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What is a mutual fund house merger?
A merger between asset management companies (AMCs) or a mutual fund house merger is the unification of two asset management companies. It is generally undertaken to increase market share, increase operational efficiency, or consolidate strategies under one brand name. There are questions on safety of investments, the performance of the fund post-merger, and how investment objectives might be affected for the investor. The important thing to keep in mind is that the merger may change some of the operational details, but your investments are legally and financially secure under SEBI rules.
Is your investment safe?
Yes, your fund house holdings are secure during and after a fund house merger. The Securities and Exchange Board India (SEBI) has strict compliance processes in place to protect the interests of the investors. Your units of the fund that you have invested in are in your name, and the shift in the AMC does not impact your ownership. Your folio number and units remain the same unless the parties merging choose to redistribute them, in which case you will be informed accordingly. Essentially, the value of your investment still varies based on market performance, not the merger.
What changes to expect?
Even though your money is secure, certain modifications cannot be avoided. You can observe modifications in the fund name, benchmark index, fund manager, or investment approach. In case of identical schemes of the merging AMCs, SEBI mandates them to be merged or differentiated to prevent duplication. This may modify the risk profile or asset allocation in which you have invested. The shift in fund manager may also include an altered investment approach. Investors will need to study the new scheme information document (SID) to determine whether the fund remains consistent with their goals.
Communication and consent
Prior to any merger, the AMC must issue a formal notice of the proposed modifications. SEBI demands a notice of minimum 30 days to the investors. If the new scheme does not appeal to you, you may sell your units or shift to another scheme without paying exit loads within this period. This period sets you free to make a conscious decision about investing further or shifting your money elsewhere. The AMC must also place these modifications in public notices and update all the related documents.
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What must you do as an investor?
Be cautious. Read the scheme documents, monitor the performance of the funds after the merger, and compare it with your investment goal. If the new fund is not upto your risk profile or investment goal, consult a financial planner for other alternatives. Most importantly, don’t panic. Mergers are the order of the day in the mutual fund industry and are generally intended to make the fund and the industry more efficient and better performing in the long term.
FAQs
Q1: Will my NAV or units be impacted by the merger?
No, it’s done on the market value of the underlying assets. Your units will not be changed unless the fund is being restructured, when conversions will be made on fair valuations.
Q2: Do I need to do anything if there is a merger?
Only if you don’t prefer the changed plan. Otherwise, your investment proceeds as usual.
Q3: Can I redeem without penalty?
Yes, SEBI mandates a minimum 30-day no-exit-load to provide an exit in case the investors do not agree to the proposed changes.