The foreign fund chose to exit the business in India given that its assets under management at little over half a billion dollars (Rs 3,290 crore) were a fraction of the $360 billion that it either manages of supervises globally. Morgan Stanley would continue investing in India as a global fund.
Speaking to TOI, Deepakh Parekh, chairman, HDFC, said, "There are 44 mutual funds in India and there is a need for consolidation. We are the largest equity fund and Morgan Stanley has a substantial equity component and both decided it would be good match."
With the deal having been announced only today, the two parties have not decided on the number of employees that will be retained by HDFC. Sources said that Morgan Stanley was likely to retain some employees given its continued presence as an international investor.HDFC Mutual Fund is the largest in the country with assets of over Rs 1 lakh crore. Industry officials said that mutual fund sales have slowed down because of lack of confidence among retail investors and distribution problems faced by the industry. The total assets under management of the mutual fund industry are currently around Rs 9 lakh crore. Small AMCs are finding it tough because of high fixed costs in respect of having a separate trust company and an AMC besides facing a cap on distribution charges.
Markets regulator Sebi is taking a tough stance on launch of new schemes. Even when there is permission, launching a new scheme is an extremely expensive affair given the advertising and distribution costs. "This acquisition is another step towards expanding our mutual fund customer base. We look forward to welcoming the investors in the eight schemes of Morgan Stanley Mutual Fund into the HDFC family," said Milind Barve, MD, HDFC Mutual Fund.
Morgan Stanley, which was the first foreign fund house to launch an equity scheme in India, had come under criticism for its maiden equity scheme in 1994. The scheme had collected close to Rs 1,000 crore after distributors positioned the offering as an equity IPO.
During the issue, units were sold at a premium in the grey market and there were long queues at acceptance centres. However, the subsequent listing below par substantially damaged investor sentiment for mutual funds.
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