With the mutual fund industry going through another round of mergers, investors are grappling with the inevitable question, "should I stay invested or opt out?" The details of each merger are different, and there is no "one size fits all" approach.
We present a few tips which will help investors decide when they are faced with a merger scenario.
1. How does the new fund rank on systems and processes?
Some fund houses are known to follow procedures like putting a cap on the maximum investment that can be made in a given stock or rigidly adhering to its stated investment objective. Find out if schemes from the new fund house are managed using such policies. Alternately there are fund houses that are dominated by star fund managers and systems take a backseat; find out where the new fund house fits in.
This will help you ascertain if the new fund house's investment philosophy and management style match your investment style and risk-appetite.
2. How have schemes from the new fund performed?
Find out how funds similar to the one held by you have performed in the new fund house. For instance, if you are invested in a diversified equity fund, study the performance of corresponding schemes in the new fund house.
Scrutinise the funds not only on the conventional returns front, but also on the calendar year returns parameter. This will enable you to understand how the new fund house has performed across time horizons i.e. when markets experienced bull and bear phases.
3. How does the new fund score on expenses?
Expenses play a vital role in determining the investors' returns. Find out how the new fund ranks on the expenses parameter. The expense ratios of similar schemes in the new fund house should be a good indicator.
4. What alternative options are available to you?
Explore other options available to you, i.e. how does the new fund house rank vis-à-vis other peers. There can be funds that have delivered a better performance in comparison to the new fund, and could make a better fit in your portfolio; in such a situation liquidating your investments rather than opting for a merger would be the right choice.
5. Consult your investment advisor
Consult your investment advisor on what your future course of action should be. Investment advisors with their in-depth knowledge of various fund houses and schemes would be better equipped to advise you.
