The race for the mutual fund business of IDFC Ltd is heating up as frontrunners have started emerging from the 15 entities vying to purchase the business. On the top is the legendary asset management company Vanguard Group while Nippon Life India Asset Management and Axis Asset Management are also in the running, reported Mint. The potential deal for IDFC's mutual fund business could be worth between Rs 7,000 crore and Rs 10,000 crore.
“Vanguard is a top contender. About 15 entities, including foreign asset management companies, financial services firms, and private equity funds, have shown interest in buying IDFC Mutual Fund. But the bidding process is still on. Once the bids are opened, IDFC will examine and shortlist the buyer," one of the people aware of the discussions told Mint.
Vanguard, which was founded by John Bogle, pioneered low-cost investment through its S&P 500-based index funds. The company held over $8.5 trillion in assets at the end of 2021.
IDFC is planning to shed its asset management companies (AMCs) to consolidate its businesses under the IDFC First Bank banner and to focus on banking operations.
The exact value of the sale will be determined by the break-up of assets under IDFC Mutual Funds, profitability, network, distribution strength, and financial capability of its parent financial institution. Generally, AMCs carry bigger valuation when their share of equity to debt is high, as that directly affects profitability.
"Even though IDFC Mutual Fund’s debt portfolio is bigger than its equity assets, the exposure is entirely in AAA-rated papers, which is why inflows to its debt schemes steadily increased after the IL&FS crisis. In the equity portfolio, even though the mix of equity schemes is low in the overall portfolio, the 1-3 year returns from the equity schemes are about 100 percent. That’s why IDFC is expecting 7-10 percent of the assets under management as a fair valuation for the asset management company business,” the person close to the discussions added.
IDFC Mutual Fund’s average AUM for the previous quarter stood at a total of Rs 1.25 lakh crore. Of this about Rs 90,891 crore is in debt-oriented schemes and Rs 30,257 crore in equity schemes. The remainder are in exchange-traded funds, according to data from the Association of Mutual Funds in India (AMFI).
