UPDATE: Schroders Buys 25% Stake In Axis Bank's Mutual Fund Arm

International asset management and private banking group Schroders PLC (SDR.LN) said Friday it had reached a deal to buy a 25% stake in the asset management arm of India's Axis Bank Ltd. (532215.BY).

The deal between Schroder Singapore Holdings Private Ltd., a wholly-owned subsidiary of Schroders, and Axis Asset Management Co. is subject to regulatory approval and is likely to be completed in 2012, Schroders said in a filing to the London Stock Exchange.

It didn't disclose financial details of the agreement.

Axis AMC, which was founded in 2009, manages $2.3 billion worth of assets.

Schroders Chief Executive Michael Dobson said the deal would allow the two fund houses to distribute each other's products in their respective markets in the long term.

The tie-up comes at a time of anemic growth for India's mutual fund industry, which managed INR6.82 trillion (about $137 billion) in assets as of Dec. 31.

In 2009, India's capital-markets regulator scrapped the entry-load--a fee that asset management companies charged investors buying mutual fund units--and also directed fund houses to standardize exit-load charges.

Fund houses had used a major portion of the entry load to pay distributors' commissions. After the load was scrapped, distributors lost the incentive to sell funds, which has hampered sales of this popular category of equity funds.

Last month, Fidelity Worldwide Investment, an affiliate of U.S. money manager Fidelity Investments, sold its mutual fund business in India after making losses every year since it set up shop in 2004.

Still, the lure of capturing large household savings continues to attract foreign interest in the asset management segment, as nearly all privately owned general and life insurers--where 26% foreign ownership is allowed--have overseas partners. Global majors such as New York Life Insurance Co. and AXA Asia Pacific Holdings Ltd. have joint ventures in India.

In January, Japan's biggest life insurer, Nippon Life Insurance Co., said it will buy a 26% stake in Reliance Capital Asset Management Ltd. for INR14.5 billion.

-By Sudeep Jain, Dow Jones Newswires; 91 22 6145 6123; [e-mail]