Another deal struck in the mutual fund industry – L&T Finance is taking over the Fidelity Mutual Fund Indian business. After months and “if”, “what”, “who” finally the picture is clear for the investors who hold more than 8500 Cr of assets.
Fidelity Mutual Fund – Run Out
But this is just not the owners or the managers that will change. There is lot more for the investors of Fidelity MF. Change in management brings lot more challenges and they all have the bearing on the performance of the fund. After all you invested for returns and not for the corporate daily soap featuring mergers and the take overs.
When you should sell your Mutual Funds?
In a nut shell one can exit his investments in mutual funds if:
- Your life-cycle stage has changed impacting your risk profile
- If the expense ratio of the fund rise
- If there is a major change in the attribute of the fund
- If the fund manager is changed
- If fund is not complying to its objectives as laid down
If you see there is a likely possibility that the fidelity investor may face few of these. In the current scenario we assume following things will happen:
1) As per media reports the deal is “with employees” but without Investment Team as fidelity wish to keep their investment professionals as they are into research for their parent company regarding the markets of Asia-Pacific region. Hence the investment team will manage the funds for brief time and will completely hand over the funds to L& T.
2) Also media reported that Fidelity had a high cost structure. And majority of it was on employees. How does management deal with this is yet to be seen. But this will be a tough job, accommodating high cost manpower in the scenario when industry is all guns to reduce cost as margins have shrunk owing to the regulatory changes which have reduced the business for small & mid-size mutual fund companies.
3) We will see huge turnover in both equity and debt category. Majority investors in equity invested for the brand ‘Fidelity’. Institutional investors will also redeem as they will refrain from doubling exposure in the resulting one mutual fund company. So performances will be impacted.
4) If you see L&T, they have not created much value for investors in past. They have grown inorganically as they first acquired DBS Cholamandlam AMC and now Fidelity. This is a huge challenge for L&T team to retain Fidelity assets, with present performance and structure.
Fidelity Mutual Funds Performance Vs Sensex
|Fidelity India Growth|
|Fidelity India Special Situations|
|Fidelity Tax Advantage|
These are hard times but with challenges one also gets opportunities.
- Fidelity assets are major into equities and with this kind off assets L&T can attract good fund managers.
- Similar challenges were faced by HDFC AMC and Birla Sun Life AMC when they took over Zurich and Alliance AMC. And these AMCs have created value for the investors.
Few Such Deals in PastSource Business Standard
So it will be exciting times to watch as this entire merger may take few months or so subject to necessary approvals and due diligence.
Commenting on the transaction, Ashu Suyash, MD, Fidelity India said,
“The foundation that underpins this transaction is the shared values of L&T Finance and Fidelity and the high standards of business ethics that both Groups value and cherish. The business models of L&T Mutual Fund and Fidelity Mutual Fund are complementary, thus creating strong synergies. I am happy that business continuity has been addressed with the team moving along with the assets – this will help us continue serving our investors and our distributors with the same levels of commitment as they enjoyed over the past 8 years.”
Investors will be given a one month no exit load window by SEBI but this is going to be a very tough decision to exit or stay in the same funds.
Are you a Fidelity or L&T Mutual Fund investor? If yes, share your views or post anything which you feel discussing.