Bank of India buys 51% in Bharti-AXA joint venture, returns to mutual fund business

India's fifth largest state-owned bank, Bank of India (BoI), will buy 51% stake in the mutual fund joint venture between telecom major Bharti Enterprises and AXA Investment Managers, a statement from the bank said.
This paves the way for Bank of India's re-entry into the 41-member-strong local mutual fund (MF) industry. BoI had shut its MF business in 2004.

BoI will buy Bharti's 25% stake and AXA's 26% stake in the in the asset management company. The deal brings down the Paris-headquartered AXA's stake in Bharti AXA Investment Managers to 49%.

Financial details of transaction wasn't disclosed, but an official familiar with the deal said BoI could have paid about 3% of Bharti AXA Investment's total assets under management of Rs 176 crore as on September 30. Total AUMs of the mutual fund industry was Rs 7.12 lakh crore as on September 30.

This values the deal at about Rs 5.3 crore. BoI will exclusively sell Bharti AXA Investment's products through its branch network, the person said, asking not to be named.

Bharti has been scouting for a buyer for its stake in the mutual fund venture for the past two years. The hunt for a prospective partner has largely been confined to banks, mainly state-owned, because their reach across the country would help the fund sell its schemes better.

Since the ban on entry load, or the fee that mutual funds used to charge investors to pay distributors, in August 2009, which have made distributors disinclined to market mutual fund schemes, banks have been in demand as partners for funds. In particular, small funds, which lack the network to market their equity schemes, are keen to tie up with banks.

Currently, most state-owned banks such as State Bank of India, Bank of Baroda and Canara Bank, which hold stakes in mutual fund ventures, own at least 49% in them.

Mutual fund industry officials said AMCs in emerging markets are usually valued at 4-6% of their assets. Recently, L&T Finance, the financial services arm of engineering major Larsen and Toubro, bought DBS Cholamandalam Asset Management for Rs 45 crore, valuing DBS at 1.55% of its total assets under management.

In June last year, Japan's Nomura bought a stake in LIC Mutual Fund for about 2.5% of fund's assets. In 2009, IDFC bought Standard Chartered Bank's asset management business for close to 5.7% of its assets.