IDBI mutual fund will soon be absorbed by LIC mutual fund, suggest news reports

6 Jul 2022 , 08:59 AM

After two failed attempts to locate a buyer for IDBI Mutual Fund, LIC Mutual Fund has begun the process of absorbing IDBI Mutual Fund in order to comply with regulatory requirements.

SEBI regulations required IDBI MF to be sold or merged with LIC MF because one promoter cannot own more than 10% of two mutual funds. In 2019, the promoter of LIC MF, Life Insurance Corp of India (LIC), acquired a majority share in IDBI Bank.

SEBI would be contacted by both parties to begin the procedure after the valuations are finished. According to news reports, the merger is anticipated to be finalized this quarter.

Following LIC’s acquisition of IDBI Bank, IDBI made two attempts to sell its mutual fund. A share purchase agreement was reached in November 2019 by Muthoot Finance, a non-banking finance firm located in Kerala, to buy IDBI MF for Rs215 crore. The Reserve Bank of India (RBI) did not approve the agreement, thus after waiting for almost a year, it failed.

The cash held by IDBI MF along with other assets was valued by Muthoot at Rs215 crores. The most recent agreement will reduce the company’s cash, which will be handed to IDBI Bank. 

According to SEBI regulations on scheme categorization, a fund house is only allowed to have one scheme in each category, and any duplicates must be combined. Thus, when there is no overlap in the plans, mergers are the ideal option for fund houses. In the Rs37.22 lakh crore mutual fund business, both are quite minor.

LIC MF is rated 22 out of 43 funds with assets of Rs17,195 crore, while IDBI MF is placed 30 with assets of Rs3,845 crore.

IDBI MF is a prominent player in the actively managed equity funds market, whilst LIC is more prevalent in the debt and passive equity products markets. The two share a few equity-related programs, including large-cap, large and midcap, tax saver, and flexi cap. The LIC portfolio does not include targeted, value, midcap, health care, or small-cap schemes, but IDBI MF does.