Apr 05, 2012, 10.38 AM | Source: Moneycontrol.com

What Next for Investors of Fidelity Mutual Fund Schemes

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.

(Rs in Crore)


% of AAUM


% of AAUM


% of AAUM
Equity Funds






Debt Funds






Hybrid Funds


















Average AUM Date as on December 31, 2011
(Source: AMFI; PersonalFN Research)


The reason for sell-out of Fidelity Mutual Fund India business

  • Fidelity Mutual Fund which had setup its business in India in the year 2004 has been sailing with accumulated losses to the tune of Rs 306.85 crore (as per its annual report 2010-11)
  • The employee remuneration and establishment expenses have proved to be the major cost centre for the fund house
  • The employee expenses for Fidelity MF had shot up to Rs 68.1 crore until last financial year as against Rs 8.9 crore (for the year financial year 2004-05); which is whooping increase of 666% in the last 7 financial years
  • Fidelity MF could not manage to generate the required amount of income year-on-year to compensate for the huge costs for the company
  • Fidelity MF, with around 69% in equities and around 31% in debt earned a hefty Fee of around Rs 71 crore in FY 2010-11 out of which it spent around Rs 68 crore on its employees, which was 50% higher than the previous year
  • The abolition of entry loads in 2009 and weak economic conditions held back Fidelity MF from boosting its revenue and the increase in its fixed cost added to its losses
In terms of size, Fidelity MF is the 15th largest mutual fund in India with a market share of 1.3% and an average assets under management (AUM) of Rs.8,796.9 crore (Net) for the quarter ended December 2011. It also held around Rs. 83.6 crore in Fund of Funds, which is invested in other Fidelity MF schemes.

What changes for Fidelity MF Investors?

  • Only the AMC is being sold, the brand will change but your fund will continue to exist
  • Any change in the existence of Fidelity MF scheme, like closure or merger will be with prior intimation to all the Fidelity MF investors from the new fund house
  • There will not be any impact of this deal on your current portfolio valuation
  • Your funds NAV will be accounted regularly and will continue to be based on the portfolio valuation of the schemes
  • Your fund managers will change in future and your Fidelity MF schemes will be managed by the new fund managers from L&T MF
  • Any change in consistency in performance of the Fidelity MF schemes will be only when the new fund managers take over the schemes from the existing fund management team
  • There might be some challenge for the fund managers as some ill-informed investors may hurry to sell their investments in Fidelity MF schemes
  • You should not panic and rush to sell your investment in Fidelity MF schemes, but be cautious of future developments
Is this deal for the 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.

About L&T Finance Mutual Fund

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%.

Q UTI was the only mutual fund for the period of:
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