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Avoid disruption

Nov 10 2008, 12:08 IST
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SummaryBy being diligent at the time of buying the fund, you can avoid the disruption that mergers and acquisitions of mutual funds can cause to your investments

By being diligent at the time of buying the fund, you can avoid the disruption that mergers and acquisitions of mutual funds can cause to your investments
At the beginning of last week came the news that Lotus India Asset Management Company (AMC), a young fund house, was being taken over by Religare Aegon AMC, a new entrant. Several reasons are being attributed for Lotus India AMC’s sellout. According to industry insiders, its Singapore-based promoters — Fullerton Fund Management Group and Sabre Capital Worldwide — were facing liquidity pressure in their own markets and were unwilling to inject further capital into their Indian venture. Two, Lotus India had become primarily a debt fund house: more than 90 per cent of its assets under management (AUM) came from debt products, which are low-margin products. So the entity wasn’t making much money. And three, the last straw was the heavy redemption pressure faced by the fund house in its liquid funds and fixed maturity plans (FMPs) in recent weeks leading to its AUM almost halving from its peak of around Rs 11,000 crore to around Rs 5,457 crore now.

Earlier M&As
This takeover of Lotus India AMC by Religare Aegon is not the first instance of acquisition in the Indian mutual fund industry and will certainly not be the last. Experts, in fact, see this takeover as the beginning of a trend. Recently, Stanchart AMC was acquired by IDFC and ABN Amro by Fortis.
According to Prasun Mukherjee, a Kolkata-based mutual fund analyst, “As the mutual fund industry in India matures, the pace of mergers and acquisitions (M&As) will only accelerate.” Adds Uma Shashikant, managing director, Centre for Investment Education and Learning: “Many smaller funds, unable to carry on in the current markets, will be sold off. Having fewer but larger players will be good for the industry and investors. Without a size of at least Rs 10,000 crore, it makes no sense to run a fund house.”

Don’t panic yet
In case of a takeover, investors need not panic. The new fund house will offer them the option to withdraw their funds. If they do not like the new entity that has taken control, they may exit the fund.
In the case of Lotus, most of its assets were in debt funds. Says Mukherjee: “In case of debt funds, quality of fund management is not such a big issue.” As the saying goes within the fund management

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