What are the repercussions of the HDFC and HDFC Bank merger on mutual fund investors?
The merger of HDFC and HDFC Bank may result in certain sell-offs from mutual funds. Continue reading to learn more.
On Monday, HDFC Bank and HDFC confirmed a merger. However, this may cause a sell-off in a few mutual funds. Why would mutual funds want to sell? This is because mutual funds cannot invest more than 10% of their assets in a single stock. Index funds, Exchange Traded Funds (ETFs), and sectoral funds are exceptions to this rule. So, have a look at the list of funds where the allocation to the HDFC twins is greater than 10 per cent.
|
Fund Name
|
% of AUM HDFC Bank
|
% of AUM HDFC
|
Collective % of AUM
|
|
HDFC Housing Opp Fund
|
9.22
|
7.57
|
16.79
|
|
Motilal Oswal Focused 25 Fund
|
8.69
|
7.66
|
16.35
|
|
Indiabulls Blue Chip Fund
|
8.81
|
6.93
|
15.74
|
|
IDBI Focused 30 Equity Fund
|
8.21
|
6.01
|
14.22
|
|
Quantum Long Term Equity Value Fund
|
6.13
|
7.76
|
13.89
|
|
Quantum Tax Saving Fund
|
6.09
|
7.6
|
13.69
|
|
Sundaram Large Cap Fund
|
7.92
|
5.36
|
13.28
|
|
Mahindra Manulife Large Cap Pragati Yojana
|
7.82
|
5.29
|
13.11
|
|
ICICI Pru Bluechip Fund
|
7.69
|
5.26
|
12.95
|
|
Tata Equity P/E Fund
|
7.73
|
5.06
|
12.79
|
|
Motilal Oswal Flexi Cap Fund
|
7.21
|
5.28
|
12.49
|
|
SBI Retirement Benefit Fund-Aggressive Plan
|
7.35
|
4.99
|
12.34
|
|
Sundaram Services Fund
|
7.57
|
4.66
|
12.23
|
|
Nippon India Large Cap Fund
|
7.76
|
4.44
|
12.20
|
|
IDFC Large Cap Fund
|
7.83
|
4.34
|
12.17
|
|
SBI BlueChip Fund
|
8.25
|
3.74
|
11.99
|
|
ICICI Pru Retirement Fund-Pure Equity Plan
|
8.27
|
3.7
|
11.97
|
|
SBI Tax advantage Fund
|
6.75
|
5.03
|
11.78
|
|
Baroda Large Cap Fund
|
7.48
|
4.29
|
11.77
|
|
HDFC Top 100 Fund
|
7.19
|
4.55
|
11.74
|
|
Baroda BNP Paribas ELSS Fund
|
9.23
|
2.36
|
11.59
|
|
Baroda BNP Paribas Large Cap Fund
|
7.76
|
3.7
|
11.46
|
|
SBI Magnum Equity ESG Fund
|
5.20
|
6.25
|
11.45
|
|
JM Large Cap Fund
|
7.16
|
4.21
|
11.37
|
|
HSBC Large Cap Equity Fund
|
8.99
|
2.35
|
11.34
|
|
Indiabulls Equity Hybrid Fund
|
5.98
|
5.16
|
11.14
|
|
Aditya Birla SL Business Cycle Fund
|
8.54
|
2.59
|
11.13
|
|
Nippon India Tax Saver (ELSS) Fund
|
7.54
|
3.49
|
11.03
|
|
UTI Mastershare
|
7.18
|
3.84
|
11.02
|
|
Aditya Birla SL Intl. Equity Fund-B
|
6.83
|
4.17
|
11.00
|
|
Canara Rob Bluechip Equity Fund
|
8.03
|
2.95
|
10.98
|
|
IDBI India Top 100 Equity Fund
|
7.26
|
3.64
|
10.90
|
|
Nippon India Quant Fund
|
6.43
|
4.4
|
10.83
|
|
Baroda BNP Paribas Business Cycle Fund
|
5.94
|
4.81
|
10.75
|
|
ICICI Pru ESG Fund
|
5.96
|
4.77
|
10.73
|
|
UTI Equity Savings Fund
|
3.40
|
7.32
|
10.72
|
|
Aditya Birla SL Focused Equity Fund
|
8.05
|
2.65
|
10.70
|
|
Taurus Largecap Equity Fund
|
4.59
|
5.97
|
10.56
|
|
Shriram Hybrid Equity Fund
|
5.79
|
4.68
|
10.47
|
|
Axis Bluechip Fund
|
7.11
|
3.01
|
10.12
|
|
SBI Retirement Benefit Fund-Aggressive Hybrid Plan
|
6.19
|
3.93
|
10.12
|
As seen in the table above, there are around 42 funds with allocations larger than 10 per cent. This means that these funds' portfolios would need to be realigned to comply with the capping. Will this, however, have an impact on investors? Let us investigate.
Effect of the HDFC-HDFC Bank merger on MF investors
Based on the Assets Under Management (AUM) as of February 2022, the total probable sell-off from the above-mentioned mutual funds would be Rs 3,408 crore. And HDFC Bank's post-merger market value will be approximately Rs 14 lakh crore. As a result, with such a big market capitalization, absorbing the sell-off from mutual funds will be very easy. As a result, investors in HDFC Bank stocks should not be concerned about the mutual fund sell-off.
However, in terms of the impact on mutual fund investors, the post-merger allocation in the index would be roughly 14 per cent. Index funds, ETFs, focused funds, and some of the less diversified Large-Cap funds might see their portfolio concentration grow as a result. As a result, investors with a low to moderate risk tolerance may consider investing in diversified equities funds such as flexi-cap funds rather than index funds.