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WHEN the acquisition of Pioneer ITI Asset Management Company by Franklin Templeton India was announced, there was concern over its impact on the investment strategy of the schemes of Pioneer ITI. Franklin Templeton India and Pioneer ITI, however, countered such apprehensions with statements suggesting that the investment style of the funds will not change.

Even then, there was an indication that a few of the overlapping funds will undergo changes.

Such changes have now been outlined. Almost all of the changes appear justified. The merger of index funds, balanced funds and liquid funds are justified and may even be in the best interest of investors.

There is, however, an exception. The exception is the proposed merger of Franklin India Growth Fund and the former Pioneer ITI Prima Plus. Though their investment objectives are similar, the investment strategy of these funds has varied in the past and so has their performance.

There is, however, a rationale for the merger for Franklin Templeton India. The number of non-index, non-sectoral equity funds on offer from Franklin Templeton India has, because of the merger, increased from 2 to 5. Reducing the number of funds to 4 through such a merger can help reduce the costs of operation. It will also make product differentiation that much more easier.

But any such rationale is not readily apparent for investors in Prima Plus.

In fact, given the gulf in investment performance and characteristics of both the funds, it can be argued that a merger of these two schemes may not be in the best interests of investors in Prima Plus.

There is this argument that if investors are unhappy with the merger they can then exit as the funds are open-ended.

This is indeed a sound argument. However, not all investors may be able to evaluate the change.

For instance, they are unlikely to know the past performance record of Franklin India Growth Fund. Without such information, how informed their decision-making will be is a moot point.

SEBI should closely look at the broad issue of mergers of asset management companies. It is important that rules are put in place to govern these mergers, especially on disclosure of material information. That will allow investors to exercise their rights in an informed manner.

Suresh Krishnamurthy

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