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Fidelity opens load free exit window, what you should do? - Outside View by PersonalFN

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Fidelity opens load free exit window, what you should do?
Nov 1, 2012

Since the time Fidelity announced its decision to sell its Indian mutual fund business to L&T mutual fund, investors in the Fidelity scheme have been in a mixed frame of mind, as to what they should do with their investments in Fidelity schemes. The main concern was the change in entire equity fund management and the dull track record the new fund management was holding - especially with their existing equity assets, which then composed of just around 5.6% of their total Average AUM.

Many investors have however kept their patience during the transition phase, while the old fund managers smoothly and completely handing over the funds to the new fund managers.

In accordance to the Securities and Exchange Board of India's (SEBI) regulations, Fidelity Mutual Fund has now kept open a 30-day window from October 15, 2012 to allow unit holders (uncomfortable with the new fund management team) to redeem their holdings without any exit load. So given that, let us see what could be the prudent decision which you can take with your investment in Fidelity Mutual Fund.

Changes in AUM at respective fund house during the transition phase
  Average AUM
 (Rs in Crore) 31-Mar-12 30-Sep-12 % Change
Fidelity Mutual Fund 8,688 7,031 -19.1
L&T Mutual Fund 3,898 3,883 -0.4
Combined 12,586 10,914 -13.3
(Source: AMFI, PersonalFN Research)

The table above portrays a picture that investors seem have lost some confidence with their investments in Fidelity schemes, since Fidelity saw around 19% fall in its average Asset Under Management (AUM) over the past 6 months after its announcement of exit from India's mutual fund business. Therefore inward money flow stopped, and many investors were left to wonder as to what to do with their existing investments and were waiting for this load free exit window.

Changes in schemes wise AUM at Fidelity Mutual Fund
(Rs in Crore)   Scheme Corpus
Scheme Name   31-Mar-12 31-Aug-12 % Change
Fidelity Cash-Retail Liquid 234.7 265.7 13.2
Fidelity Equity Fund Div. Equity 3,314.80 2,711.90 -18.2
Fidelity Flexi Bond-Retail Income 28.3 24.2 -14.4
Fidelity Flexi Gilt G-Sec 37.2 41.4 11.4
Fidelity Global Real Assets Fund Equity - FoF 87.5 68.2 -22
Fidelity India Children's Plan-Education Fund Hybrid 19.1 22.2 16.1
Fidelity India Children's Plan-Marriage Fund Hybrid 25.1 29.7 18.2
Fidelity India Children's Plan-Saving Fund Debt 2.2 2.4 9.2
Fidelity India Growth Fund Div. Equity 325 261.3 -19.6
Fidelity India Special Situations Fund Div. Equity 685.9 631.3 -8
Fidelity India Value Fund Div. Equity 106.9 65.5 -38.7
Fidelity International Opportunities Fund Div. Equity 317.5 300.7 -5.3
Fidelity ST Income Fund Income 601.7 362.1 -39.8
Fidelity Tax Advantage Fund ELSS 1,199.30 1,153.40 -3.8
Fidelity Ultra ST Debt-Retail Liquid Plus 135.6 88.2 -34.9
Fidelity Wealth Builder-A Hybrid - FOF 16.2 12 -26.1
Fidelity Wealth Builder-B Hybrid - FOF 19.8 11.4 -42.3
Fidelity Wealth Builder-C Hybrid - FOF 29.3 24.2 -17.3
(Source: ACE MF, PersonalFN Research)

Scheme wise too, Fidelity saw most of its outflows in its equity schemes as well as debt schemes (as depicted by the table above). Over the 5 month period till 31st August 2012 the composite assets of its equity schemes depreciated by around 14%, debt schemes lost around 25% and the hybrid funds are down by around 9%. This has already raised question on the investors comfort with the new fund management.

What has been the impact of this outflow on the funds' portfolio?
Scheme Name 31-Mar-12 31-Aug-12
  Top 10 Holdings No of Stocks Avg. Exposure per stock Top 10 Holdings No of Stocks Avg. Exposure per stock
Fidelity Equity Fund 45.76 58 1.67 54.78 44 2.13
Fidelity India Growth Fund 50.7 49 1.96 55.5 40 2.33
Fidelity India Special Situations Fund 42.55 77 1.27 43.9 71 1.33
Fidelity India Value Fund 37.62 80 1.2 42 67 1.43
Fidelity International Opportunities 49.67 30 2.17 48.5 33 1.96
Fidelity Tax Advantage Fund 47.72 57 1.69 54.94 51 1.89
(Source: ACE MF, PersonalFN Research)

On closely monitoring the portfolio of equity schemes of Fidelity, it shows that the fund managers have felt some pressure of outflows which led them to cut some of their holdings in their schemes.

While the fund managers have tried to maintain their core holdings in each portfolio, they have reduced or even eliminated their exposure to some of the stocks, which the former fund management team held as diversification. The holdings in the flagship scheme 'Fidelity Equity Fund' has reduced from around 58 stocks in March 2012 to just 44 stocks in August 2012. The portfolio concentration and average exposure of stocks in the portfolio has also been increased over the past 5-6 months. The similar trend has also been noticed in other equity schemes of Fidelity Mutual Fund.

Therefore, it does make amply clear that the new fund management is slightly moving away from the strategy of over diversification for which Fidelity has been known for over the years.

Performance highlight of Fidelity Schemes over the transition period
Scheme Name   30/Mar/12 To 12/Oct/12 3 Months 6 Months 1 Year 3 Years 5 Years
Fidelity Equity Fund Div. Equity 6.47 8.01 6.31 9.22 8.66 5.31
Fidelity India Growth Fund Div. Equity 5.74 7.31 5.84 7.69 8.22 --
Fidelity India Special Situations Fund Div. Equity 10.55 8.44 10.32 18.78 9.96 5.08
Fidelity India Value Fund Div. Equity 8.36 8.85 8.02 15.24 -- --
Fidelity International Opportunities Div. Equity 9.28 7.94 9.25 14.62 8.93 4.95
Fidelity Tax Advantage Fund ELSS 6.79 8.07 6.67 9.23 9.2 6.12
Fidelity Global Real Assets Fund FOF 6.52 5.4 6.92 23.41 -- --
Fidelity Wealth Builder-A FOF 5.22 3.38 4.68 9.66 5.63 --
Fidelity Wealth Builder-B FOF 5.42 4.13 4.94 9.55 6.06 --
Fidelity Wealth Builder-C FOF 5.58 5.16 5.21 9.31 6.53 --
BSE-200   6.98 8.28 7.11 10.98 3.21 0.59
Fidelity Flexi Gilt G-Sec 4.3 2.11 3.51 9.32 4.32 --
Fidelity Flexi Bond-Ret Income 5.82 3.25 5.22 11.31 6.16 6.58
Fidelity ST Income Fund Income 5.59 2.71 5.02 9.64 -- --
Crisil Short Term Bond Fund Index   5.23 2.52 4.75 9.41 7.12 7.53
Fidelity Cash-Retail Liquid 4.84 2.05 4.46 9.03 6.92 6.87
Fidelity Ultra ST Debt-Retail Liquid Plus 5.06 2.17 4.54 9.06 7.21 7.2
Crisil Liquid Fund Index   4.39 1.92 4.04 8.66 6.87 6.93
(Source: ACE MF, PersonalFN Research)

The table above reveals that, funds from the stable of Fidelity have shown a mixed performance over the transition period. While some of the equity schemes have shown improvement in performance and managed to distinctly outperform the broader BSE 200 index, its flagship scheme - Fidelity Equity Fund (which has the largest AUM) has found itself slightly trailing its benchmark BSE 200. However we cannot ignore the fact that the old fund managers have still stayed with the equity funds over the past 6 months and have been closely working with the new fund management team, to smoothly handover the process which has helped them create a superior track record for themselves.

On the debt side, the performance of Fidelity schemes seems to have remained consistent. L&T mutual fund which already has 90% of its AUM in debt, and its fund management team which is known to manage it efficiently; may in future help improve the performance of debt schemes from the Fidelity stable.

L&T Mutual Fund proposes to merge, change name and features of Fidelity Schemes

In order to make the selection of fund easier for the investor, L&T Mutual Fund has proposed to merge some of its schemes with schemes from Fidelity MF. It will also change the fundamental attributes (features) of some of the existing schemes of L&T MF.

As per SEBI Regulations, the merger of a scheme with another scheme is considered to be change in fundamental attributes of the schemes concerned. And such a merger can be carried out only after the unit holders of the concerned schemes have been sent written communication, thereby providing them with an option to exit the scheme within a period of 30 days at the prevailing net asset value ("NAV") without being charged an exit load.

L&T Mutual Fund has proposed to make the following changes in the schemes w.e.f November 16, 2012
Scheme Name Merged Into New Name
Fidelity Cash Fund   L&T Cash Fund
Fidelity Equity Fund   L&T Equity Fund
Fidelity Flexi Bond Fund   L&T Flexi Bond Fund
Fidelity Flexi Gilt Fund L&T Gilt - Investment (Change in Fundamental Attributes) L&T Gilt Fund
Fidelity Fixed Maturity Plan - Series VI   L&T Fixed Maturity Plan - Series VI
Fidelity Global Real Assets Fund   L&T Global Real Assets Fund
Fidelity India Children's Plan-Education Fund   L&T India Prudence Fund
Fidelity India Children's Plan-Marriage Fund   L&T India Equity and Gold Fund
Fidelity India Children's Plan-Saving Fund Fidelity Short Term Income Fund L&T Short Term Income Fund
Fidelity India Special Situations Fund   L&T India Special Situations Fund
Fidelity International Opportunities Fund   L&T Indo Asia Fund
Fidelity Tax Advt Fund   L&T Tax Advantage Fund
Fidelity Ultra Short Term Debt   L&T Low Duration Fund
Fidelity Wealth Builder-A L&T MIP L&T Monthly Income Plan
Fidelity Wealth Builder-B And Fidelity Wealth Builder-C L&T MIP Wealth Bulider Fund (Change in Fundamental Attributes) L&T MIP - Wealth Builder Fund
L&T Contra Fund Fidelity India Value Fund L&T India Value Fund
L&T Hedged Equity Fund + L&T Opportunities Fund Fidelity India Growth Fund L&T India Large Cap Fund
L&T Select Inc-Flexi Debt-Ret Change in Fundamental Attributes L&T Income Opportunities Fund
L&T ST Debt Fund Change in Fundamental Attributes L&T Short Term Opportunities Fund

Note: Existing unit holders of L&T Mutual Fund scheme are also given an option to redeem their units or switch out to any other open ended schemes of L&T MF at applicable NAV without payment of exit load. The redemption window is available between October 15, 2012 and November 15, 2012 (both days inclusive)

The Fund Management Team at L&T Mutual Fund:

To strengthen its fund management L&T Mutual Fund has recently roped in Mr Soumendra Nath Lahiri to head the equity side, while Mr. Shriram Ramanathan has moved in from Fidelity Mutual Fund to head the fixed income side of L&T Mutual Fund.

Equity Fund management team

Mr. Soumendra Nath Lahiri is the Senior Vice President & Head - Equity at L&T Mutual Fund. Out of his 21 years of experience he has over 17 years in the Indian equity markets. Prior to joining L&T Investment Management Ltd he was Head of Equity at Canara Robeco Mutual Fund. In his previous assignments he has been associated Fortuna Capital and DSP Black Rock Mutual Fund.

Mr. Venugopal Manghat is the Co-Head - Equity Investments and has over 18 years of experience in the equity markets. He joined L&T MF in January 2012. He was earlier associated with Tata AMC for over 16 years.

Mr. Pankaj Gupta is the Senior Fund Manager - Equity and is holding around 10 years of experience. He has been associated with the fund house since September 2010. In the past, he has worked with SBI Funds Management, ICICI Bank Ltd., HDFC Bank Ltd., Evalueserve and UTI Mutual Fund .

Mr. Anant Deep Katare with over 14 years of experience has been associated with L&T MF as Equity Fund Manager since February 2007. His past association has been with UTI Securities Limited and SBI Capital Markets.

Debt fund management team

Mr. Shriram Ramanathan is the Head Fixed Income Investment since July 2012. He has over 12 years of experience on the fixed income side and had been associated with Fidelity since December 2009. In his previous assignments he had been associated with ING Investment Management Asia Pacific (Hong Kong), ING Investment Management (India) Private Limited, Zurich (India) Asset Management Company and ICICI Limited.

Ms Shobheta Manglik is the Fund Manager - Fixed Income at L&T MF and has over 10 years of experience in fixed income markets. Over the last 10 years she has worked with Reliance Capital, Fidelity AMC, Canara HSBC OBC Life Insurance Company Limited

Ms. Richa Sharma is the Fund Manager - Fixed Income at L&T MF and has over 8 years of experience in debt markets. She has been associated with L&T MF since March 2011. Her prior assignments have been with Sahara AMC, Sundaram AMC, Jet Airways, SBI DFHI Limited and The Hindu Business Line.

Mr. Hareshwar P Karekar is the Manager - Fixed Income at L&T MF and has over 10 years of experience in debt markets. He has been associated with L&T MF since June 2008 and has worked with Karvy Stock Broking, Dalal & Broacha Stock Broking and m/s V.S Corporation in the past.

With the decent corpus of around 10,900 crore and with the addition of well experienced fund managers to the team, L&T mutual fund might be well set to manage the investor money. And with equity team of Fidelity sharing the board for 6 months now, L&T mutual fund might have streamlined its investment processes to match the performance of its comrade.

However, to deal with your investments in Fidelity schemes, you need to have a proper strategy and clarity on your investment portfolio and objective.

So, what should be your strategy for your investments in Fidelity schemes (now L&T schemes)?

  • Prima facie when it comes to your investments, it is vital to think practically than emotionally

  • Many of you might have been holding your investments in Fidelity schemes for over 1 year now, and there might be many who are still to complete 1 year; in both case you will not have to bear exit load for utilising this exit window

  • For those who are not satisfied with the performance of their investments in Fidelity schemes or those who are yet uncomfortable with the new fund management team, may take their call of utilising this exit window to their advantage

  • Also investors holding their investment in Fidelity MF as well as L&T MF schemes which are undergoing merger and fundamental changes can take the opportunity to move out during this 30 days exit window (refer scheme change name table above)

  • However since the announcement of the change of hand, there has been no significant change in the performance of Fidelity schemes. All schemes have continued to show their decent moves and have not witness any significant upside of downside in the performance

  • While the new fund managers will now get complete control over the schemes and their chance to deliver on performance, it will be prudent to give them some time to deliver (may be another 6 months) for unchanged schemes and closely monitor the performance of the funds vis-a-vis their benchmark index

  • You may however not add or increase your exposure to Fidelity schemes at this stage

  • Also make sure that you are not overexposed to Fidelity schemes; we suggest your holdings in Fidelity schemes should not exceed 20% of your portfolio

  • In case you are overexposed then you can cut some exposure to other Fidelity schemes (especially in schemes that have been underperforming) and re-invest the proceed in a diversified equity scheme with a similar objective, that has consistent performance track record and is being managed by a fund house following strong investment systems and process

  • If you have invested in the tax saving fund of Fidelity (Fidelity Tax Advantage Fund), then you will not be able to exit until your statutory lock-in period of 3 years is complete

  • Also any capital gains that you make may be taxable as per the tax rules for mutual fund investments
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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