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Merger of mutual fund schemes

A merger of mutual fund schemes can be beneficial for both fund houses and investors

I have recently came across a news article which states that Birla Sun Life Mutual Fund is planning to merge some of its funds. For example, Birla Sun Life Buy India Fund would be merged with Birla Sun Life India GenNext Fund. How is the Net Asset Value (NAV) and portfolio holding would be impacted in such cases? What should be the strategy of an investor?
- Barat Pandey

A merger of mutual fund schemes can be beneficial for both fund houses and investors. It will help fund houses to avoid duplication and will help them in achieving economies of scale. For investors, this could mean a lower expense ratio due to the larger asset base. However, when a scheme is merged with another scheme, sometimes the fundamental characteristic of a scheme -- usually the smaller scheme -- can change. Investors should be careful about such implications. They should find out whether the fundamental attribute of the scheme their scheme is retained or changed after the merger. If there is a change, they should assess whether the new scheme meets their investment objective. If it doesn't meet the investment criteria, they should use the window of opportunity the fund houses usually provide to exit the scheme without any loads. After the last budget, such mergers are tax neutral for Investors.

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