As part of the new arrangement, the Aditya Birla group has bought out the 40 per cent stake of the Capital group in Birla Capital International AMC, the joint venture mutual fund floated by both the parties. Sun Life will buy 50 per cent stake in the mutual fund which has a corpus of nearly Rs 1,000 crore.

The memorandum of understanding between Sun Life and the Birla group provides for the establishment of joint ventures in a broad range of financial services, including asset management and the setting up of a dedicated distribution system. The AV Birla group has decided to build its financial services business across the full range of services in the retail segment and chose tohave a single foreign partner as against its earlier intent to have foreign partners in each area of activity.

``As the only business of the Capital group and its associate companies is asset management, the Birla group offered to buy out the Capital group's 40 per cent stake in the mutual fund,'' the Birlas explained, giving reasons for the split.

``Given the competitive market scenario and to optimise synergy and reduce potential business conflicts arising out of the original plan, the group has chosen Sun Life for an across the board relationship in financial services,'' the Birlas said in a statement here.

The activities of the Capital group companies as foreign institutional investor (FII) in India are unaffected by this development, a statement issued by the group said. The Capital group is one of the largest FIIs operating in India.

Sun Life and the AV Birla group has also decided that they will jointly participate in the life insurance business when regulations permit participation by privatecompanies. Sun Life, which commenced business in 1871, has total assets under management of Canadian dollar 220 billion. With mutual fund assets of Cdn $ 116 billion, Sun Life has the largest global fund business of any Canadian financial services company.