Fidelity’s Indian mutual fund business has been sold to L&T AMC (Asset Management Company). Investors in Fidelity’s equity schemes will now have a new fund manager as Fidelity has retained its equity team. The question all investors will ask is whether to stay invested in the equity schemes of Fidelity or to exit on the change in fund managers? The answer to the question of staying invested or exiting lies in the five following questions.
1. How will the change in fund manager affect my investments?
A change in fund manager especially when it is brought about by a change in management will have its consequences. The investment philosophy of the fund manager will be different, infrastructure set up will change and investment objectives may differ. The changes will have a bearing on the performance of the fund. If you had invested in Fidelity on the basis of their investment philosophy, infrastructure and investment objectives, you should do the same due diligence on the new fund manager if you want to stay invested.
2. Can the new fund manager cope with higher fund size?
Fidelity’s largest equity fund has over Rs 3000 crores of Assets Under Management while L&T mutual fund’s equity scheme sizes are less than Rs 100 crores. The new fund manager will have to scale up quickly on its capabilities in handling larger fund sizes and while the scaling up happens, the performance of the fund may come under stress.
3. Will the transition be smooth?
The fact that Fidelity is retaining its equity team makes the handing over process all the more important. Investors and distributors alike get used to a certain style of management and once that style of management is going to change due to a change in ownership, there is a cause for concern. Ideally it would have been better for L&T mutual fund to have taken in Fidelity’s equity team as well, but it is not so and hence investors and distributors will have to monitor the transition process closely to check for any disruptions in the way the funds are being managed by the new fund manger.
4. What will my distributor tell me ?
The distributor who initially sold you Fidelity funds will have to resell the fund under the new management to you. You will have to question if there is any change in the analysis of the distributor in reselling the fund to you or if he is advising you to stay invested on the basis of commissions paid by the new owner.
5. Will the brand deliver performance?
L&T is a strong brand in India but its strength is from its construction and engineering business and not in its fund management business. Fidelity is a world renowned fund manager and yet it found the going tough in India. Hence brands by itself will not deliver performance. You should not expect L&T the brand to deliver performance. Performance will be driven by the people L&T puts in place to manage the funds. You should monitor who is managing you investments and how it is being managed rather than just decide to give L&T the mandate to manage your investments.
In the current environment of tough equity markets where India’s benchmark indices the Sensex and Nifty are still negative from highs seen in late 2007, delivering performance on equity funds is extremely tough. Markets are against asset managers and only the committed will survive. L&T mutual fund has committed itself to navigating the tough market conditions by buying out Fidelity’s assets but that commitment has to be backed by sound fund management with adequate investment infrastructure. It is too early to predict how L&T will perform in the coming years. If L&T mutual fund shows more concern for the investor rather than just building assets, one can safely say they are on the right path to deliver performance.