Sahara India, the country's largest para-banking company, has signed a memorandum of understanding with the A C Muthiah group to acquire a majority stake in First India Asset Management Company.

The Muthiah group is the principal promoter of the mutual fund with equity participation from two overseas partners, Metropolitan Life Insurance Co of the United States and Investec Asset Management of the UK.

Armed with the memorandum of understanding, Sahara has begun a due diligence exercise to determine the price of the acquisition. It is expected to clinch the deal within a month.

Replying to a faxed questionnaire, Sahara's corporate communications chief Abhijit Sarkar confirmed that Sahara India Financial Corporation Ltd, the finance arm of the group, had signed the memorandum of understanding.

He said the company would approach the Securities & Exchange Board of India shortly. Business Standard sent the questionnaire to Sarkar on February 19.

Sebi approval is required for acquisition of a mutual fund. The acquirer is also required to divulge plans in detail to ensure that investors' interests are protected. Sebi normally takes 2-3 weeks to clear such acquisitions.

Sarkar, however, declined to comment on the price of the proposed acquisition. He said the price would be finalised after the due diligence. Even after the price is finalised, Sahara is not at liberty to disclose under an agreement with the Muthiah group.

Sarkar said the acquisition would lead to synergies because Sahara India had a big presence in para-banking. Sahara has 51 million investors.