Kotak MF merges FMP into Corporate Bond Fund | Economic Times

Kotak Mutual Fund has decided to merge Kotak FMP Series 246 into Kotak Corporate Bond Fund. The fund house has sent a letter to the investors informing them about the decision. The merger shall be effective on November 22, 2021. Investors who are not in agreement of the merger can opt out and exit from the FMP on the maturity date.“Investors of the Merging scheme will continue to stay invested in debt assets thereby potentially adding to their holding period returns as also continuing to enjoy the indexation benefit till the time you decide to redeem. Rather than locking in your investments in another close-ended debt fund with similar attributes, enjoy the liquidity of an open-ended fund," the fund house said in the notice sent to investors.Since both the schemes- Kotak FMP Series 246 into Kotak Corporate Bond Fund - will be going through a change in fundamental attributes, the fund house has kept an exit window of one month for both the funds. Investors of both these schemes can exit the funds between October 20th and November 18th without any exit load. All the exit applications from Kotak Corporate Bond Fund will be allotted the NAV of the day. Exit applications from the FMP will be allotted NAV Of November 22nd- the maturity date. The average maturity of Kotak Corporate Bond Fund has been hovering between 2.74 years and 2 years in the last 12 months. Exit load is not applicable in Kotak Corporate Bond Fund. Kotak Corporate Bond Fund has been a decent performer in the past. The scheme has beaten its benchmark in 1, 3 and 5- year periods. Since inception, the scheme has offered 8.62% returns and manages assets worth Rs 10,541 crore.However, should you or should you not stay with this merger is a question that has different answers for different investors. "Kotak Corporate Bond is a very capable debt fund, with a stellar track record. The current debt papers in Kotak Corporate Bond are extremely high quality (around 95 % in Sovereign/ AAA/ equivalent). However, if an investor wants to exit, they have to give instructions for the same. This is where I believe they are being slightly shortchanged. You entered into a product with an auto- maturity option and that’s the way it should have been. I also hope that this does not become a precedent. If one needs the money over the next 1 year, it's best to redeem it now and invest in any liquid fund. However, if you have a minimum 2-3-year investment horizon, Kotak Corporate Bond won’t be a bad option," says Subir Jha, Founder, Buckspeak, a money management firm based in Hyderabad. Jha believes that the merger is a move to keep the assets with the fund house. "From an investor’s point of view, if one goes for the merger, he/she gets the tax ‘advantage’. The transaction won’t be treated as redemption and therefore won’t attract any long-term capital gains tax (one should consult a tax expert for final computation)," says Jha.