A mutual fund is a professionally managed investment vehicle supported by investor contributions to invest on the investors’ behalf. These funds are invested in securities by Mutual Funds, including stocks, bonds, money market instruments, etc.
Investors who want to purchase such securities but lack the time or expertise should turn to mutual funds. These funds are managed by experts who carefully allocate the funds to maximize the investors’ income and capital gains.
To bring consistency among comparable programs presented by the various mutual fund houses, SEBI (the Securities and Exchange Board of India) introduced new and broad categories for mutual funds in October 2017.
Therefore, various AMCs (asset management companies) either merged their schemes into pre-existing schemes or decided to merge with another scheme to create a fresh new scheme to abide by SEBI’s criteria.
Fees & Charges for Mutual Fund Investing in India.
This blog has thoroughly discussed what you, as an investor, can do in the event of a mutual fund merger.
A merger of mutual funds is what?
Mutual Fund Mergers occur when two or more mutual fund investment schemes or plans are combined to create a new scheme or are merged into an already existing mutual fund scheme.
Nippon India Mutual Fund
Reasons for A Mutual Fund Merger
One of the main reasons for MF Mergers in India is the regulatory guidelines by SEBI, which forbid asset management companies (AMCs) from having overlapping, similar schemes to avoid clutter for investors.
The following reasons also support the merger of mutual funds:
Cost Rationalization
If your fund has been performing well, you should reject the merger. This is because a fund company that demands redemption in a volatile market to save money at the investor’s expense is not acting in your best interests.
Maintaining Assets
- Fund for Franklin Templeton
- Investor discretion is necessary if asset preservation is the motivating motive for a merger.
- Asset Mutual Fund Mirae
Worry about atonement
You can continue holding your investment in the fund if a well-performing fund is being redeemed due to conservative investors’ panicking.
Combining opposites
If you have a strong, favorable judgment of how the sector or theme has performed, redeem your investment and move the corpus to another successful fund with the same sector or subject.
Performance that is insufficient & inadequate
If your fund is being merged into another scheme because it is not performing well enough, you need to learn more about that scheme. The worst thing you can do is to allow your money to flow from one poor decision to another.
But if you are pleased with your fund’s performance and think that the merger was brought about by the poor performance of AMC’s flagship scheme, then it is advisable to resign from the plan.
- Significant Regulations by SEBI in the Event of a Mutual Fund Merger
It should be possible for investors to withdraw their money with a 30-day notice period. - To assist investors in making a well-informed selection, the following important information
should be provided:
- The Plan Portfolio Is Under Scrutiny As Of The Most Current Date.
- Information On The Financial Performance Of The Schemes Mentioned Above When They Were First
- Implemented, Along With Assessments Against Appropriate Benchmarks.
- Information On The New Combined Scheme’s Main Features, Asset Allocation, And Investment.
- Objective.
- Justifications For Allocating New Units With A Numerical Illustration.
- The Ratios Of Total Liquid And Non-Performing Assets To Net Assets For
- Each Scheme And The Combined Scheme.
- The Consolidation’s Tax Ramifications For Unitholders.
- Additional Disclosures That The Trustees May Demand.
- Any Additional Disclosures The Board Might Demand.
3. If investors choose to exit, they are not forced to pay an exit load.
What Must You Do in the Event of a Merger of Mutual Funds?
Thoroughly Read the Unitholder Circular
- To guarantee that the new or transferee plan will satisfy your investment goals, carefully examine all paperwork linked with mergers and appreciate the merger’s impact.
- Discover More Information About the New Portfolio Manager
- Check to see if any newly hired portfolio managers’ investment philosophy and track record match your own.
- Examine the New Fund’s mandate.
- One must examine the new or transferee scheme’s achievement, strategic planning, and investment philosophy to assess whether the new mandate suits their investment demands.
- Verify Any Future Tax Repercussions from the Merger
- Read up on the merger’s technique and carefully examine any probable tax ramifications.
- Be on the lookout for any fee adjustments.
A vote of the unitholders is necessary before any fee modifications are implemented. Identify any price changes to ensure that the fund offers respectable significance and a profitable cost structure.
Conclusion
Finally, even though the idea of mutual fund mergers is not overly complicated, you still need to act carefully. Investors are given a 30-day notice period to consider their choices. If they decide to leave, they are not required to pay an exit load. If there are any capital gains at the exit, the investor will be liable for any taxes owed.
If they choose to remain and are issued transferee scheme units, their holding term will not vary to calculate capital gains on any later sales. The original date of acquisition of the Units shall remain in effect.