What HSBC’s acquisition of L&T MF means for investors

Here, we look at what this means for existing investors in both funds.

exit option

L&T Mutual Fund L&T Triple Ace Bond (Corporate), L&T India Value and L&T Emerging Businesses Fund (Small Cap) are the top assets in terms of assets, with 27 actively managed funds – 10 in Equity, 13 in Debt and four in Hybrid category . managed.

HSBC Mutual Fund is comparatively a small fund house, with eight schemes each in equity and debt category and two in hybrid. The fund house also has some fund of funds investing in foreign/domestic markets.

At present about 17 schemes are common in both the AMCs.

But following the scheme classification rules of SEBI, mutual funds can have only one open-ended scheme in each category.

Thus, once L&T MF is acquired by HSBC, the overlapping schemes of L&T will be merged with similar schemes in HSBC or vice versa, for which we do not have sufficient information at this time.

After that, a scheme of any fund house will cease to exist.

The investors of the scheme which is being merged, will be issued units of that scheme in which the former has been merged. Suppose, if L&T Flexi Fund is merged with HSBC FlexiCap, the units of the latter will be given to investors in the former.

But before that, investors will be informed of the proposed changes and will be given an option to exit the scheme at the current Net Asset Value (NAV) if they do not wish to continue with the new scheme.

Note that both the fund houses offer an ELSS (Equity-Linked Savings Scheme), or tax saving scheme that comes with a lock-in of three years. Those investing within the lock-in period may not have an exit option but may have the option to stick with the merged scheme.

how was his performance

For assessing performance, only equity and debt funds with NAV histories of five and three years are considered. And, whenever the return is referred to, read it as the average of the daily rolled returns for the said period.

According to data from Prime Investor, almost all equity funds, except L&T’s Business Cycle Fund and HSBC’s Infrastructure Fund, have better five-year returns than their benchmarks. However, the performance of both the AMCs in the respective category has not been impressive over the five-year period. With five-year returns of large, flexi, small and tax-saving schemes, HSBC funds lag behind average category returns by 20-180 basis points. Similar funds of L&T MF lagged behind their category returns by 70-210 basis points during the said period.

L&T Value and L&T Midcap Fund have been the only outperformers for AMCs in the equity segment in terms of five-year average rolling returns.

However, L&T MF registered a better decline than HSBC. We considered the minimum return metric from PrimeInvestor, which gives the minimum return generated over a chosen rolling period. This can be an indication of the fund’s ability to prevent downsides or losses.

For example, the minimum five-year rolling return for the last five years for L&T’s Infrastructure Fund has been -1.5%. But, it is 12.7% for HSBC funds in the same category.

In the debt category too, L&T Mutual Fund outperformed with returns higher than the category average over a period of three years.

What should investors do now?

Experts believe that investors from both the fund houses can wait to see how HSBC manages each fund post the merger.

Vishal Dhawan, CEO and Founder, Plan Ahead Wealth Advisors, said that the takeover transaction should not prompt an investor to do something on their own.

“Different perspectives may be taken on how these funds will be managed in future. It is too early to make any decision at this point of time. The right time would be six months after the integration process is completed.”

According to Dhawan, not just existing investments, even ongoing investments in these funds such as SIPs or STPs do not require a change in strategy based on the announcement of the merger.

Addressing the concerns of L&T MF investors as to how they will be invested after the acquisition by HSBC MF, Dhirendra Kumar, CEO, Value Research said, “L&T MF is a large fund house and I expect its fund managers to get a big boost. So, I don’t think there is anything to fear from the fund manager’s exit outlook.”

The cloud of uncertainty over the sale of L&T MF for the past few years is also finally gone and this is, again, a net positive for its MF investors,” concluded Kumar.

satya.sontanam@livemint.com