Why Did HDFC Mutual Fund Acquire Morgan Stanley?
Mutual funds have become a popular investment option for serious investors in India these days. For this reason, it does not come as a surprise that HDFC Mutual Fund Rs 3,000 crore to acquire Morgan Stanley Mutual Fund.
The strategic move made by HDFC Mutual Fund is to stay at the top of their game. This article explores all the details that investors need to know about this acquisition.
About Morgan Stanley Mutual Fund
Morgan Stanley prides itself as the first international player in the mutual fund sector in India and was incorporated in the year 1993. The investment company was operational till 2014 when it was acquired by HDFC Asset Management.
The company was de-registered by Securities Exchange Board of India the same year. The value of the merger was estimated to be about Rs 3,000 crores.
Why Did HDFC Acquire Morgan Stanley Mutual Fund?
HDFC Asset Management is known as one of the top companies in the investment sector and acquiring Morgan Stanley Mutual Fund was a move made to acquire 3% of the market share. The 3% might not look as much but in the competitive marketplace of asset management this was a masterstroke by the company.
As a part of the takeover, the schemes were offered by Morgan Stanley Mutual Fund are now being offered by HDFC Mutual Fund. The list of original schemes and the revised schemes are as follows:
[if !supportLists]· [endif]Morgan Stanley Growth is now HDFC Large Cap
[if !supportLists]· [endif]Morgan Stanley Liquid Fund is now HDFC Liquid
[if !supportLists]· [endif]Morgan Stanley Gilt is now HDFC Bonds Inflation Indexed
[if !supportLists]· [endif]Morgan Stanley A.C.E is now HDFC Small and Mid Cap
[if !supportLists]· [endif]Morgan Stanley Multi Asset is now HDFC Dynamic PE Ratio FOFs
[if !supportLists]· [endif]Morgan Stanley Short Term Bond is now HDFC Short Term Bond
Why Did HDFC Acquire Morgan Stanley Mutual Fund for Small Market Share?
HDFC acquired Morgan Stanley Mutual Fund for a seemingly small market share but it was the best way that they could acquire new clients in the competitive market space. In a similar move, Fidelity Mutual Fund sold all assets to L&T Mutual Fund and Daiwa Mutual Fund sold all assets to SBI Mutual Fund.
Similarly, this is a trend that has been found where companies are deemed unviable for business and sells its stakes to bigger players. In this way, the Morgan Stanley, like Fidelity and Daiwa, were able to full out of the competition without becoming bankrupt or being at a complete loss.
The reasons that caused various Mutual Fund companies to sell their stakes can be attributed to marketing flawed products sold with flawed marketing methods that would cost a lot of money to acquire new investors.
Which of Morgan Stanley Mutual Fund Scheme Were Profitable?
Out of the many mutual fund schemes offered by Morgan Stanley Mutual Fund only three of them had a corpus fund of more than Rs 50 crore. The Equity scheme was popular with only Rs 68 crore corpus fund while Morgan Stanley Liquid Fund and Morgan Stanley Short-Term Ultra Fund recorded just over Rs 50 crore in the corpus fund.
The fact that only three schemes were doing well, suggests that the investment firm was struggling to increase the existing corpus. Also, a few years earlier the company attempted to increase the funds raised by offering more options to investors that was not able to attract new clients.
What Strategy Did HDFC Mutual Fund Have in Mind While Acquiring Morgan Stanley?
HDFC Mutual Fund between an estimated Rs 150 to Rs 170 crore to Morgan Stanley Mutual Fund to gain 4.5 to 5% of the total assets of the company. This worked out as a cheaper alternative than paying 6% to the distribution schemes to acquire and retain new clients.
Investment companies paid high commissions to distributors to gain more traction with investors and promote the various schemes they have on offer. However, the ban in 2009 on entry load really set back the business a few years since all incentives for selling mutual funds were killed.
Despite the margins for distributers being low, they were able to build up on existing client base that drove the mutual fund sector forward in full steam. Despite the fact that mutual fund companies were unable to increase commissions they paid out of pocket to gain more ground in the market space.
As a result, the market has remained flat and volatile over the last few years and the companies that had deleted fund corpuses decided to close their doors. Selling the business was the most viable option for most unviable businesses and this is precisely what Morgan Stanley Mutual Fund did.
Is this a Good Move by HDFC Mutual Fund?
HDFC being a key market player in the investment sector has made the most of the slowdown that has almost put many companies out of business. Also, by acquiring Morgan Stanley the company has been able to create a larger foothold in the business and increasing its market share.
HDFC Mutual Fund has made the most of the current market scenario and has been able to capitalize on the benefits that Morgan Stanley Mutual Fund leveraged.