C.B. Bhave’s (former chairman of the Securities and Exchange Board of India, or Sebi) comment at a seminar last year about “over 3,000 MF schemes in the market” may not have gone down well with the fund houses—and the count can be debated—but Sebi’s message seems to have found some takers.
ICICI Prudential Asset Management Co. Ltd aims to merge its ICICI Prudential Fusion I, ICICI Prudential Equity Opportunities Fund (IPEOF; formerly known as ICICI Prudential Fusion II) and ICICI Prudential Fusion III into ICICI Prudential Dynamic Fund (IPDF) on 11 April. The AMC has sent letters to investors in this regard.
As per Value Research data, since January 2010 six fund houses have merged schemes from within their stable.
These are usually schemes that are underperforming or have a tiny corpus. For instance, the three ICICI Pru schemes were between Rs 375 crore and Rs 475 crore in size.
“For sure, the regulator wants the industry to consolidate the schemes and bring the number down. But that’s not the only reason why we decide to merge schemes. We look at it from a business point of view; whether or not it is viable for us to run as many schemes. Where we think it’s unviable, we decide to merge,” says Nimesh Shah, CEO, ICICI Prudential AMC.
Typically, fund houses try and ascertain which schemes need to be merged before they seek their trustees’ approval. After obtaining the trustees’ approval, the fund house applies to Sebi for its approval. The fund house also needs to justify its proposal.
What should you do
Investors are given a grace period within which they can redeem their investments if they wish to. Exit loads, if any, are waived in this period. Once the period expires, units of existing schemes are exhausted and for an equivalent value, units in the new scheme are allotted at the prevailing net asset value.
Says Gautam Nayak, a chartered accountant: “If the investor holds a debt scheme that gets merged into another scheme, the investor pays long-term or short-term capital gains tax, depending on how long s/he had held the units. If it is an equity fund, only short-term capital gain tax needs to be paid if the investor has made a profit and the holding period is less than a year.”
Investors who hold units in the Fusion series schemes or IPEOF should opt for merger into IPDF. The latter has been a consistent performer in rising as well as falling markets and is also part of Mint50, our curated list of MF schemes.
Expect more scheme mergers in the future. For instance, ICICI Prudential AMC aims to merge one of its thematic funds into ICICI Prudential Top 200 Fund (formerly ICICI Prudential Growth Plan) and a quasi international scheme into ICICI Prudential Focused Bluechip Equity Fund. Birla Sun Life Asset Management Co. Ltd, too, plans to merge few of its schemes, especially in categories where there is duplication, and also a few other thematic or sectoral funds. We’ll keep you posted.