After suffering their worst month ever, the Indian mutual fund industry sees consolidation Is this just a start?
It’s the season of mergers and takeovers given the prevaffing financial turmoil. However, mutual fund (mutual fund) investors need not worry as any change in the sponsor will not, in any way, affect their savings.
One such takeover is that of Lotus MF. Barely two years after setting up shop in India, it has been acquired by Religare Aegon MF Both mutual funds have signed the agreement and the deal now awaits the Securities and Exchange Board of India’s clearance.DESPERATE TIMES
After suffering its worst month ever, Indian mutual funds saw massive erosion in their assets under management (AUM). Lotus mutual fund was no different as it lost Rs 2,479 crore or 31 per cent of its corpus in October, from Rs 7,937 crore a month ago. However, sources say its sponsor Alexandra Fund Management, a subsidiary of Singapore’s Temasek Holdings, was keen to exit Lotus on account of the mayhem caused due to the global credit crisis and also the state of Lotus ME Sabre Capital was the other partner in this joint venture. In reality, the mutual fund has had problems right from its start. Even before it launched its first equity scheme, its former star fund manager, Sandip Sabharwal, exited when news reports of his alleged involvement in the Ketan Parikh stock market scam, when he was a fund manager at SBI mutual fund earlier, surfaced. Soon, another of its star managers, this time its former head of debt funds, Nandkumar Surti, also quit. There was much heartburn among the disgruntled staff and loyalists of these two fund managers and they soon followed suit.
The MF never recovered from its initial debacle. And though Tridib Pathak eventually came on board as Sabharwal’s replacement, he couldn’t recreate the magic. None of its schemes have yet turned three years old, but their performances tifi date has been sober. Meanwhile, Sabharwal has since joined JM Financial MI? and was a key factor in resurrecting the fund.
The mutual fund has yet not disclosed its complete October-end portfolio, but as per its September-end portfolio, only 7 per cent of its total AUM was in equities, the rest in debt and more than half of its AUM was in FMPs. Further, 32.55 per cent of its AUM was in liquid and liquid-plus schemes. Not only do debt, especially FMP schemes earn much less than equities, liquid schemes also see very short- term investors and no sticky money. That apart, Lotus Asset Management Company has been incurring losses- Rs 21.95 crore loss after tax as on 31 March 2008 and Rs 32.26 crore loss after tax as on 31 March 2007. For Religare Aegon though, it seems to be a decent catch. Even before the mutual fund has launched its first scheme (it got Sebi approval in September and has ified draft offer documents of a total of five schemes with Sebi for approval), Religare Aegon gets an instant access to 64 cities, where Lotus mutual fund already has a sales presence, and its branches across 38 cities. Religare Aegon has also acquired Lotus’s fund management team but it remains to be seen how many of the team come on board.
This latest acquisition may not be a one-off. At least three other mutual funds are rumored to be put on the block. One of these, say market sources, is a new entrant that has already cut salaries of its employees across the board by around 30 per cent.
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