Average Indian Investor and Long Term Investing....

The moto of investing is to make profits. More the profit - more is your happiness. But to make more profits - you need to take a bit of risk. Without taking risk but want maximum profit happens only in dreams. And when the going is good - many investors 'assume' or take it for granted that the dream run would continue and start investing in high risk investments. The carrot here is the immediate past returns. But when tide turns for whatever reason it is - they panic by stopping SIP's, making redemptions and questioning the 'safety' factors - which they should have considered before investing.

A recent survey by the watchdog SEBI says 79.7% of indian investors are risk averse or conservative. And only 5.6% have the risk tolerance to invest in risk assets like (direct) equities. But when the going is good, many assume they have high risk appetite - only to realize their limits when they hit speed breaker. No wonder the % allocation of overall asset in equity related investments is close to just 3%. Logically having invested only 3% of your networth in equities - you should not be worrying too much about the volatility. But when panic grips - people run helter-skelter.

 

It is a well known secret that investments compound over years. The longer - the better. An investment at 8% grows 10x in 30 years, but close to 86x at 16% in same time frame. While the returns are not guranteed - long term investing does help you investments grow better. And the beauty is the real differentiation or impact is only felt after 10 years. And to see the benefits you need to stay invested.

But sadly, 50% of mutual fund investments are redeemed in Year - ONE itself. And only 3% of the MF investments are held beyond 5 years. When you could not hold even for 5 years - where does an investment duration of 10 years or 30 years come?

 

SIP's (Systematic Investment Plans) are THE BEST way to discipline you as an investor. You keep investing some money every month - through the ups and downs. And without your knowledge or awareness - you keep investing across market cycles benefiting out of the long term growth. But even here, many SIP investors stop their SIP's for various reasons. And only one in 10 SIP's remain active beyond five years. To be honest - you need to give some time for the trees to grow and show up some results.

Without these understanding - you cannot become a long term investor. It is better late... than never!!!

MF - Stock - PMS : Which one for you?

 Almost everyone of us start investing small and gradually scale up – as we gain confidence. But some may be wondering whether to stick to one investment option or to invest in multiple ones.

While this decision to spread your investments depends on individuals risk profile, usually when we start investing – it is convenient and affordable to invest through the mutual fund route. Since mutual funds are well regulated by SEBI and managed by professional fund managers – it is the easiest option for any investor. What ever may be your investment duration – be it short term (one month to one year) or medium term (One year to three years) or long term (three years plus) - you have an investment option in mutual funds. This versatility of product range makes it easy to invest.

But in India - direct stock investing preceded mutual fund. Though the MF concept was born in 1960’s – it gained popularity only in the last twenty five years. But stock investing has been in practice even in pre independence era. And many investors have created huge wealth by investing directly in stocks – gaining both by share price appreciation and dividend income. Almost all investors get into direct stock investing dreaming that they will be one such lucky investor and create huge wealth. But majority investors had burned their fingers by investing on shortcuts, tips and not following up with their investments.

As a result – investors started looking for an investment option which is relatively easier to invest – without much efforts. Many investors wanted to invest small amount. And some wanted to invest regularly – like monthly basis. All these expectations were met by Mutual funds. As a result - unlike in 1990’s, in last 10 years or so - majority of investors – including small investors - have made money by investing through mutual funds. While the returns could have varied, we need to appreciate - something is better than nothing.

Does that mean stock investing is not at all required and only mutual funds would do? And where does PMS fit in the picture.

If you know that a company will do well and you have the time and passion to keep track of the company – then direct stock investing can give best results. Kindly note – the size of investment does not matter here. Even with small capital – you can do direct stock investing provided you have the time and passion.

Most investors do not have the time to keep track of the companies they invest in. For them mutual funds are the ideal choice. You benefit from fund manager’s expertise, diversification, low cost of management etc. And again - size of investment does not matter. Even small capital would do. And you can even go for regular investments like SIP’s.

And even for those who are passionate about investing in stocks, how many companies can they keep track?. May be 5 or 10 or 20. Not beyond that. And the biggest challenge for most investors is not identifying and investing – but the exit part. Many of us just buy it and forget it. And when the investment portfolio value grows in size – the number of stocks we hold also goes up. At some point it becomes difficult to keep track of all the stocks. In such situation – Portfolio Management Services (PMS) can make sense. While a mutual fund is also managed by a fund manager – there are differences between both. We had published the similarities and differences in our MONTHLY MEMO way back in Aug 2023. Publishing the table for better clarity.

And we need to keep in mind – not all PMS fund managers do well. Some of them are lousy. We need to identify talent and invest in them. Some of them may have high churn ratio. But if they deliver results – investing in PMS can make sense. For instance – while the index return of last one year has been pathetic – some PMS have delivered a return close to 15%. That’s pretty good. Attached below is actual performance of one such PMS.

To conclude –

• If you can keep track of the stocks you invest – go for direct stock investing.
• If not – then mutual fund is a better option.
• If you have sizable portfolio (Rs.2 Crore Plus) – then you can slice a part of it and invest in PMS. But keep in mind your risk profile before investing. And the past returns are not guarantee of future returns.

Should you invest in SECTOR Funds ?

Among mutual funds - equity mutual funds are risky and volatile. Among them Sector funds and thematic funds are the riskiest. Hence most investors invest in relatively safer funds like large cap, midcap etc. 

Normally equity funds invest in multiple sectors as per the fund mandate and at the discretion of the fund manager. But if a fund invests only in one sector - like Information technology or Banking stocks or pharma - they are called SECTOR FUNDS. And if they invest in a theme - like Infrastructure, consumption etc - they are classified as THEME FUNDS.

Though investing in a sector fund or theme fund is risky - they are not as risky as investing directly in stocks - since the fund manager invest in 20 to 30 stocks based on his research and analysis. As a result diversification helps investors in managing risk better. For those investors who are venturing in stock market where the probability of making profit hinges on individual stocks - theme fund or sector fund could be a better bet.

And in many occasion we paint with same brush. For instance - we classify all pharma company as one. But in reality there are many sub categories in pharma - domestic formulation, export market, CDMO, Hospital and diagnostics. And in each categories you have a dozen or two stocks. In a mutual fund, the fund manager is the best person to decide on which ones to invest. All we need to do is identify the sectors / themes that we like and invest in the best mutual fund in the category.

And the proof is in the pudding. In the last 2 years, when broader market did not do well - Pharma and Healthcare sector has done pretty well. While your normal equity mutual fund would also have invested in this sector - other sectors would have dragged the returns. Hence if you want to reap the full benefit of a sector - you can consider investing in relevant sectoral funds keeping in mind the risk - reward payoff. But keep in mind - all funds in the same sector are not equal. Those who got their calls right would be best performing and you need to identify them and invest.

Investing in SIP's through market cycles...

"Think big, think fast, think ahead. Ideas are no one's monopoly." ~ Dhirubai Ambani

We can replace 'Ideas' with 'Knowledge'. And more and more investment managers come in... they debug complex concepts in simpler fashion. And most of them explain those there were not done earlier. In this knowledge economy - that is the BIGGEST Benefit. You can gain out of others wisdom. And the new entrants in to the industry - try to impress the investing public more than the older ones for obvious reasons.

The new kid on the mutual fund industry is https://capitalmindmf.com/. And I enjoy reading their newsletter by email. In their recent newsletter dated 1st May 2026, I was stunned with their write up on - "You want the bad years now - not later."

It was so impressive - thought of summing up the same for everyone's benefit.

In this article they discuss about the impact of investing in two schemes which has delivered end to end - same CAGR - 14% - over 10 years. The only difference is - in 1st scheme - 1st 5 years the NAV has risen steadily and flattered. In the 2nd scheme - it the the other way around - 1st 5 years has been bad and next 5 years has been good.

Now the scenario testing:

1) For a One time investor - the end result in both funds would be the same : 14%

2) But for SIP - the results are different. For SIP - B, when the 1st 5 years were bad - and NAV's were obviously low - each SIP investment would have accumulated more units. 

3) As a result - SIP started during BAD years gave better returns than those started during Good years.

But in reality - many investors worry / hold back investing during bad years. And worse - some of them stop their SIP's saying that the returns are not great only to restart when green shoots show up.

So the writing is clear on the wall - continue your SIP's in GOOD FUNDS irrespective of market conditions. Over a 10 year period - you never know when good or bad years come up. Infact, they alternate. As seen in either of scenario above - you make returns in both scenarios. But you can be lucky if you start your investments during tough times and tough times last for sometime - you hit a JACKPOT.

Things to do when Market falls:

Investors like to invest when there is visibility and clarity. They invest more when the returns have been good. But the 'good' returns they see are out of the investments made when markets have been bad. 

• And investors like to invest when they have money. But such opportunity (market fall) happens occassionally. When you are flushed with money - keep it aside and invest when such opportunity strikes. 
• Having said that - it is not that easy to invest when market falls. Often we wait for clarity to emerge... and miss the opportunity. Hence invest gradually when market keeps falling. And it is an art to stretch your capital and invest to the maximum possible downcycle. If you have exhausted the reserved funds - do search for some more, squeeze out and invest.
• More important - do not look for consensus to invest. The person next to you may scare you. Close your ears and keep investing. 
• Some investors review their existing portfolio during market fall and feel disheartened to see the pathetic returns. Donot do that. When broader market falls - everything will fall. Your portfolio alone may not be insulated. You an earmark those you would like to knock off - but do that when markets have recovered.
• Spreading your investments across industries, across assets can help you reduce volatility and improve consistency. Experts say, the ideal ratio could be 70% Equity, 15% Debt and 15% Gold. 
• Investors normally like to invest only in assets which give THE BEST returns. So they switch / skew their portfolio - only to get hit when market reverses. Better to maintain a balance.

The message is simple - if you want good returns in equity - you need to take that bit of risk. No shortcuts there. Current IRAN War or rather the last 18 months market consolidation is one such opportunity. GRAB IT. Get it touch for assistance.

Market Rotation: Winners and Losers

 

Understanding Equity Mutual Funds:

 

Neutral Way of Investing

 

Most investors would have been in a dilemma when they decide to invest. Whether to invest today or bit later. Should I invest one shot or do a SIP. But the returns they would have made is known only in hindsight. If it is good – they could claim they made right decision and if is bad they blame it on the market.

For instance, Sensex was 85930 on 26^th Sept 2024. And it is 85706 on 28^th Nov 2025. In between, it touched as low as 71425 on 7^th April 2025. While it is a 0% return over 14 months, it is a 20% return from the bottom of the market. Though the return from the bottom looks attractive, the point to point return  of 0% over a one year period is hard to stomach – for most investors. A one time investment in most mutual funds delivered bit better returns, it is far lower than investors expectations - after few years of great returns.

The period of nil returns or low returns are typically years of consolidation. This usually happen after few years of great returns. Incidentally the interest to invest is high after such years. While there is nothing wrong with expectations, it is better to be realistic and take a cautious approach to investing.

For instance, a monthly SIP would have fetched us far better return (if not the best return) than the NIL return – since you would have invested through the ups and downs of the market. At the end… it is better to get something rather than nothing. Though boring, it is better to invest in neutral way.

REITs… Time has come

REIT are Real Estate Investment Trusts. They are just like mutual funds that pool money from investors and invest in income generating real estate assets. The units are listed in stock exchanges making it possible to buy or sell at any time. Globally REITs are popular among investors. They operate in over 40 countries – with US leading the list.

In India, REIT was first launched in 2019. There was huge buzz then. But the growth was not as expected.

Advantages of REITs:

1. Usually real estate investments demand huge capital. But through REIT you can invest even small capital – just like you do in normal mutual funds. This fractional ownership with provision of instant liquidity is by itself a big advantage for retail investors.
2. Just like mutual funds, REIT are regulated by SEBI.
3. REITs invest in a collection of properties – like office space, shopping mall, warehouse etc - across cities – there by helping in diversifying risk.
4. Since it is managed by professionals with proper infrastructure, investors need not worry about the paperwork before buying property, maintaining the property, collecting rent, paying taxes, handling litigations etc.
5. REIT in India can invest only in income yielding assets. And they have to payout 90% of the income earned by way of dividends.
6. While quantum of dividend paid depends on the rental revenue from  underlying asset, the periodic revision of rental can help in pushing up the yield.

Apart from the above mentioned benefits,  in reality REIT is a big boost for the economy:

1. Infrastructure and real estate projects demand huge capital. So far they have raised capital mostly by way of debt. If REITs get popular among investors, retail money can help fund these projects. As a result, you could see revival in economic activities like construction, material supplies and job creation.
2. Real estate so far has by and large been an unorganized market. But when organized players get in to it, the who industry gets streamlined and transparent – helping investors make confident investment decisions.
3. Usually we invest in real estate only in places where we can reach out physically. For someone living in Madurai, investing in places like Mumbai or Gurgaon is unthinkable. But the REITs you invest in may have properties in various locations, thus helping in geographic diversification and broad based economic development.

So far we have only 4 REIT’s listed in India:

1. Embassy Office Park REIT : operates 51.1 million sq ft across 14 office parks in Bengaluru, Mumbai, Pune, NCR and Chennai.  
2. Mindspace Business Park REIT: has Grade‑A office business parks, across Mumbai Region, Hyderabad, Pune & Chennai with a total leasable area ~38.1 msf.
3. Brookfield India Real Estate Trust: has office real estate (Grade‑A) with a mix of campus‑style business parks and standalone assets. They have 29.0 msf of total leasable area
4. Nexus Select Trust: They have 19 shopping malls across 15 cities and some mixed assets (retail, hotel, a small part office) across India.

 Inspite of such a promising portfolio, REIT was not that popular among investors. But the recent announcement (on 12^th Sept 2025) by SEBI - reclassifying REITS as equity asset is likely to be a game changer. Let us understand why:

• REITs can now be included in any equity portfolio. Being a high dividend yielding asset with relatively lesser volatility, REITs can help fund managers to ‘hide’ / park funds during volatile times.
• Hybrid mutual funds are now taxed as follows:
• Aggressive Hybrid Funds like traditional balanced funds – with more than 65% equity exposure – are taxed at 12.5% in the Long Term Capital Gain if you hold for more than 12 months – just like normal equity funds.
• Conservative Hybrid Funds like Balanced Advantage Funds (BAF), Multi Asset Funds (MAF) or dynamic asset allocation funds maintain 35% to 65% in equity exposure. The long term capital gains tax is 12.5% - if you stay invested for more than 24 months.
• Debt oriented Hybrid funds with less than 35% equity exposure are taxed at individuals tax slab rate.

Normally, if the hybrid fund managers feel the equity asset is volatile, they prefer to reduce the equity allocation. But to maintain the overall equity threshold – to qualify as aggressive hybrid fund or conservative hybrid fund - usually they fill the gap by investing in arbitrage fund which is classified as equity asset. Arbitrage funds typically yield around 5% to 6%.

With REITS being classified as equity asset, hybrid funds are bound to add REITs in their portfolio along with arbitrage funds. A dividend yield of 7% to 8% + 2% to 3% from rental increment from REITs is bound to push up the yield of hybrid funds.

If someone wants to invest ‘safely’ – in a non equity asset – but with an equity (lower) taxation, then REITs is a blessing in disguise. The mandatory distribution of 90% of the income earned as dividend is suitable for those who are looking for regular cash flow. Looks like – the time for REITs have come atlast.

Converting Mutual Funds to Demat Mode and Viceversa

Mutual Funds which were held traditionally in physical mode can now be held in demat account also. While this has been in existence for quiet long, many investors might not be aware of it. And sometimes - after converting to Demat mode - some investors may wish to convert it back to physical mode. While the conversion to demat mode is quiet prevalent and familiar among investors, the reverse is not so. 

An article has been published THE MINT newspaper on 22nd Aug 2024, which deals on this subject. Hope it is useful to those who seek clarity on this topic.

True Diversification:

 "Don't put all eggs in one basket" is an age old adage emphasising diversification." Usually risk reduces when you diversify. Instead of investing in one stock - spread it across many and instead of investing in one asset invest across many. And instead of investing in one country it  becomes truly diversified if you invest across many countries.

Indian mutual funds have been adding value to investors for investing international markets. While this has been around for long, the taxation became favourable in current years budget. If you hold on to your international investments for more than 2 years, they qualify to be long term investments and the capital gains is taxed at 12.50% - the same as indian equities lint term capital gains.

From now on indian investors can explore international waters at their convenience.

The only limitation is - sometimes RBI limits international investing to manage its forex reserves. But that is ok. Whenever they allow, we can invest.

Here is an article on this topic published in our recent newsletter.

Should you Shun Mid and Small Cap's? - Taher Badshah of Invesco MF

 

Prasanth Jain - Farewell : Not so great

One of India's longest serving fund manager Mr.Prasanth Jain quit his job in July 2022. 

In the last minute I got a message that there is a zoom meeting which will be addressed by Mr.Prasanth Jain for one last time at HDFC Mutual Fund. It was scheduled by 4pm or so - if I recollect right. I was right there on time. And the meeting ended in flat 15 minutes. 

And a month later the fund house 'released' a 'farewell' letter writtend by Prasanth. For a person who has created so much wealth for investors, for a fund house which sold all its funds saying his name, it was indeed a shabby farewel. 

Anyway - thought of posting this letter today for following reasons:

1. is indeed a treasure trove of information.
2. Another fund manager - from another AMC has also resigned and he has also posted a farewell letter. Before I post Pankaj's letter - I thought it is right to post Mr.Prasanth Jain's letter.

Here's an extract from the letter where Jain shares his key learnings:

a. In my experience, efficient markets hypothesis does not hold true, especially over short to medium periods. Markets can be driven by emotion and herd behaviour for extended periods

b. Sizing is very important. Any portfolio will have its share of big winners, winners, losers and big losers. In my case roughly 1/4 were losers, 1/100 were big losers, 1/20 were big winners and the rest were winners.

c. The data above in (b) highlights what Warren buffet has famously said – Rule no 1 don’t lose money, rule 2, don’t forget rule no 1. I have made more mistakes of omission than commission – some prominent missed opportunities were Asian Paints, Bajaj Finance, Eicher, Kotak Bank, Divi’s laboratories, etc., but successfully avoided the long list of businesses that caused large and permanent loss of capital.

d. Markets are reasonably efficient over long periods. The duration of mispricing or inefficiency can vary from several quarters to several years. It is important in this period to stay the course and remain solvent (for a mutual fund manager this means to retain the job / fund).

e. Equities are a generous asset class. The tailwind of a growing economy and growing companies overshadows mistakes of timing and security selection in diversified portfolios in most cases over long periods. The key is patience to stay invested for long periods.

The Choice Keeps Growing... in Indian Mutual Fund Space

After a long time - the choice has started growing for the Indian Mutual Fund Investors. Veteran Fund managers who were working with various fund houses but quit the job for whatever reason it is, are now back with their own mutual fund companies.

Here is an article that we published in our newsletter - MONTHLY MEMO - elaborating on the benefits of growing choices.

Added to this list are two other celebrated fund Managers - Mr. Samir Arora of Helios Capital (Ex-Alliance Mutual Fund) and Mr.Kenneth Andrade of Old Bridge (Ex IDFC Mutual Fund). And not but not the least - Zerodha - One of India's leading discount broking house - is also in the fray with a mission to bring in the Vangurad experience to Indian Investors.

And here is an article on the heating up Asset Management Market: Do take time and read it out

https://www.businessinsider.in/investment/news/indias-asset-management-market-set-for-more-star-power/articleshow/103426815.cms

Is it Time for Mid & Small Caps to Catch up?

 

Largest Asset Management Firms Globally & Locally

 

Buying the News ?

Theoretically, investing based on fundamentals of a stock is the best option. But many a times, we jump the line and invest based on news. And in the age of social media - such news are everywhere - be it whatsapp / telegram / twitter / instagram / facebook. Apart from this, there are paid services to give you the news ahead of the crowd and pocket the returns.

In reality, if you the news is right - you make killing returns. But if the news is not true, then our investment can take a beating.

For instance, leading newspaper Economic Times published an article on 19th December 2022 stating that TATA MF may buy majority stake in UTI MF. UTI AMC being a listed company, if it is acquired by TATA MF, it could be a back door entry for TATA MF to get listed. 

Imagine what happened next. The stock price of UTI AMC sky rocketed from Rs.760 on Rs.900. A typical stock investor would love to buy this stock JUST IN TIME. Buy at Rs.760 and sell at Rs.900 - all in a day's time - pocket Rs.140 profit which is equivalent to 18% returns. And many stock investors expect their brokers to alert them on such opportunity so that they can grab it with both hands. 

But in reality, by the time they get the news and realize that it is indeed an opportunity, the stock price would has already run up - may to 800+. After bit of dilemma, they end up buying may be around 850 or so. 

Now comes the twist - On 20th December 2022 - TATA MF comes on board and denies the news. And the stock price promply tanks to trade currently at Rs.829 on 23rd Dec 2022.

Now the learning is:

• Though Financial news papers and financial websites are the main source of  news for investors, investing based on news is not the right thing to do.
• Many of us dive in and invest once we hear the news.
• But often we fail to keep track and miss out the news on following day(s). In other words, we lose focus quickly. Sometimes, we are left holding with lemons. 
• It is better to analyze companies and invest in them if they are fundamentally strong. It is ideal to stay invested in the company for long time to benefit out of its growth.
• At the end, it is hard earned money for every investor. Let us invest it responsibly.

Evolution of Mutual Funds in India

Merger, Acquisition, Stake Sale, winding up - all have happened in abundance in the Indian Mutual Fund space. Though Mutual Funds were born with UTI US 64 in the year 1964 and the first private sector mutual fund was born in 1992 (thanks to Narasimha Rao Govt and Manmohan singh as FM), the growth has never been steady. It had lots of ups and downs. Below mentioned is list of change in hands of various mutual funds... and the list is ever evolving. For instance Bandhan Bank is about to take over IDFC Mutual Fund in Feb 2022 and TATA Mutual Fund is in contemplating to acquire UTI Mutual Fund. Both are not mentioned in this list.

This list could help :

• Those investors who could have invested long time back and lost track of it - only to wake up and find that they do not find the scheme  any more. Probably their MF scheme got merged with someone else.
• One may wonder / admire the journey of a mutual fund and its evolution.
• Just like the old saying - "People may Come and Go... but Life goes on", So is with Mutual Funds. 

What Happened to L&T Mutual Funds?

Investors of L&T mutual funds may be shocked to see their investments in the funds 'vanish' from their holdings... and ofcouse get baffled by the presence of new funds from HSBC Mutual Fund in which they might have no investments.

Nothing to Panic here. 

L&T Mutual Funds sold 100% of their business to HSBC Mutual Fund on 25th Nov 2022 for Rs. 3484 Crores (US$ 425 Million). As on 30th Sept 2022, L&T Mutual Fund had an asset under management (AUM) of Rs.72,322 Crores, while HSBC Mutual  Fund had Rs.13,620 Crores.

Ironically, exactly 10 years back L&T mutual fund acquired Fidelity Mutual Fund in India.

So M&A is a way of life in Mutual fund industry - atleast in India!

As a result of this take over, some of the funds of L&T are merged with HSBC schemes. The list is given below: Some may have just a change in name while few may have change in fundamental attributes.

As an investor - what should you do? 

The first question that could come to mind is - Should I exit or Stay invested.

To answer that question you need to look at the new name of the 'your' L&T schemes.

Both management has said that the fund managers would be intact.

If it is just a name change - you need not worry much. The fund just got rechristined. That's it.

But if the fund's fundamental attribute has changed - then you need to check if the new mandate fits in your investment criteria and take a call on staying invested.

As the fund management claims if all is the same, it is just a Red & White logo instead of a Black & Yellow!. 

Wish the investors benefit out of this transformation.

Merger & Acquisition in Mutual Funds

Mutual fund is a mechanism for pooling money by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document.

In India, a mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management Company (AMC) and custodian. These mutual funds charge a fees - which varies between catetories - like equity,debt,hybrid and asset size. As the Asset Under Management (AUM) grows, so grows the profits of the AMC.

Usually, a well performing mutual fund scheme attracts lots of attention and as the confidence grows among investing community, more and more money is invested. This may be called as ORGANIC GROWTH.

But there is a back door entry to grow your assets – by M&M – which may be referred as INORGANIC GROWTH. Some of the reasons for an AMC to exit / acquire another AMC is listed below:

The reason for an Asset Management company to sell could be:

1.                   Lack of vision / confidence to grow their AMC business

2.                   Promoters of AMC wish to exit – to re-focus on their core business

3.                   Change of Leadership of AMC / Promoter – Change in priority

4.                   Regulatory constraints – due to some other global acquisition, forcing them to exit AMC business in India

5.                  Pocket a Profit for the assets they have grown over years.

The reason for an AMC to acquire could be:

1.       Grow assets faster.
2.       Acquire more clients / investors folios – though at a cost (premium)
3.       As size grows – with cost of operations being fixed, their profit grows
4.       Acquire Talent – Fund management team 

Positive side of AMC M&A:

• A new owner means – fresh breath of air. The acquired AMC gets a new lease of life.                  They can get back to board room and thing of ways and means of growing their business with fresh resources. Restructuring can help better performance
• Acquiring an AMC is like buying a big plantation – which has been grown and       groomed for years. Since it takes time to bring a plantation to productive phase, acquiring a mature plantation can give yields from DAY ONE.

Negative side of AMC M&A:

• 1.     Since SEBI (market regulator) says a mutual fund can have only one scheme in each category – like largecap, midcap etc, due to M&A it is more likely that each category may he duplicate of schemes. As a result one is merged with another – leading to confusion like SIP stopping, NAV calculations, swap in number of units etc. Investors face music from their auditors at the time of redemption from these schemes.
• 2.       In M&A if the best talent is retained, it is well and good. But sometimes the fund management exits – as in the case of Fidelity MF. If an investor had invested, believing in the fund managements ability, these exits of fund management talent could be a strong reason to exit from the scheme.
• 3.       Just as in marriage, where in the bride undergoes a cultural shock in the new environment – Each AMC has got a culture. During M&A, they have no option but to adopt to the new culture. Sometimes this works against the team spirit, unless the acquiring company (bridegroom’s family) is more accommodative.
• 4.       While these mutual funds do release public notice on the schemes which are merged, renamed and the change in fund management team, investing public often donot get a clue on whether these changes are good or bad for their investments.

Apart from AMC mergers, scheme mergers – mostly due to regulator’s instructions have been happening every now and then. For instance the recent re-categorization of mutual fund schemes led to mass overhauling of mutual fund schemes which left many investors perplexed. If it is just a renaming of the scheme – with number of units and unit price remaining the same, it is easier to understand. But sometimes there is a swap ratio between mutual fund schemes, like HDFC Prudence (Hybrid Fund) and HDFC Growth fund (Equity Fund) merged to a new fund called HDFC Balanced Advantage Fund (Asset Allocation Fund) with new NAV, it often results in accounting confusions.

Now as an Investor, what should we do – Stay invested / Exit / Invest More in these M&A Schemes:

• 1.   Check if the scheme you are holding remains the same – in the sense the investment rational, logic, benchmark, category and above all the fund management – remains the same. If so, need not worry. You can continue to hold / invest more. Else, check if the new avatar is ok with your thought process and expectations. If there is a scheme merger, then you need to ensure if the new scheme’s classifications are as per your investment thesis.
• 2.       Keep a tight watch on your investments in these ‘acquired’ schemes – regarding their performance. Do attend to the commentaries / concalls/ notes of these fund managers to ensure your investments are in the right path.

Two such M&A's are happening in recent times. Principal mutual fund's acquisition by Sundaram Mutual Fund has already been completed by 1st Jan 2022. HSBC Mutual funds acquisition of L&T mutual fund is under process.

To put it in a nutshell, you as an investor and me as a distributor don’t have any say in the M&A activities. All we can do is take stock of the situation and act according to the outcome.