Axis AMC, founded in 2009 by Axis Bank, is ranked 15th in India's 44-player asset management business with around $2.3 billion (1.4 billion pounds) of assets under management. The purchase price has been kept confidential, a spokesman for Schroders said.
Lured by the long-term prospects seen in India, overseas fund managers such as U.S.-based T. Rowe Price Group Inc have been buying into Indian money managers.
Nippon Life Insurance in January agreed to pay $290 million for a 26 percent stake in the asset management unit of India's Reliance Capital Ltd , joining other foreign fund managers seeking to tap into the country's growing middle class.
Assets under management by Indian fund managers rose to 5.9 trillion rupees as of March 2011 from 2.3 trillion in March 2006, according to a study by PricewaterhouseCoopers.
"We are delighted to enter a long-term partnership with Axis Bank with the objective of building a leading Indian asset management business," Michael Dobson, chief executive of Schroders, said in a statement.
"This enables us to participate in the growth opportunity represented by the Indian mutual fund market through a strategic relationship with a leading private sector bank."
The transaction is subject to regulatory approval and is expected to complete during 2012.
Not known for frequent corporate acquisition activity, Schroders, which manages assets worth around 180 billion pounds ($291.4 billion), tends to enter new markets through joint ventures. In 2006, the 200-year old British fund firm bought a 30 percent stake in a fund management company run by China's Bank of Communications.
Schroders shares were trading around 2 percent higher at 1330 GMT at 1,448 pence, while the blue chip FTSE index <.FTSE> was up half a percent. ($1 = 0.6178 British pounds)
(Additional reporting by Swati Pandey in Mumbai; Editing by David Holmes)
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