Mutual Fund Merger

A fund merger happens when one fund transfers its assets and liabilities to another fund in exchange for shares of the receiving fund, with a value equivalent to the net assets transferred. This merger must be approved by the shareholders of the fund being acquired.
EXPLORE FUNDS
Mutual Fund Merger
EXPLORE FUNDS
3 min
02-August-2024
A mutual fund merger occurs when one or more mutual fund schemes are combined into an existing scheme or merged with another scheme to create a new one. In India, mutual fund mergers are often driven by SEBI regulations that prevent asset management companies (AMCs) from offering overlapping or similar schemes, which helps reduce confusion for investors. Other reasons for these mergers may include cost rationalization, underperformance of a scheme, consolidation efforts, or concerns about redemptions.

While navigating the somewhat complex mutual funds landscape one needs to be cautious, particularly when it comes to a mutual fund merger. The question that now arises is: What is mutual fund merger? The answer to that is simple. A mutual fund merger is two or more mutual funds uniting to set up a solitary, larger fund.

Reasons for a mutual fund merger

Strategic change

The consolidation happens often due to strategic choices made by fund management businesses or because of dynamically changing market conditions. Their principal goal is to enhance operating efficiencies, minimising expenses, and also streamlining the offerings of funds. Investors in funds that merge get proportionate shares in this consolidated, new fund while also preserving their overall investment values.

Lowering costs

Any mutual fund merger is motivated by various factors, the most critical being economies of scale. In this model, assets of multiple funds are combined to lower management and administrative costs, benefiting both fund businesses and investors. Mergers also help reduce fund offering redundancy, resulting in a more unified and concentrated investing approach.

Redundancy

Eliminating fund offering redundancy is another important point for mergers of mutual funds. Fund companies generally have a diverse fund portfolio with common objectives for investing over time. When such funds are consolidated, they simplify product offerings, consequently reducing complexities for both companies and investors. The simplification helps the organisation provide an understandable and consistent investment strategy.

Regulations

Regulatory needs or rapid market condition changes may also lead to a mutual fund merger. The need to adapt to rapid changes in a country’s financial sector or having to comply with more stringent regulatory requirements demands restructuring of fund offerings. This makes a merger a strategic step for maintaining compliance and retaining competitiveness. Such steps are taken with the sole purpose of offering better services and rates to investors.

However, investors in a mutual fund need to monitor this process carefully and also consider the ultimate repercussions. Even though mergers are supposed to be quite seamless, it may influence the fund's risk profile, costs, and investment objectives. Investors usually receive notices informing them of the impending changes, and they are also offered options like redeeming their units or shifting to another fund.

Hence, those who are worried about the impact of the merger on their respective portfolios should consult with experienced and knowledgeable financial experts or carefully study the disclosure statements sent by all fund operators involved in the merger. That is why understanding the reasons behind the impending merger, changes to be expected in the new fund's structure, and all potential ramifications regarding taxes is critical to making informed decisions that align with an investor’s financial goals.

How to go about a Mutual Fund Merger?

Any mutual fund merger is controlled by the Securities and Exchange Board of India (SEBI), which has very stringent policies for preserving investor interests and maintaining transparency. SEBI stipulates that investors need to be mandatorily supplied with all disclosure documentation in full detail describing the merger’s rationale, the impact the merger will have on the objectives of the mutual fund, and any resultant changes in expenses or fees so that they make the right judgments.

Moreover, the SEBI also rules that an independent third-party agency is also engaged to unbiasedly review the merger’s fairness, and its impartiality and transparency to bolster investor confidence.

Furthermore, SEBI also stresses steady communication to all investors throughout the acquisition and merger of all concerned mutual funds about the progress being made as also significant developments, if any, so that they can also participate in the decision-making process actively. SEBI’s regulations intend to safeguard the mutual fund business’ integrity, protect investor interests, and for establishing an accountable and transparent environment for all funds-related dealings in the country.

Conclusion

In summary, any mutual fund merger substantially impacts investors. This is more so as the merger adjusts the fund's risk profile, fees, and investment goals. Hence, investors must carefully examine the message of the fund controller that outlines the merger’s purpose, any changes to the methods of the fund, along with the ramifications for the ability of their investment.

Essential tools for all mutual fund investors

Frequently asked questions

What happens when funds merge?
When two or more separate funds merge, a larger and more financially stable single fund is created.

Who merged with principal mutual fund?
The Sundaram Mutual Fund company has acquired the Principal Mutual Fund AMC.

Why do mutual funds merge?
A mutual fund merger takes place to optimise fund operations, improve investor outcomes, and align with the fund company’s strategic objectives.

Is it ok to have multiple mutual funds?
Having multiple mutual funds is generally okay since the investor enjoys several benefits like a diversified portfolio, better risk management, ready access to separate asset classes, professional fund management, and enhanced flexibility.

Show More Show Less

Related videos

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer:


Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Show All Text

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.

Show All Text