Investors at Morgan Stanley Mutual Fund, taken over by HDFC MF, have some reason to cheer. The latter is a much bigger fund house, managing a little over Rs 1 lakh crore in assets.
However, investors do tend to worry. Last year when L&T MF acquired Fidelity MF, there was an exodus of investors. L&T was a smaller fund house than Fidelity and investors did not have faith in the new one, says Surajit Mishra, executive vice-president and national head of MFs at Bajaj Capital.
In the case of HDFC MF, it makes sense to stay on, since it has a good record, with its schemes performing consistently.
“Especially, equity investors should continue, since HDFC’s equity schemes have performed well over the long term. It is a bigger and established asset management house,'” says Mishra.
When the merger was announced, L&T MF’s average of assets under management (AUM) were Rs 4,616 crore, mostly debt-focused. Fidelity’s AUM was Rs 8,881 crore, of which 68 per cent was equity-oriented. However, by September 2012, when the merger actually happened, Fidelity's AUM had fallen to Rs 7,030 crore. Some of it was also due to investors pulling out after the weakness in equity markets.
Let’s compare the biggest scheme from both HDFC and Morgan Stanley. According to data from Value Research Online, HDFC Equity, a large-cap and mid-cap fund, is 19 years old, with an asset size of Rs 9,679 crore. The five-year returns have been 22.03 per cent annually.
Morgan Stanley's largest fund is Morgan Stanley Growth Regular, also a large and mid-cap fund, 20 years old, and has an asset size of Rs 1,243 crore. The five-year returns have been 16.88 per cent annually.
According to Hemant Rustagi, chief executive officer (CEO) of Wiseinvest Advisors, there is no reason for investors to exit, as this is seeing the money move into stronger hands. “HDFC MF's funds are performing well and it is a more active fund house. It has a proven expertise. Whenever something like this happens, a good fund will not turn bad overnight. If it all it has to happen, it will take a long time,” he says.
However, Dhirendra Kumar, CEO of Value Research Online, says this is an opportunity for Morgan Stanley investors to review their portfolio and decide whether to exit or not. “Unless HDFC offers a compelling choice, there is no reason for investors to stay on. Right now, their funds are not doing very well. For Morgan Stanley investors, it is like going from a mediocre fund to a mismanaged one, purely because of inertia,” he says.
He advises investors to look at this merger announcement like a trigger to review their portfolio and work out a plan on whether to exit their investments or not.
In case Morgan Stanley's investors decide to exit, they will have to redeem their units. This means they will be liable to pay short-term capital gains tax if their investments are held for less than a year. If there are any exit loads, they will be exempt from that, since it is a takeover, Mishra adds.