Merging two mutual fund schemes means combining one mutual fund scheme into another so that investors hold units in just one scheme instead of two separate ones. This process helps simplify the management of funds, reduce costs, and often improve the overall performance of the merged fund. The goal is to make it easier for investors to manage their investments and help the mutual fund company run the funds more efficiently.
What is the process of merging two mutual fund schemes?
The process of merging two mutual fund schemes begins when the mutual fund company decides that combining the two schemes will benefit investors and improve management. They first inform all the investors about the plan and seek necessary approvals from SEBI, the regulator. After approval, the units held by investors in the scheme that will be merged are converted into units of the other scheme. This conversion is done based on the net asset value (NAV) of both schemes at the time of merger. Investors don’t have to pay any extra charges, and the old scheme stops existing after the merger is complete.
This process ensures that investors continue to stay invested without needing to sell and buy units themselves. The merged scheme typically has more assets under management, which can help reduce expenses and improve the fund's ability to perform well.
Why do mutual funds merge schemes?
Mutual funds merge schemes to reduce operational costs and avoid having many similar schemes in the market. When two schemes have overlapping goals or similar portfolios, merging them helps the fund manager focus on fewer funds but with larger investments. This can improve the fund's ability to invest wisely and reduce management fees, which benefits investors in the long run.
Sometimes, a scheme may have very low assets under management or low investor interest. Merging such schemes with better-performing ones helps protect investors’ money and improves the overall efficiency of the fund house.
How are unit holders affected by scheme merging?
Investors holding units in the scheme that is being merged will receive units in the new scheme based on the current value of their investment. This means there is no need to sell their holdings and reinvest. The process is automatic, and investors do not face any extra charges or exit loads due to the merger.
Also, there are generally no immediate tax implications for investors during the merger. They continue to stay invested, but now in a different scheme, which may have a slightly different portfolio and performance. It is important for investors to read the merger details provided by the fund house to understand the new scheme’s objectives.
What approvals are needed for merging schemes?
Before merging schemes, the mutual fund company must get approval from SEBI, the market regulator in India. SEBI reviews the merger proposal to protect investor interests and ensure transparency. The fund house also sends a detailed notice to investors explaining the reasons, terms, and options available.
Investors are usually given a time period to exit the scheme if they do not want to stay invested after the merger. The approval and investor communication process ensures that the merger is done fairly and with proper consent.
How long does the merging process take?
The entire merging process usually takes several weeks. After the announcement and approval, investors are informed and given time to exit if they want. Once this period ends, the units of the scheme to be merged are converted to the new scheme’s units. The old scheme then stops operating, and the merged scheme begins managing the combined assets.
This time allows investors to make decisions and helps the fund company complete all technical and legal formalities smoothly without causing any sudden disruptions.
Can investors opt out of scheme merging?
Yes, investors can choose to exit from the scheme that is merging during the notice period without any exit load or penalty. This allows investors to redeem their units or switch to another scheme if they do not want to remain invested in the merged fund. After the exit period, the merger becomes final and all units are converted automatically.
It is important for investors to carefully read the communication from the mutual fund house so they can make informed decisions during this time.
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