Principal Mutual Fund has embarked upon a major scheme-merger exercise to reduce the duplication in its schemes that has resulted from its acquisition of Sun F&C's and PNB's schemes. The merger of PNB schemes will be effective from April 30, 2004 and those of Sun F&C from May 14, 2004.
Equity Schemes
Most acquired equity schemes will be merged into Principal Growth fund. These are PNB Equity Growth Fund '95 (EGF 95), PNB Equity Growth fund '96 (EGF 96), Sun F&C Value Fund and Sun F&C Emerging Tech Fund. While the latter two will be directly merged into Principal Growth, the other two will be changed into open-ended schemes before the merger as both are closed-end tax-planning funds. The merger of Sun F&C Emerging Tech into Principal Growth is interesting, as it merges a tech sectoral with an aggressive diversified equity fund. Says Sanjay Sachdev, CEO, Principal Mutual, "Principal as a fund manager doesn't believe in sector funds. We also think that investors would not mind being in an aggressive equity scheme rather than a technology fund." That is certainly true, given Emerging Tech's historically poor performance.
Balanced and Debt Funds
On April 30, PNB Balanced Growth will be merged into Principal Balanced Fund. Then, on May 14, 2004, Principal Balanced will be merged into Sun F&C Balanced, which eventually be renamed as Principal Balanced Fund. The three debt schemes of Sun F&C: Money Value Fund-Liquid Option, FISF (short-term) and FISF (medium-term) will be merged into Principal Cash Management - Liquid Option. The Sun F&C FISF (long-term) will be merger into Sun F&C Money Value - Bond and would eventually be renamed as Principal Money Value - Bond. The Monthly Income Plan (MIP) of Sun F&C will be merged with the Principal MIP.
Unmerged Funds
PNB Debt Fund will be renamed Principal Debt Fund without any change in its investment objective and features. Similarly, Sun F&C Personal Tax Saver will be renamed Principal Personal Tax Saver. However, while Sun F&C Resurgent India Equity will remain unmerged and be renamed Principal Resurgent India Equity Fund, its investment objective will be changed. Instead of investing in Indian companies, which represent turnaround, restructuring and acquisition-led growth opportunities, the fund will now invest in those companies that are perceived to be potential growth stories.
Merger of scheme is beneficial for both AMC and the investors. In the AMC's interest, this will help in avoiding duplication and will help the fund in achieving economies of scale. For investors, this could mean a lower expense ratio due to the larger asset base. However, every investor has an investment objective in mind before he or she chooses a fund. This gets diluted post merger as a merger forces you to make a choice: join the new scheme or exit the old one.
From the tax angle, post-merger, the investors of the merging scheme 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.
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.
