Widely read:
In order to reduce product duplication, Templeton Mutual Fund is merging Franklin India Vista Fund into Franklin India Prima Plus and FT India Index Nifty Fund into Franklin India Index Fund. This duplication arose when Franklin Templeton acquired Pioneer ITI Mutual Fund in March 2002, as both AMCs had some products with similar investment objective.
All unit holders of Vista and FT India Index Fund will automatically become investors of Prima Plus and Franklin India Index Fund respectively, at the prevailing NAVs as on March 26, 2004. The sales of the units of Franklin India Vista and FT India Index already stand suspended with effect from February 25, 2004. The effective date of merger is April 2, 2004.
Since Franklin India Index only has a Nifty plan, the AMC will introduce a BSE Sensex Plan under it. The BSE Sensex Plan will have two options: Dividend and Growth. The existing plan in Franklin India Index Fund will be termed as Franklin India Index-NSE Nifty Plan-Dividend Option. And a Growth option would also be introduced under the existing Franklin India Index Fund, which would be termed as Franklin India Index-NSE Nifty Plan-Growth Option.
Is Merger Necessary?
Duplication of funds is of little use to investors as well as the AMC. For AMCs, merging funds saves managerial time and organisational resources to merge schemes. For investors, this could mean a lower expense ratio due to the larger asset base.
However, our mutual fund industry has seen very few instances of such merger of schemes. In March 2003, UTI Mutual Fund merged its five Master Equity Plans (MEPs) into a single fund called Master Equity Plan Unit Scheme (MEPUS). All these funds had the similar investment objective-closed-end tax-planning equity funds. Another fund house, Principal is also planning to merge most of the Sun F&C schemes with the Principal funds, as Principal has bough the schemes of Sun F&C in August 2003. However, it is yet to come into effect due to some disagreement between both sponsors.
Merging schemes has been a common practice in the US. The biggest advantage of such mergers is that the history of the scheme being merged, becomes obsolete. Thus, if the fund is not doing well, the best way to overcome the poor performance is to merge it with a relatively better performing fund. However, this is not the reason for the merger of Templeton schemes. This has basically been done to reduce overlap and complexities in managing two similar types of funds.
Is Merger Beneficial Here?
Both mergers are good for the investors of Franklin India Vista and FT India Index Nifty Fund. The investor of FT India Index Fund would benefit from the lower tracking error. For instance, in two-year ending January 31, 2004, Franklin India Index Fund has a tracking error of 1.08 per cent, whereas that of the two plans of FT India Nifty Index Fund's were over 2 per cent.
And, as Franklin Index Prima Plus has an excellent long-term track record, Franklin India Vista investors would be better off after the merger. In the past five years, Prima Plus has given an annualised return of 33.51 per cent, against the Vista's return of 18 per cent in the same period. Though, Vista was initially launched as an equity-oriented hybrid fund, it has been investing only in equities for the last year.
Tax Angle
Post-merger, the investor who stays with the fund will be considered as having exited the earlier scheme and making fresh investments in the new scheme. Thus, they will have to pay a capital gains tax-long-term or short-term-depending on the duration of the investment. Thus, whether you stay or exit the existing fund, you will be liable for capital gains tax.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
