Following the news that HSBC Asset Management (India) Pvt. Ltd. is acquiring L&T Investment Management Ltd., investors of L&T Mutual Fund schemes seem to be apprehensive. Are you wondering what will happen to your investments in schemes of L&T Mutual Fund? Well, you don’t need to panic, as your investments are completely safe.
You see, there have been several acquisitions in the mutual fund industry in the past, and the Principal Mutual Fund was recently acquired by Sundaram Mutual Fund. Every acquisition flows smoothly, and SEBI regulations are in place to safeguard investors’ interests. However, you will have questions as an investor regarding this acquistion of HSBC AMC & L&T Mutual Fund, and this article elucidates all your queries. The announcement of this deal of acquisition was initially made in December last year.
In December 2021, my colleague Divya had mentioned in her article the details about L&T Finance Holdings (LTFH) and HSBC Asset Management (India) (HSBC AMC) entering into a definitive agreement. Whereby HSBC AMC shall acquire 100% equity shares of L&T Investment Management (LTIM), a wholly owned subsidiary of LTFH, which is the investment manager of L&T Mutual Fund, for an aggregate purchase consideration of USD 425 million (approx. Rs 3191 crore) subject to adjustments as set out in the definitive agreements. The proposed deal secured the approval of the Competition Commission of India (CCI) in March 2022.
About HSBC Mutual Fund’s acquisition of L&T Mutual Fund:
L&T Mutual Fund has been looking for a buyer for some time as its parent company, L&T Finance Holdings, intended to focus more on its primary business of lending, and therefore, the decision to divest the fund management business was made. L&T Mutual Fund will now no longer be involved in the asset management business. With an average AUM of INR 72,322.38 crores and over 2.2 million active folios as on September 30, 2022, L&T Mutual Fund is currently the 14th largest mutual fund management company in India.
HSBC Asset Management (India) Pvt. Ltd., a wholly-owned subsidiary of HSBC Holdings, on Friday, October 14, 2022, stated it has entered into an agreement with L&T Finance Holdings Limited (LTFH) to completely acquire L&T Investment Management Limited (LTIM). HSBC AMC has received the necessary approval from the Securities and Exchange Board of India (SEBI) to fully acquire L&T Mutual Fund pursuant to its letters dated October 11, 2022, and October 14, 2022, given its no-objection to the aforesaid Proposed Transaction (“SEBI Approval”) for:
- Merger of the certain identified schemes of LTMF with identified schemes of HSBC Mutual Fund. (HSBCMF)
- Carrying over of certain identified schemes of LTMF to HSBCMF with no change in character or features except the name.
- Changes to fundamental attributes of certain identified schemes of LTMF, subject to compliance with certain conditions prescribed thereunder.
In a press release, HSBC said, “The proposed acquisition will be another milestone as HSBC delivers on its strategy of becoming a leading wealth manager in Asia. Strengthening HSBC’s asset management business in India will add to its ability to serve the wealth needs of its customers in India as well as those of its growing non-resident Indian customer base across the world.”
Commenting on the acquisition, Mr Nicolas Moreau, Chief Executive Officer (CEO) at HSBC Asset Management, said, “The acquisition gives us the necessary scale and reach across India through an enviable distribution network covering leading banks, regional distributors, an additional 55,000+ mutual fund distributors and established digital platforms.”
What will happen post-acquisition?
After completion of the acquisition, HSBC AMC will merge the operations of L&T Mutual Fund with its existing asset management business in India, with assets amounting to approximately INR 12,290.1 crores (including AUM under the domestic fund of funds schemes) as on September 30, 2022. The combined average AUM of the two fund houses stood at Rs.85000 crore in the previous quarter of FY 2022-23.
The schemes operated by L&T MF will be transferred to HSBC MF and merged or consolidated with identified schemes in line with regulatory guidelines. Further, the sponsorship, trusteeship, management, and administration of the L&T Mutual Fund will be correspondingly changed. L&T MF comprises of 29 schemes in operation, and HSBC MF comprises of 26 schemes in operation as on September 30, 2022.
(Source: L&T MF Notice to Unitholders)
Things investors of L&T Mutual Fund schemes should be aware of:
- The Unit Holders of the respective L&T MF Schemes shall neither receive any consideration nor be required to transfer any right, title or interest as beneficiaries under L&T Mutual Fund or the L&T MF schemes and shall be provided with an option to exit their investments. The Unit Holders who do not exercise their exit option (as described here) will continue with their respective rights and privileges under the surviving schemes, which will comprise an integral part of the HSBC MF Schemes and be managed and administered by the HSBC AMC.
- As required under the L&T Trust Deed, no amendment to the trust deed of a mutual fund (for clauses relating to administrative and operational matters) shall be carried out without obtaining the approval of SEBI and unitholders. The approval of unitholders may be obtained other means approved by the SEBI. The unitholders will be intimated the results of the ballot by way of a notice/advertisement in a newspaper.
- There should not be any income-tax implications due to the merger/consolidation of the schemes in the hands of unitholders since the merger/consolidation of mutual fund schemes is considered as a tax-neutral event. However, redemption and/or switch of units from the relevant L&T MF Scheme during the exit option period will result in tax implications for short-term/long-term capital gain/loss in the hands of the unitholders, depending on the period of holding of the investment.
What should investors of L&T Mutual Fund schemes do?
As a result of the acquisition, HSBC Mutual Fund will now be in charge of managing the assets of investors in L&T Mutual Fund. The merged L&T Mutual Fund schemes will no longer exist, and all schemes will be renamed to HSBC. The decision about the retention of the L&T Mutual Fund management team will be made by HSBC Mutual Fund.
However, according to SEBI regulations, a fund house is only permitted to have one scheme in each category, except for a few categories, including index, ETF, and thematic funds. As a result, if there is an overlap between the schemes in various categories, they must be merged. The fund house may alter the mandate of some schemes to adjust them in different categories. But this is again a decision that HSBC Mutual Fund will take.
HSBC Mutual Fund is the 23rd largest fund company and has been operating in India since 2001; nonetheless, asset growth has been sluggish, several schemes across categories have performed poorly in terms of risk-reward parameters, and they lack a reliable long-term performance track record. On the other hand, L&T Mutual Fund’s performance across various categories has been below average in the last few years.
L&T Mutual Fund investors need not worry and avoid making any hasty decisions in panic. You will be given an option to exit the schemes without paying any exit load. There could be a change in the management of the schemes, but you should wait to see if there is any impact on the performance of the schemes you are holding. In addition, the current high market volatility due to macroeconomic fluctuations and geopolitical tensions may influence the scheme’s performance. It remains to be seen if the growth in asset size, wider distribution network, and larger investor base post-acquisition of L&T Mutual Fund culminate into improved performance of HSBC Mutual Fund schemes.
If you are an investor in any of these schemes mentioned in the list above, you need to keep a close watch on its performance post-acquisition. You may consider exiting the scheme during the free exit load period if the merged scheme follows a more aggressive/conservative investment approach than the current scheme and is no longer in congruence with your risk profile and investment objective.
It is important to check the credentials of the fund house of the schemes you are seeking to invest in. The fund manager, assets managed by the fund house, and the scheme’s AUM are important indicators you should look at. A long-standing process-driven fund is likely to give decent consistent performance over the long term. Further, before making any investment decisions evaluate your investment objective, risk appetite, and investment horizon to select the most suitable mutual fund schemes that score well on quantitative as well as qualitative parameters and offer inflation-beating risk-adjusted returns.
This article first appeared on PersonalFN here