This MF merger can be profitable for you!

If you invest in mutual funds, keep in mind that mutual fund companies send you emails or SMS about changes related to the scheme. Whether it’s the launch of a new scheme by the mutual fund company, a risk associated with it, information related to expense ratio, or a change in rules, all this information is shared with investors.

If you are a mutual fund investor, take them seriously. Read such emails or SMS very carefully to assess the information  given.

Suppose the mutual fund company sends you an email saying, “The board of XYZ AMC has approved the proposal to merge Scheme-XYZ Mid Cap Fund with Scheme-XYZ Small Cap Fund.” Some investors get anxious after reading such emails and start redeeming their investments in panic. However, you do not need to fear the news of a merger.

First, you need to understand what a merger of mutual fund schemes is  and, what should investors do?

Under the merger of mutual funds,  the mutual fund scheme is merged into an existing scheme of the company. Sometimes, two schemes are merged to create a new scheme. During this time, investors should keep in mind that the merger can also bring changes to the investment objectives, expense ratios, risk profiles, and tax fronts of the mutual fund scheme.

For example, recently, Aditya Birla Sun Life Mutual Fund mereged Aditya Birla Sun Life CRISIL IBX AAA March 2024 Index Fund into Aditya Birla Sun Life Corporate Bond Fund.

All recent mergers of mutual fund schemes will be effective from April 2, 2024. However, after the merger, the names and other features of the existing schemes will not change and there will be no adverse impact on unit holders.

But why do mutual fund schemes merge?

Mutual fund houses merge mutual fund schemes for several reasons. Some of the major reasons are reducing management costs, simplifying a scheme, enhancing portfolio management, and streamlining scheme operations.

The merger of mutual fund schemes brings changes to the fundamental features of the scheme. It also affects the investor’s portfolio with the merger of plans…

Mutual fund houses should provide investors with information about mergers, asset allocation, scheme objectives, tax implications, and other related information in writing through email and SMS. If you receive a message related to a merger from any mutual fund company, there is no need to panic. According to market regulator SEBI’s rules, mutual fund houses should provide investors with an opportunity to exit their investment without any exit load. In some cases, companies levy some charges on exiting the scheme, which are called exit loads.

According to SEBI’s rules, it is mandatory for fund houses to provide a minimum 30-day exit load-free window. During this time, investors can submit their consent form to express their decision.

During this time, keep in mind that  those who cannot provide consent within the specified time limit, their units will be redeemed at the net asset value of that day. Those existing investors who had consented to the merger can continue their investments in their schemes.

The advice of Jai Shah, founder and CEO of Finwisor, is that “investors should pay attention to some changes such as the objectives of the new scheme, fee structure, and tax implications. Also, keep an eye on the track record of fund managers. If investors do not want to invest in the merged scheme, they can also redeem it within 30 days. No exit load is applicable in such cases.”

What should investors do during a merger:

Read the objectives of the merger carefully in the circular. Research about  tax implications, it can affect your portfolio. Check the expense ratio, which is the cost of investing. Stay updated on the fund house’s new announcements. Check the track record of the fund manager. Find out if the objectives of the new scheme are in line with your financial goals.

However, while investing in mutual funds carries market risks, investors should keep an eye on it in case of a merger of mutual fund schemes. Because investors have only 30 days to make a decision on their investment. After the merger of mutual fund schemes, if investors decide to sell their mutual fund scheme, they may have to pay capital gains tax.

However, in most cases, there is no need to worry. By researching and analysing, investors can easily understand their profit-loss. If there is any confusion or uncertainty in understanding the merger of mutual fund schemes, seek help from your financial advisor.