L&T Mutual fund has agreed to buy out Fidelity AMC. The question which has been bothering Fidelity investors is what is the fate of their schemes? Read this space to know the repercussions and steps to be taken by the fidelity investors.
You being an investor holding your investments in mutual fund schemes of one of the respected fund house in India might be worried with the news of your fund manager exiting its India business. And what next, it has finalized the buyer of its India business, though subject to regulatory approvals.
Yes you might be well aware till now that L&T Finance, a subsidiary of L&T Finance Holdings Ltd. and operating L&T Mutual Fund will acquire FIL Fund Management Private Ltd. (Fidelity AMC) and FIL Trustee Company Private Ltd., which are carrying on the Fidelity's mutual fund business in India. The acquisition transactions are however subject to regulatory approvals from SEBI and Competition Commission of India.
With this acquisition, L&T MF intends to become one of the top players in the 6,82,000 crore Indian Mutual Fund Industry. After the deal is through, L&T MF will become the 13th largest fund house with a market share of around 2%. As of December 2011, L&T MF is the 24th largest fund house in India with just 0.7% market share. With this deal L&T MF also aims to strengthen its equity base and balance its overall assets.
Average AUM Date as on December 31, 2011
The reason for sell-out of Fidelity Mutual Fund India business
What changes for Fidelity MF Investors?
Fidelity MF seems to have agreed to sell its assets to L&T MF, as L&T MF is ready to acquire Fidelity MF’s employees as a part of the deal. Though L&T MF might acquire the sales and marketing staff of Fidelity MF, but the part of the deal that is not in the best interest of its investors is - that its equity fund management team will be retained by L&T MF only till the integration process is on. Fidelity which has worldwide asset management business is keen to retain its equity fund management team which is also engaged in research and fund management of Asia-Pacific region for its parent company.
As Fidelity MF’s well experienced fund management team and strong investment systems and process has been the key to success of Fidelity’s performance so far; the benefit of Fidelity MF’s stringent fund management may not be available to its mutual fund investors in future.
Fidelity seems to have parted with its Indian mutual fund investors to get rid of its losses and has handed them over to a fund house that is yet to prove its worth for the investors and has to stabilise on the performance front.
If you are among the investors who have invested in the brand ‘Fidelity’ based on its past consistent track record and its promising ability to create wealth for its investors; then you may not appreciate this deal as you may not find the same flair in the new fund manager post integration.
Also L&T MF is projected to have valued this deal at around 5% to 6%, which is way above than what it paid while acquiring the assets of DBS Chola MF in late 2009. L&T Finance paid a consideration of just Rs 45 crore to DBS Chola MF at a mere 1.56% of the AMC’s August 2009 assets of Rs 2,893.16 crore and with its fund management team.
This time L&T MF might have agreed for such a high consideration, as it has aimed to acquire the ready assets of long term investors comprising of Retail and HNI’s along with many investors holding SIP portfolios, who might have and are investing in Fidelity schemes to meet their long term financial goals. This deal gives L&T an opportunity to become the 13th largest fund house with a market share of around 2%. But only time will tell if this acquisition can bring a turnaround in performance of L&T MF, as it does not has any lucrative track record to show. It has a challenge to retain the investors who are focused more towards investing in good funds managed by preeminent fund management. Also L&T MF will have to add new fund managers to its role and will have to efficiently manage the high cost of employees it procures from Fidelity MF.
To know what you should be doing next, your first step should be to have a detailed knowledge about who is your prospective fund manager, who will be managing your money that you invested to meet your long term financial goals.
L&T Finance Mutual Fund entered into the Indian mutual fund business by acquiring assets of DBS Chola Mutual Fund in January 2010 and its average AUM stood at Rs. 4,616 crore as on December 31, 2011. L&T MF is the 24th largest fund house in India with just 0.7% market share, and once this acquisition deal is through then L&T MF can become the 13th largest fund house with a market share of around 2%.
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