Is IDFC MF up for sale, and should it worry you as an investor?

The mutual fund business of IDFC is up for sale. That is the latest news in the asset management industry. Though the promoter has declined the report calling it 'speculative', the possible suitors according to the news report include big names such as Indusind Bank and CITIC CLSA. While IDFC is seen unlocking value for shareholders through the potential sale, the investors in IDFC schemes may be worried over the future of their investments.

Experts, however, says one need not get worked up, and jump the gun in a haste. “The buyer of the asset management business of IDFC is expected to be a big player and investors should wait and watch the developments as their interests are expected to be protected and further nurtured by the buyer of the business,” says Nishant Agarwal, Managing Partner & Head - Family Office, ASK Wealth Advisors.

For starters, this is not the first time a mutual fund business is getting sold. There are many such transactions that have taken place in the past. In fact, IDFC too acquired the asset management business of Standard Chartered AMC. There were big ticket transactions seen such as global major Fidelity selling out its asset management business to L&T in March 2012.

In such a buyout deal the buyer is keen to build the business further. IDFC AMC manages assets worth Rs 71000 crore. “IDFC is no small player in the industry. The new owner will take necessary steps to enhance the value offering for the investors in IDFC MF schemes,” says Agarwal.

Investors must keep track of the news flow but avoid acting on it just because of the possibility of a sale. Exiting the fund in a hurry may mean shelling out tax on the realised capital gains, and loss of value on account of applicable exit loads, if any.

“The buyers in this deal are important. If the buyer does not have asset management business in India, then there is a high possibility that the entire team is retained by the buyer,” points out Kiran Telang, co-founder and director of Mumbai based Dhanayush Capital Advisors. If the existing team is going to manage the business, then there is a high chance that the business may not see much changes. Things however are different, if the business is acquired another mutual fund. In such a situation, the fund management team may change, the investment strategies may changes and schemes may merge.

As the news report suggests, the contenders for the asset management business do not have a full-fledged asset management business in India.

“Let the deal go through. See if there is a material change in the way the money is managed. Take a decision to sell out if and only if you think your investment needs may not be served in the new set up or you are not comfortable with the new promoter,” says Telang.

If and when the deal goes through, the regulator ensures the investors’ interests are not compromised. As it is a change in the fundamental attribute of the scheme, the investors are given an exit window of one month. In this exit window the investors may opt to log out without paying an exit load. However, the tax liability will still be applicable on such a sell. Locked-in units of tax saving schemes cannot be sold.