3.35.6.3 Fund Merger

This topic provides information on fund merger.

During execution, the corporate actions procedure picks up all mergers whose corporate action date is the same as the current date, and with status as Unprocessed or Error. Subsequently, the pre-processing checks are performed. In case of the merger ratio not being specified, the system derives the parent-child ratio based on the respective net asset values of the funds in the merger.

The merge procedure is then executed, which performs the actions as shown below, in the appropriate scenario:

• The system checks that the new fund is an authorized fund in the system, with no existing holdings.
• The fund rule of the new fund is amended.
• The par value of the resultant fund is changed to reflect the latest merger ratio values.
• Balances of all unit holders balances in the old fund, as of a date less than the action date, are picked up (this procedure is repeated for each of the underlying funds).
• Amount-based switch transactions are initiated for the unit holders (this procedure is repeated for each of the underlying funds).
• Any unexecuted limit orders for the unit holders in the old fund are marked as EXPIRED, and the limit status for underlying limit orders is marked as Ungenerated.
• The system checks if the standing instructions have to be updated. If you have chosen to Update SI, the system updates:
  • Changes existing instruction and policy details from the old fund to the resultant fund.
  • The old Fund ID with the resultant Fund ID.
  • The ratio for asset allocation.
• The system checks if the Income Distribution Setup has to be updated. If so, the system updates the IDS of the old Fund Id with the resultant Fund Id. If the option chosen for Restrict IDS for the Unit Holder is No for the resultant Fund Id, the update is carried out. Otherwise the IDS update is not carried out and an error message is logged.
• The corporate action is processed after checking the holiday rules, for all the funds.
• Subsequently, if any backdated transactions are entered with transaction date being earlier than the corporate action date, a message is shown, indicating that a corporate action has been processed within the period (this is done for limit orders and standing instructions too).

Note:

When units resulting from processing of a corporate action are redeemed, the computation of capital gains tax (CGT) in respect of them takes the corporate action into account.

In case of Fund Merger, the system will modify RSP and DRSP based on the preference set at Corporate Actions:

• The system will update all active RSP plans with old fund with the merge-into fund.
• The system will update all active DRSP plans with old fund with the merge-into fund, only if DRSP is allowed for the merge-into fund.
• The system will not modify RIS plans in case of fund merger.