An asset manager runs 38 mutual fund schemes. The top 10 hold 80% of assets, and 12 schemes are below Rs 200 crore with bottom-quartile performance, each costing Rs 1.2 crore a year to run. What would you merge or close, and how would you protect investors?

Merge the nine small schemes that have a stronger scheme in the same category, and wind up the three thematic ones only after offering investors a free switch. The twelve hold 2.6% of assets, earn about Rs 7.9 crore and cost Rs 14.4 crore, a Rs 6.5 crore yearly loss. Consolidating them improves profit by about Rs 12.8 crore. Investors get an exit window without load, a receiving scheme with the same or lower costs, and a plain explanation.

Because the cost of running a scheme is mostly fixed and the fee is a percentage of assets. A Rs 110 crore scheme earns about Rs 0.66 crore a year at 0.60%, but needs the same manager, compliance work, audit and reporting as one ten times its size. A restaurant chain with 38 outlets where 12 are half-empty is in the same place: each small outlet still needs a manager, a licence and a kitchen, and the busy outlets pay for them.

Merging a small scheme into a larger one in the same category removes nearly all of its running cost while most of its assets stay with the fund house. If a fifth of the Rs 1,320 crore leaves during the exit window, the fund house keeps about Rs 6.3 crore of fees at almost no extra cost, against a Rs 6.5 crore loss today: an improvement of about Rs 12.8 crore a year. Management attention is freed too, which matters as much as the money.

Ask one question per scheme: is there a scheme in the same category, with the same risk and a better record, that these investors could reasonably have chosen? If yes, merge, because investors keep their exposure without a sale; if no, close, but only after offering a free switch into the nearest alternative. Here that means merging nine and winding up the three thematic funds. Closing forces investors to redeem, which can trigger tax and leave them holding cash they did not ask for, so it is the second choice.

Five safeguards. An exit window at NAV with no exit load, because a merger changes what investors own. A receiving scheme with the same or lower expense ratio. A clear letter showing the new scheme's risk level, portfolio and costs side by side with the old. The receiving scheme's track record continues and the merged scheme's record is not blended in to flatter it. And tax neutrality: Indian tax law has allowed consolidation of similar schemes without a taxable sale, but whether each merger qualifies must be checked. In India a merger is treated as a change in a scheme's fundamental attributes, needing trustee approval and a regulatory process; confirm the current SEBI requirements before planning timelines.