Behavioural Finance and Mutual Fund Investing | Bajaj Finserv AMC (2024)

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How to choose AMC for mutual fund? ›

All in all, before investing in any mutual fund scheme managed by an AMC, greater focus should be given to the relevant parameters of the particular scheme itself. Evaluate whether the goals, magnitude of risk, industry, and asset focus of the MF scheme align with your needs as an investor.

Benefits of behavioral finance

Additionally, behavioral finance shows investors ways to overcome negative bias in their financial decision-making. This can help professionals understand how emotions and bias can shape the economy and provide in-depth insight into the causes and effects of this.

Behavioral finance attempts to explain and increase. understanding of the reasoning patterns of investors, including the emotional processes involved and the. degree to which they influence the decision-making. process.

An Asset Management Company (AMC) is a financial institution that manages and oversees the operations of mutual funds and other investment vehicles. These companies play a pivotal role in the investment industry by creating and administering various fund products to meet the diverse financial goals of investors.

When you buy the mutual fund units directly from the portal of an asset management company, you stand to earn a higher return because these are direct schemes, and do not involve any brokerage. Moreover, there is no scope of misappropriation of funds because you are transacting directly with the fund house.

AMCs generate revenue by charging a management fee, which is calculated as a percentage of the assets under management. They may also charge performance fees based on the fund's returns, as well as account maintenance and transaction fees.

While behavioral finance focuses on the human behavior that often harms investing and financial decisions, it highlights a handful of benefits such as greater self- and social-awareness, greater analysis and awareness of biases and a better understanding of market behavior overall.

Behavioural finance theory ignores the impact of social status on investment decisions. Some investments are made only to increase social status and investors do not care about the economic impact of such investments e.g. people purchase expensive houses and other goods to to 'keep up with the Jones's'.

Behavioral finance asserts that rather than being rational and calculating, people often make financial decisions based on emotions and cognitive biases. For instance, investors often hold losing positions rather than feel the pain associated with taking a loss.

And yet, there is no dearth of investors making irrational decisions. Clearly, something else is at play here – cognitive bias and limits to arbitrage. These are the two pillars of behavioural finance.

What is Behavioural finance with example? ›

So, what is behavioral finance? It's an economic theory that explains often irrational financial behavior, such as overspending on credit cards or panic selling during a market downturn. People often make financial decisions based on emotions rather than rationality.

Behavioral finance is finance with normal people in it, people like you and me. Standard finance, in contrast, is finance with rational people in it. Normal people are not irrational.

AMC is seeing much improved relative strength. The 3, 6 and 12-month Relative Strength Ratings currently stand at 96, 94 and 68, respectively. The Relative Strength Rating runs from 1 to 99; for investors selecting top growth stocks, the higher the RS Rating, the better the stock in general.

This means that even if the AMC goes bankrupt or shuts down operation, the assets of the mutual fund are typically kept separate and should not be affected.

Complete KYC: Most AMCs require you to complete the KYC process. This involves submitting your PAN card, Aadhar card, and a passport-sized photograph. Some AMCs may offer an online KYC process for faster completion. Bank Account Registration: Link your bank account to your AMC account.

One prominent example of an Asset Management Company (AMC) in India is HDFC Asset Management Company Limited (HDFC AMC). Established in 1999, HDFC AMC is a leading player in the Indian mutual fund industry.

One thing to remember is, switching between mutual schemes is only possible withing the schemes of the same AMC or fund house. Also, switching mutual funds is not a difficult process, it involves certain factors, rules, charges, and tax implications that you should be aware of.

Based on your risk tolerance, you can choose large-cap, mid-cap or small-cap mutual funds when saving up for long-term goals. Meanwhile, if your investment horizon is about three to five years, then you should invest in hybrid funds.

An AMC is appointed by the sponsor and trustee to manage the pool of funds. AMC acts under the supervision of trustees who are governed by SEBI and AMFI. This ensures transparency, accountability, and objectivity. Hence one must go ahead and invest to optimize their wealth and save their taxes.