The Rs 37 lakh crore mutual fund industry has seen three merger and acquisition (M&A) deals in recent months. First, it was HSBC Mutual Fund’s acquisition of L&T Mutual Fund. The next was the merger of BNP Paribas and Baroda Mutual Fund, And now, IDFC Mutual Fund has been acquired by a consortium led by Bandhan Financial Holding for Rs 4,500 crore, in what is the biggest acquisition deal in the MF industry.
So, does this deal change anything for investors holding IDFC Mutual Fund’s schemes and how will this impact the fund house?
What it means for the fund house?
IDFC MF will be able to take advantage of the distribution muscle of a bank to grow its asset base. It is a top-10 fund house in terms of asset size, but there have been periods when the asset growth has been muted (see table).
The Kolkata-headquartered Bandhan Bank has 1,147 branches in all. It has a large presence in the eastern part of the country, but over time it has also expanded its presence to other parts of the country.
In financial year 2020-2021, the mutual fund assets managed by the bank stood at Rs 324 crore. So far, the bank has sold schemes of several mutual funds with HDFC Mutual Fund, ICICI Mutual Fund, UTI Mutual Fund, Nippon India Mutual Fund, SBI Mutual Fund, Aditya Birla Sun Life Mutual Fund, Kotak Mutual Fund, Axis Mutual Fund and Mirae Mutual Fund being empaneled with the bank.
It would be interesting to see how many of these mutual funds’ schemes the bank will continue to distribute in the future, after the acquisition of IDFC Mutual Fund is complete. The industry practice is that banks largely sell their own bank-sponsored mutual fund’s schemes.
Fund management team likely to continue
A statement by the consortium led by Bandhan Financial Holding states that the “agreement envisages continuity of the current management team and investment process at IDFC AMC”.
Mutual fund distributors say this is positive for investors. “Bandhan Group does not have any existing AMC business, so the IDFC team, scheme objectives and investment process will continue and remain intact. For investors, there will be no disruption,” says Deepak Chhabria, Chief Executive Officer and Director, Axiom Financial Services.
“Bandhan is acquiring IDFC Mutual Fund as a way to enter the mutual fund industry. It has no prior experience of operating in the industry, so it would not want to make any unnecessary changes,” adds Kirtan Shah, founder and CEO of Credence Wealth Advisors.
IDFC MF has built a strong business on the debt fund management side, with Suyash Choudhary, Head – fixed income, at IDFC Mutual Fund, overseeing debt funds. The mutual fund manages Rs 82,000 crore worth of investments across its debt schemes, which is 71 percent of the total assets managed by IDFC Mutual Fund as of March 31, 2022. For the March quarter, the fund house had average assets of Rs 1.2 lakh crore.
Ravi Kumar TV, founder of Gaining Ground Investment Services, says that if the buying entity lets the existing fund management team do their job, investors have nothing to worry about. “Take the case of Fidelity selling its mutual fund business to L&T Finance, where the deal did not impact its performance,” he points out.
What should investors do?
Investors holding IDFC Mutual Fund’s schemes can stay invested in the schemes, as the fund management team and the investment process is likely to remain intact. There are no scheme mergers or changes in scheme objectives that will be required as part of this deal.
Keep track of your scheme’s performance, as well as asset size, and be alert to any major changes at the fund house.
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