MF Tracker. A case of David buying out Goliath

On March 22, Edelweiss Asset Management announced the acquisition of JP Morgan’s India-based mutual fund business.

There has been a string of sales by foreign asset management companies which have struggled to gain traction in India.

Usually, larger fund houses have bought out their smaller rivals. The Edelweiss and JPMorgan deal, on the contrary, was the reverse — David buying out Goliath.

JPMorgan and Edelweiss closed February with AUMs of ₹6,725 crore and ₹1,635 crore, respectively.

The sale was possibly accelerated due to mounting concerns on two of JP Morgan’s debt funds. JPMorgan India Short Term Income Fund and JPMorgan India Treasury Fund, witnessed sharp erosion in their NAVs last year, due to large exposure to bonds of Amtek Auto that faced liquidity issues.

Edelweiss has nine India-focussed equity schemes. Its flagship Edelweiss Absolute Return Fund, beat its benchmark Crisil MIP Blended Index by 5 and 12 percentage points in 2013 and 2014. In 2015, though it posted sub-par performance.

Edelweiss EDGE Top 100 launched in May 2009 has fared well, beating its benchmark Nifty 50 by 5 percentage points over three and five years.

Out of seven, JPMorgan’s largest equity scheme JPMorgan India Mid & Small Cap Fund has managed to beat its benchmark Nifty Midcap 100 by 10 percentage points over three- and five-year time periods.

Near-term performance, though, has seen some divergence.

Even after the recent sell-off, JPMorgan debt corpus dwarfs Edelweiss’ by almost 50 times. The largest of its seven schemes — JPMorgan India Govt Securities Fund, had a disappointing run.

JPMorgan India Active Bond Fund – has trailed its benchmark CRISIL Composite Bond Fund Index by around 2 per cent in the years 2014 and 2015.

Only in 2013 it fared better, but not by much.

In early March 2016, Edelweiss announced merger of Edelweiss Short Term Income Fund with Edelweiss Bond Fund.

The record date is fixed as April 11, 2016. After this merger, it will be left with two debt-based schemes — Edelweiss Bond Fund and Edelweiss Liquid Fund, both of which have trailed their benchmarks.

After the deal gets the regulator’s approval, the window for redemption without loads will open for JPMorgan investors. The 2016 Budget extended capital gains tax exemption on merger of one scheme to another.