AMC risk with mutual funds

Do equity mutual funds carry any AMC risk?
- Persival

Yes, equity funds do carry AMC risks, such as an AMC goes out of favour or is under some kind of cloud. Since the asset management business is made up of people and if a company is in some kind of distress/difficulty or under a cloud and is being talked about negatively, then it will find it difficult to attract good talent and retain good people that it already has.

An AMC business can also get tainted by some accidents. It has happened in the past. Nevertheless, such situations did not put investors' money at great risk because the design of the mutual fund has been reasonably good from that standpoint. Having said that, it is true that some nasty accidents happening to a fund company can lead to a sustained decline in its performance over a period.

This article was originally published on July 15, 2020.