HDFC Mutual Fund acquired its smaller rival Morgan Stanley Mutual Fund running a total of eight schemes with assets worth Rs 3,290 crore, in a major consolidation exercise in the highly-dispersed sector.

The deal comes at a time when market regulator Sebi has been favouring a consolidation in the mutual fund sector which has been going through tough times for many months amid difficulties on distribution side and waning investor interest.

Announcing the agreement on Monday, HDFC Asset Management Company Managing Director Milind Barve said: “The agreement is subject to regulatory approvals as required. The average combined assets under management of the eight schemes for quarter ended September 30, 2013 was Rs 3,290 crore.”

“We have signed a definitive agreement to acquire all the eight schemes of Morgan Stanley Mutual Fund in India,” he said on Monday.

However, HDFC Mutual Fund did not disclose the deal size.

The deal will help in increasing customer base of HDFC Mutual Fund. HDFC Mutual Fund, country’s already largest fund house, has Assets Under Management (AUM) of well above Rs one lakh crore.

The US-based financial services giant Morgan Stanley got Sebi’s registration to run mutual fund business in India 20-years ago in 1993, while first scheme was launched in 1994.

At the end of 30th November, total AUM of mutual funds rose to Rs 8.9 lakh crore from Rs 7.01 lakh crore as on 31st March 2013.

There are over 45 fund houses in the country, but Sebi Chairman UK Sinha has been saying that there is a case for consolidation in the asset management industry due to presence of some non-serious players.

According to an estimate, mutual funds have lost over 20 lakh investors, measured in terms of individual accounts or folios, in the first seven months of the current fiscal (2013-14).

Folios are numbers designated to individual investor accounts, although one investor can have multiple folios.