Sale of Fidelity Mutual Fund Indian Business: Investor should Stay or Exit......big question ?

 

Two days back we have came to know the big mutual fund industry news that Fidelity mutual fund has sold their indian business to L&T Finance. It is a major event in  mutual fund industry.With over 8,000 crore in assets and 19 lakh customer accounts in MF business , The Fidelity International has sold its stake in FIL Fund Management (the asset management company) to L&T Mutual Fund whose sponsor is L&T Finance.  In 2005 Fidelity had launched its first equity fund in India. After seven years business in India, the fund house has decided to quits in Indian business.

So now the big question in investor’s mind what should do now at this point whether quit fund or not . For this we are trying to analyse the situation here. First of all we should be very clear that AMC has sold the stake of AMC (Asset Management Company) only and there are nothing to worry for investor. The investor’s money is in the mutual fund and is secure with the custodians.

The NAV of the funds will continue to be valued based on the market price of what is in the portfolio. Now for L&T Mutual Fund, acquiring Fidelity’s mutual fund business is beneficial and now the group has become large and multi-faceted in the financial services business. At present the L&T fund house merely 200 crore of equity funds. Now the question is whether L&T Mutual Fund will deliver performance on the schemes it has acquired from Fidelity MF.

There are few reasons to be think on this moment. The first one is the fund house which are currently not in the very comfortable position in MF industry but its debt funds are doing well. Second, the equity fund managers of Fidelity will handover the management to L&T’s fund management team within some period as per deal. Investors do not know if the new team will do better, or fail to live up to the expectations. And the last point is those active investors who do not like the uncertainty may leave at this point. It would be tough challange for fund house to retain these investors. Those investors who do not like the change have the option to quit, without paying exit load. The sale transaction is now pending the Sebi approval after which investors in Fidelity’s schemes will be given a 30-day notice to quit if they so wish. Those who do not exercise the option will move to the new management. Investors in Fidelity Tax Saver, where a period of three years is not over since investing, will not be able to exit due to the mandatory lock-in. They will move into the L&T Tax Saving Fund by default.

The investor would be informed by L&T Mutual Fund with the detail indicate which fund will be merged into which one, what the new names will be, and which funds may be closed. Fidelity’s investor should wait for that communication by L&T fund house before deciding on the exit option. There may be errors in fund selection when investors exit and enter other funds .

So don’t be panic and wait for the next communication from L&T fund house.

Dear reader please do send your feedback and ask any query if you have.

Regards,

Arvind Trivedi