Fund Talk - What you should do with your Fidelity funds

The news is out that the mutual fund business of Fidelity in India will be taken over by L&T Finance.

Are you worried about what will happen to the Fidelity funds you own?

First, don't panic about the safety of your money. The assets managed by Fidelity are being sold to L&T Finance (which owns L&T Mutual) for an undisclosed consideration. That means only your portfolio is changing hands. Your investment in the schemes, which is with the custodian, is not touched for the purpose of this sale.

Second, mutual funds, as an industry, are highly regulated and there is normally a smooth takeover, once approvals are received. The day-to-day operations of buying, selling and monitoring of the funds do not stop, nor will your SIP transactions come to a standstill.

So is it business as usual? Not really.

What changes?

When mutual funds are sold, there is a change in management. Hence, if this acquisition goes through, L&T Asset Management Company will be the one accountable for the performance of your existing Fidelity schemes.

With the change in the top, fund managers may move too. This could have a bearing on the fund performance.

The big challenge before the new management is, therefore, to sustain or better the current sound performance of Fidelity funds.

So as an investor, you are bound to have a year or more of uncertainty about how well the funds will perform from hereon.

Your options

You have two options before you: one, wait and watch — very closely — the performance of Fidelity's funds once L&T Mutual takes over. For now, until the integration process is over, L&T AMC plans to retain the present Fidelity fund management team. Hence, there may be no immediate risk of any slippage in performance.

We have ‘invest' recommendations on funds such as Fidelity Equity and Tax Advantage. We will continue to closely track their performance and review them on any development.

A quick background on the acquirer : L&T Finance is not new to the retail finance business as it runs a profit-making lending company that also caters to retail borrowers.

Most of L&T's funds, barring the infrastructure fund and ELSS fund, have managed to keep pace with category average returns in the last three years. But their five-year record still looks unimpressive.

That means L&T is yet to set right the long-term track record of these funds, which it took over from DBS Chola. Also, all the equity funds are much smaller in terms of asset size compared with Fidelity's equity funds.

L&T Mutual expanded its assets under management by a commendable 33 per cent compounded annually in two years, after it took over DBS Chola's fund business in January 2010. But the growth has mainly come from debt funds.

The second option before you, if you cannot digest the above uncertainty, is to go for an exit option when you are offered one. After the deal receives approvals, a one-month window will be given to you to sell the fund without any exit load. It is possible that L&T Mutual may consider consolidating some of its existing funds with the new one.

If you exit, make sure you quickly shift to another well-established fund without much delay, especially if you are running SIPs. Otherwise you run the risk of missing out on any broad market opportunities to average cost or allowing your savings plan to go out of kilter.

What the acquirer says

In an interview with Business Line , this is what Mr Y.M Deosthalee, Chairman and Managing Director, L&T Finance Holdings, had to say to investors on the Fidelity takeover:

On the Fidelity fund management team

The equity fund management team is available to us as long as we need and as long as they are satisfied that our equity fund management team is able to serve the interest of investors. That is the current understanding. But it is not available indefinitely. It is available as long as it is required.

On consolidating funds

That is something we will work on as we go along. At this point in time, before the transaction is closed, all the schemes will run as they are doing now.

This transaction will need regulatory approvals and it will need some time for us to complete the deal. Afterwards, we will look at integration. In any case, they have some extremely good schemes and they will continue to run.

Message for Fidelity investors

With Fidelity, we will have a very complementary platform and we will ensure that we protect investor interest. This is a high quality team and fund that we have acquired and it has delivered superior returns in the past. It will be our endeavour to not only maintain the returns and serve the investors as was done in the past but also enhance it, as we integrate both the organisations.

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