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Things need to check with Fidelity and L&T merger success

Fidelity Mutual Fund's merger with L&T Mutual Fund has put many Fidelity‘s investors in a fix whether or hold the fund or sell it. Financial expert Suresh Sadagopan advices investors to stay invested for now and monitor the progress over the months and then take a decision to stay invested or exit.

December 11, 2012 / 03:32 PM IST

First a bit of background on this. Fidelity AMC had taken a business decision to exit out of this business and L&T has gone ahead and bought it. This is not the first time this has happened. There can be many reasons why a fund house may want to exit. In case of Fidelity it is the accumulated losses, which has clearly made them to exit.

What investors need to check? There is no reason why investors need to panic due to this. Investors need to find out if the scheme is going to be managed as before - i.e if the mandate for the scheme remains the same or it is being changed. They also need to see if the scheme is being merged? In case of the schemes taken over by L&T MF, the investment objectives have not been changed. The scheme names have been changed to reflect the new owner and in some cases, there is a small change in name (like in case of Fidelity International Opportunities Fund has changed to L&T Indo Asia Fund).  The most important thing to note is that the fund management team is now different and a new team has come in it's place

Is a new team a cause for worry? The erstwhile Fidelity team had indeed done a good job, especially in their equity schemes. Their flagship scheme, Fidelity Equity Fund, had done pretty well over time and compared favourably with the index and it’s peers. Even in this scheme, there has been a noticeable lag in performance in the past year, even though the previous team was still managing the fund. That could well be because of the distractions and uncertainties due to L&T MF acquiring Fidelity AMC.

Now a new team is in place for Equity and Mr.Soumendra Nath Lahiri, who was with Canara Robeco AMC and had been managing their Canara Robeco Equity Diversified Fund and other funds, very successfully, has taken over as Head of Equity.  This augurs well for the fund house and it’s schemes. L&T AMC claims that it has a robust investment process in place, like every other MF. But we have seen that a fund manager does play a very significant role in scheme performance.  This can be seen across fund houses. Certain schemes managed by certain fund managers are always outperforming the category & benchmark and certain other schemes from the same fund house by other fund managers, are lagging behind. If the investment process is so robust, then these kind of leading and lagging among schemes, should not happen. But it does, all the time.

It makes sense then to stay invested for the moment and see what the new team can do to the schemes, rather than parachute out now, as the new team seems to hold potential. However, I would suggest that the investors closely watch what the new team is doing for several months and then take a decision on whether to stay invested or exit.

Taxation: When the schemes are passed on and renamed by the acquiring fund house, there is no tax implication. The original date of acquisition still holds good. For equity schemes, short term capital gains (STCG) tax would be 15%, if the investments are redeemed before 12 months from when it was invested. For investments held for over 12 months, the long-term capital gains (LTCG) tax are nil, for equity funds. For debt funds, STCG is as per one’s tax slab and LTCG is 10% without indexation or 20% with indexation, whichever is less. Exit loads typically apply for upto 1 year from the time of investment.

Hence, if you are an investor holding investments in some of the L&T schemes, stay invested for now; monitor the progress over the months and then take a decision to stay invested or exit. Give the new team atleast six months to show performance. They need that time to regroup and move forward.

first published: Dec 10, 2012 02:56 pm
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