HDFC buys Morgan Stanley MF schemes: All you need to know about the deal

HDFC Mutual Fund on Monday acquired its smaller rival Morgan Stanley Mutual Fund running a total of eight schemes with assets worth Rs 3,290 crore, in a major consolidation exercise in the highly-dispersed sector. All you need to know about the deal.

FP Staff December 24, 2013 13:04:33 IST
HDFC buys Morgan Stanley MF schemes: All you need to know about the deal

HDFC Mutual Fund, the country's largest fund house with assets under management of more than Rs 1 lakh crore, on Monday acquired its smaller rival Morgan Stanley Mutual Fund running a total of eight schemes with assets worth Rs 3,290 crore, in a major consolidation exercise in the highly-dispersed sector.

The deal comes at a time when market regulator Securities and Exchange Board of India (Sebi) has been favouring a consolidation in the mutual fund sector which has been going through tough times for many months amid difficulties on distribution side and waning investor interest.

Here are a few facts you need to know about the deal:

Moragn Stanley is the second global major to exit India's crowded and barely profitable mutual fund industry after the deal. Fidelity, which sold its business to L&T in March 2012, was the first.

HDFC buys Morgan Stanley MF schemes All you need to know about the deal

Deepak Parekh. Reuters

Morgan was the first global fund to launch a mutual fund in India in 1994 after liberalisation but its performance in the country has been rather lacklustre.

HDFC Mutual Fund (MF), with assets of Rs 1.03 lakh crore, agreed to buy all eight schemes of Morgan Stanley with combined assets of Rs 3,290 crore . The Economic Times reports that the purchase is expected to help the fund to widen its gap with Reliance Mutual Fund, the second biggest fund house in the country, and consolidate its position at the top of the industry. Reliance has assets worth Rs 93,249 crore.

Announcing the agreement, HDFC Asset Management Company Managing Director Milind Barve said: "The agreement is subject to regulatory approvals as required. The average combined assets under management of the eight schemes for quarter ended September 30, 2013 was Rs 3,290 crore."

HDFC is believed to have paid 150-170 crore for the transaction which is around 4.5 - 5% of Morgan's assets.

Deepakh Parekh, chairman, HDFC, told CNBC-TV18 in an interview that there is a need for consolidation in the mutual fund space in India. "We are the largest equity fund and Morgan Stanley has a substantial equity component and both decided it would be a good match.We were approached by Morgan Stanley for this deal," he said.

Both the companies have not decided on the number of employees that will be retained by HDFC MF. However,TheTimes of Indiareportsthat Morgan Stanley was likely to retain some employees given its continued presence as an international investor.

The US-based financial services giant Morgan Stanley got Sebi's registration to run mutual fund business in India 20-years ago in 1993. It launched its first scheme in 1994.

There are over 45 fund houses in the country, but Sebi Chairman UK Sinha has said there is a case for consolidation in the industry due to presence of some non-serious players.According to an estimate, mutual funds have lost over 20 lakh investors, measured in terms of individual accounts or folios, in the first seven months of the current fiscal (2013-14). Asof end-November, total AUM of mutual funds in India stood at Rs 8.9 lakh crore as against Rs 7.01 lakh crore as on March 31, 2013.

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