Vanguard, Nippon India and Axis Bank in race for Idfc mutual funds: report

The race for IDFC Ltd’s mutual fund business is heating up as leaders have begun to emerge from the 15 entities vying to buy the business. In the lead is legendary asset management firm Vanguard Group while Nippon Life India Asset Management and Axis Asset Management are also in the running, Mint reported. 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 strong competitor. About 15 entities, including foreign asset management firms, financial services firms and private equity funds, have expressed interest in buying IDFC Mutual Fund. But the bidding process is still ongoing. Once bids are opened, IDFC will review and shortlist the buyer,” one of the people familiar with the discussions told Mint.

Vanguard, which was founded by John Bogle, pioneered low-cost investing through its S&P 500-based index funds. The company held more than $8.5 trillion in assets at the end of 2021.

IDFC plans to shed its asset management companies (AMCs) to consolidate its business under the IDFC First Bank banner and focus on banking operations.

The exact value of the sale will be determined by the allocation of assets under IDFC Mutual Funds, profitability, network, distribution strength and financial capacity of its parent financial institution. Typically, AMCs have a higher valuation when their share of equity in debt is high, as this directly affects profitability.

“Even though IDFC Mutual Fund‘s debt portfolio is larger than its equity assets, exposure is entirely in AAA-rated paper, which is why inflows into its debt programs have steadily increased following the IL&FS crisis. In the equity portfolio, even though the equity mix is ​​low across the portfolio, the 1-3 year returns on equity are around 100%.This is why IDFC expects that 7 to 10% of assets under management constitute a fair valuation for the activity of the asset management company,” added the person familiar with the discussions.

The average AUM of IDFC Mutual Fund for the previous quarter stood at a total of Rs 1.25 lakh crore. Out of this amount, about Rs 90,891 crore is in debt-based schemes and Rs 30,257 crore in equity schemes. The rest is in exchange-traded funds, according to data from the Association of Mutual Funds in India (AMFI).

(Edited by : Thomas Abraham)

Dolores W. Simon