The Competition Commission of India (CCI), on March 22, 2023, approved LIC Mutual Fund’s acquisition of IDBI Mutual Fund. The proposed deal gives LIC Mutual Fund the right to manage and administer the schemes of IDBI Mutual Fund. As a part of the deal, LIC Mutual Fund Trustee Company will also acquire IDBI Mutual Fund Trustee Company.
The two asset management companies have also sought approval for the acquisition from the Securities and Exchange Board of India (SEBI).
About LIC Mutual Fund
LIC Mutual Fund was launched by the Life Insurance Corporation (LIC) of India in April 1994. In other words, LIC of India is the Sponsor of LIC Mutual Fund. The fund house currently has an AUM of Rs 18,124 crore as of February 28, 2023, making it the 24th largest in the mutual fund industry. The fund house manages 27 schemes, which include 13 equity schemes, 4 hybrid schemes, and 10 debt schemes.
About IDBI Mutual Fund
IDBI Mutual Fund was incorporated in January 2010 with IDBI Bank as its Sponsor. The fund house currently manages AUM worth Rs 3,732 crore as of February 28, 2023, making it the 33rd largest in the industry. The fund house’s portfolio comprises 12 equity schemes, 2 hybrid schemes, 4 debt schemes, and 2 gold schemes.
Why is LIC Mutual Fund acquiring IDBI Mutual Fund?
In 2019, LIC of India acquired a controlling stake in the ailing IDBI Bank as a part of the government’s effort to bring it out of the Prompt Corrective Action (PCA) framework. As a result of owning a controlling stake in IDBI Bank, LIC also became a majority stake holder in IDBI Mutual Fund. However, as per SEBI norms, one promoter cannot hold more than 10% stake in two or mutual funds. To comply with the norms, LIC had the option of either selling one of the fund houses or merging the two.
Subsequently, in December 2022, IDBI Mutual Fund entered into an agreement to transfer its schemes to LIC Mutual Fund.
What does the acquisition mean for both fund houses?
After the successful completion of the transfer, LIC mutual Fund will move up 2 notches to become the 22nd largest mutual fund house in India. On completion of the transaction, IDBI Mutual Fund schemes will form part of LIC Mutual Fund’s product basket. The acquisition will result in the merger of IDBI Mutual Fund schemes with the existing schemes of LIC Mutual Fund within similar categories. The remaining schemes will likely continue to be managed as earlier but will undergo a name change to reflect the change in ownership.
LIC Mutual Fund is likely to benefit from the combined synergies of the two fund houses. The fund house can benefit from economies of scale and reduction in the cost of distribution and customer acquisition, thereby strengthening it financially.
What should investors do?
A change in ownership does not always warrant portfolio action. Some schemes of LIC Mutual Fund and IDBI Mutual Fund have done well in the past, while several others have not fared so well. Thus, it is important to pay attention to the changes and practices put in place by LIC Mutual Fund post acquisition of IDBI Mutual Fund and how prudently they manage your money.
It will be too early to conclude that the merger of schemes will improve or deteriorate their performance. However, watch out for any major changes in the portfolio attributes of the schemes.
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, or if the investment objective of the merged scheme does not align with your own investment objective, you can consider exiting the scheme during the free exit load period.
If you have invested in any of these schemes, keep track on the performance of the schemes post acquisition and take an informed decision. Consider looking for alternatives only if they show prolonged underperformance compared to the benchmark and category average.
Before taking any investment decisions, evaluate your investment objective, risk appetite, and investment horizon and ensure that you only select the most suitable scheme that scores well on quantitative as well as qualitative parameters.
This article first appeared on PersonalFN here