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Fund names change for a variety of reasons. Mutual funds could change their name under some very specific circumstances like when the ownership pattern changes. This typically happens when an original partner’s stake is bought out by the domestic promoters. We saw DSP Blackrock change its name back to DSP Mutual Fund after it bought out the stake of Blackrock. Then we have situations where the fund name changes because the particular business group chooses to sell out.
For example, Kothari Pioneer was bought out by Templeton, Fidelity by L&T Mutual Fund, Alliance Mutual Fund by Birla AMC and the list can go on. This will obviously lead to a name change, although the essential structure of the fund might remain the same. Thirdly, there could be a change in the name due to a change in the essential focus of the fund. For example, a diversified fund may reposition itself as an index fund or a diversified fund may choose to become a sector fund. In this case, you have to be very clear that you are comfortable with the fundamental shifts in the nature and objective of the fund. Finally, there is a change in fund name that is a pure statutory requirement as per the new norms for mutual fund classification. How should you approach each of these cases?
Many foreign funds came into India with expectations of rapid growth in mutual funds. They typically found the going tough without any appropriate retail reach or the advantages of a bancassurance model. Not finding the going too lucrative, many large global players like Merrill Lynch, Morgan Stanley, Goldman Sachs, Fidelity, Deutsche and even JPM have opted out of the Indian mutual funds market. This is not a substantial difference to the structure of the scheme. Unless you are really uncomfortable with the domestic group, you can continue.
In the last 25 years many funds have sold out and exited the AMC business altogether. These include names like Goldman Sachs, Morgan Stanley, JP Morgan, Deutsche etc. Much earlier, we saw the likes of Alliance, Zurich and Fidelity sell out of the funds business altogether. This is again not a major cause worry if the buyout is done by an Indian group that can provide stability and a concerted strategy. You do not have to be in a hurry to sell out in such circumstances.
This is a slightly more serious case and requires immediate attention from your side. For example, if a diversified equity fund repositions itself as a multi-cap fund then it means the inclusion of more mid caps which you may not be comfortable with. There are cases where diversified funds convert to index funds or index funds convert to diversified funds. If you are not comfortable with the return and risk profile shift, you can always opt to switch out of the fund. In such cases, you need to sit with your financial planner and work out the implications. For example, if you are holding on to an equity diversified fund for your retirement, then it will be sub-optimal if it converts into an index fund. The risk may be lower, but the returns will also be proportionately lower in this case. That could have a compounding effect on your long term goals. It is always better to consult with your advisor if it impacts your long term financial plan.
One of the essential things that the recent SEBI reclassification norms did was to make the names of the funds more in line with the actual intent and content of the fund. As a result, many funds had to restructure and rename their schemes accordingly. Let us look at two instances of balanced funds, to understand this point better. First, there is ICICI Prudential Balanced Fund, which changed its name to ICICI Prudential Equity & Debt Fund. However, the objective remained the same. From an investor’s perspective, this is not something that really requires specific attention. Secondly, HDFC Prudence Fund changed its name to HDFC Balanced Advantage Fund. But the real issue was that the essential strategy changed. From being a traditional balanced fund with 40-75% in equities, the focus shifted to becoming a dynamic allocation fund where both equity and debt could range from 0% to 100%.
As an investor you are now shifting from a more passive allocation to active allocation. You need to sit with your advisor and work out if this is in sync with your long term goals. Remember, that when schemes get merged or bought out, there are no tax implications. However, when you exit due to a shift in strategy, then it is considered to be a sale and has STT and tax implications. You need to make your call accordingly.
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