IDFC Mutual Fund Acquisition - What Should Investors Do?

An association comprising the parent of Bandhan Bank – Bandhan Financial Holdings – a Singaporean sovereign wealth fund GIC, and a private equity firm – ChrysCapital – has stepped into a definitive agreement to acquire the mutual fund business of Infrastructure Development Finance Company (IDFC).

Led by Bandhan Financial Holdings, the consortium is about to take over IDFC Asset Management Company (IDFC AMC) and IDFC AMC trustee Company for approximately Rs. 4500 crores. In the entire mutual fund Industry, it is regarded as the biggest buyout so far. This deal is subject to receiving customary closing conditions and required regulatory approvals.

By selling the mutual fund business, IDFC aims to streamline the corporate structure and offer value to shareholders. The approval for initiating the divest of mutual fund business was given back on September 17, 2021, by the board of IDFC and IDFC Financial Holding.

Understanding the Standpoint of IDFC AMC

Established back in 2000, the IDFC AMC has more than Rs. 1,15,000 crores of AUM as of March 31, 2022, for more than 1.5 million investor folios that represent leading corporates, institutes, individual clients and family offices. Thus, it is the 9th largest mutual fund house in the country. It handles almost 40 open-ended schemes that have been spread across debt and equity categories.

Remarkably, IDFC AMC has made its mark with the debt schemes by Investing in qualitative and liquid securities. In the 2020-21 financial year, the fund house stood at a profit after tax of Rs. 144 crores in comparison to Rs. 79.4 crores FY 20.

Brief from IDFC Ltd. Press Release

As per the press release put forth by IDFC Ltd., this agreement envisions permanency of the current investment processes and management team at IDFC AMC, which will assist unitholders to gain advantage from consistency in the high-quality investment approach that IDFC has been following all these years.

Furthermore, it has been stated that the brands of Bandhan, GIC and ChrysCapital will bring in their experience and international network to help IDFC AMC in strengthening its position in the industry and prospering further.

As per Karni S Arha, the Managing Director of Bandhan Financial Holdings, this acquisition is going to provide them with a scaled-up asset management platform with an outstanding management team and a pan India distribution network.

What’s for the fund house?

IDFC MF will get to take advantage of this distribution muscle of a bank to grow the asset base. While it comes under the top-10 fund houses, as far as the asset size is concerned, there were times when the growth of assets was muted.

Bandhan Bank, headquartered in Kolkata, has more than 1100 branches altogether. In the eastern part of India, it relishes a large presence. However, over a period of time, it has expanded to other areas of the country as well.

In FY 2020-21, the mutual fund assets that this bank managed stood at Rs. 324 crores. To date, this bank has successfully managed to sell a variety of schemes of an array of Mutual Funds with:

• Mirae Mutual Fund
• Axis Mutual Fund
• Kotak Mutual Fund
• Aditya Birla Sun Life Mutual Fund
• SBI Mutual Fund
• Nippon India Mutual Fund
• UTI Mutual Fund
• icici mutual fund
• HDFC Mutual Fund

In the coming future, it will be fascinating to see the number of mutual fund schemes the bank continues to distribute once the acquisition of IDFC Mutual Fund has been completed.

What’s for IDFC Mutual Fund’s Investors?

Over the past few years, the mutual fund industry has experienced a variety of acquisitions and mergers. While some mergers resulted in changed investment strategies, others remained steady throughout the period.

However, as far as IDFC mutual fund is concerned, there will be no changes in the investment objective of the schemes, considering that the company isn’t an AMC. Thus, for IDFC mutual fund investors, there is no reason to get stressed; hence, it’s better if they don’t act on their Portfolio right away.

That being said, it is still recommended that you be wary of any significant changes in the investment objectives, investment strategy or key personnel once the new management has taken over. In case you discover that any change isn’t aligning with your risk profile or investment objectives, you can look out for alternatives.