Mutual fund houses not interested in acquiring Sahara MF's assets

Keen on grabbing the mutual fund's 26,000 folios, but shun asset acquisition due to smaller size and overhead costs

The Securities and Exchange Board of India’s decision to declare the Sahara group unfit to carry on a business in mutual funds would mean nearly 26,000 folios and  Rs 130 crore in assets up for grab.

Sebi had said the fund house could change the management or return the money to investors. However, several large asset managers have already said they'd not be interested in purchasing Sahara's assets, citing the controversies surrounding the group.

The Business Standard spoke to nine different fund houses (big, mid-size and small) and all ruled out a bid for Sahara’s assets. The reasons included the controversies, potential overhead costs and relatively smaller asset size.

“Acquisitions of assets come with a fixed cost in the form of due-diligence and integration. We do not know about the KYC (know-your-investor),” said the chief executive officer (CEO) of a large fund house, who wished not to be named. Another said, “I do not think there should be a regulatory problem. What’s more important which I look for is if Sahara has something new to offer to my product basket. I find none. So, what's the point in going for it?”

Sector insiders say the overall cost of acquisition and its integration for an asset size of Rs 134 crore would not be less than Rs 3-4 crore. “Doing KYC and understanding the margin arrangements with distributors could be difficult,” adds a senior official at another fund house.

This would mean the 26,000 investors are likely to get back their money and other asset management companies could begin to tap them. Dhirendra Kumar, the CEO of of fund tracking firm Value Research, said, “There will be a lot of administrative overhead costs. In my opinion, its not economically worthwhile for fund houses to acquire Sahara's assets.”

On Tuesday, the capital markets watchdog passed orders to cancel the license of Sahara AMC within six months. The fund house was told to transfer the assets under management (AUM) within this period to a different fund house. If failing to do so, Sahara would be required to redeem the units allotted to its investors and credit the respective funds, without additional cost.

The regulator also held the fund house guilty of not disclosing ongoing litigation -- the case in the Supreme Court and the Sebi order in 2011, which had directed Sahara to refund its investors, and also barred Subrata Roy, the group chief, from associating with any listed public company and any company that raises money from the public. According to the disclosures made to Sebi, the shareholding pattern (equity) of Sahara AMC includes a 46 per cent stake of Sahara India Financial Corporation.

Of Sahara’s total AUM, nearly Rs 80 crore or about 60 per cent is in the equity segment. It has 10 equity-related schemes and six debt schemes. Over the past year, when the overall sector's assets rose, the fund house's fell 20 per cent, against Rs 165 crore during the same time last year.

Further, its investors have been fleeing the fund house over the past five years. The number of folio counts had fallen to 25,894 in 2014-15, compared with 45,763 in 2010-11.