A deeper understanding of asset and liability management

A deeper understanding of asset and liability management

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What it means There always is a certain kind of risk involved when it comes to any kind of business. These risks could be of any type, in terms of expansion or for introducing a new line of product, and so on. In order to be able to do this, it is necessary that businesses have a good back up of funds and this is exactly what the asset management companies in India or anywhere else look like. It balances out the assets and the liabilities.

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Interest One can’t deny that the major focus usually falls on interest when it comes to managing overall margin of interest. In this, it is very crucial to have a very integrated approach to decide which kinds of assets one is to invest in and what kinds of assets or liabilities match when it comes to their rate of maturity.

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Different methods There are different methods of functioning of asset management companies in India and around the world. The asset managers usually use a certain kind of tool to analyze the gap, the duration of maturity and also, the value-at-risk method with risk management. The asset managers also make sure that their clients are aware of the different kinds of funds which are available.

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Duration method and gap analysis The gap that we refer to is an excess of assets which have interest involved, over the liabilities or even vice versa, where the liabilities are in excess. This gap comes to zero when the liabilities and assets come down to the same level. During the duration analysis, this effect of changes which is seen in the interest rate on the liabilities values and assets are analyzed. Asset management firms help understand the importance of long short funds in India too.

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Managing the risks and values In the value risk method, it is a practice where the market-to-market selling is approved, and this is done on the basis of maturity given to yield ration as well. Studying the client profile thoroughly is what risk management is about. All existing assets and liabilities are properly analyzed and even made sure that they fall in proper levels.

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Thank You

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