments in every asset class tend to be within set limits. Balanced funds are more suitable for investors with long time horizons and a higher risk tolerance.
Money market: Money market funds invest in commercial paper, treasury bills and other liquid securities. Interest is credited monthly to investors. Money market funds are safer, but their rates of return are lower, approximating short term interest rates.
Commodity: Commodity funds invest in units linked to different commodities - such as gold and other precious metals, or fuel.
Fund of funds: Such funds invest in other mutual funds, thereby mitigating investment risk further.
These are just a few of the most popular instruments offered by asset management companies. The portfolios offered and strategies employed vary from firm to firm. Duncan Hughes has written a book called "Asset management in theory and practice" available at www.ebay.com, a useful resource for those of you wanting to know more.
The diversity of investment outlets, risk and returns offered by asset management firms often sees people multiply their fortunes. So, find your perfect investment scheme and maybe you can count your chickens well before they hatch!
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