What will be the consequences of merger of the same type of mutual funds under SEBI's mandate?
It will not have a very significant consequence for investors. The merger will be applicable for only similar funds. Some of the funds will have the disadvantage of becoming very big. But that apart, there is no tax consequence because last year's budget made a provision that if your fund is getting merged then there will be no tax implication and it will be considered as an old investment. Earlier, the situation was that a fund merger amounted to redemption of the old investment and new investment being made into the merging fund. So if you were invested in a fund which is merging to another one then there was a tax consequence because if you are sitting on long term gains then it would suddenly got redeemed without you asking for it and then being invested in the new one. And then one had to again wait for 365 days to make it long term investment. Now that problem is not there. Every investor will also get a zero load exit option and the fund merger is fairly mechanical. You will get units of the new fund on the basis of a simple division. For example, if a fund's NAV is Rs 50 and the fund in which it is going to merge is Rs 100, then you will get one unit for the two units you are holding. It will be a simple division of the two values.
This article was originally published on January 04, 2018.
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