Kotak Mutual Fund Merges Global Schemes: What Does It Mean?

Kotak Mutual Fund announced that it will merge its Kotak World Gold Fund and Kotak US Equity Fund into the Kotak Global Emerging Market (KGEM) fund, which focuses on investing in emerging markets. The merger will be effective from 26 February.

The 1-year performance of these three funds has been strong, however, their AUM (asset under management) varies greatly.

The Kotak World Gold Fund, which invests in stocks of gold mining companies indirectly, has delivered 25.65 percent 1-year returns as of 6 February and 6.30 percent returns since inception. Its AUM stands at Rs 49.6 crore.

Kotak US Equity Fund is a feeder to a fund that invest in American Equity and provided 1-year returns of 16.82 percent as of 6 February and 89.98 percent since inception. Its AUM, however, remains significantly low at Rs 13.38 crore.

The Kotak Global Emerging Market (KGEM) fund has Rs 34.2 crore AUM as of 6 February and has provided returns of 13.79 percent and 72.18 percent, for 1-year and since inception, respectively.

Experts says that funds with smaller AUMs are generally wound up or merged.

"The Gold and US equity funds are feeder funds into global funds. Their AUMs didn't scale up despite decent performance," said Nilesh Shah, CEO Kotak Mutual Fund, talking of reason for the merger.

"Both the global funds have increased lot size for investment as well as redemptions. Due to the smaller size of the Gold and US Equity Fund we would have to keep a reasonable portion of the funds in cash due to increased lot size, Maintaining higher cash balance will not be in accordance with the objective of the scheme," he added.

The merged fund differs in objectives from the individual schemes, therefore, investors may need to make changes to their portfolios.

As per Kotak MF's notice, investors can exit the scheme without paying exit load by 25 February 2020. On 26 February, those who hold units of KUEF and KWG will be allotted units of KGEM.