Mutual funds are one of the most popular ways of investing nowadays. Those who cannot directly invest in the stock market put their money in mutual funds.
Recently, investments in mutual funds have increased tremendously, with thousands of crores being invested.
But what happens to the investors if the mutual fund company goes bankrupt or is sold? Have you ever thought about that? Should investors incur a loss if that happens? Let’s find out what the rules say.
Hard-earned money should be invested to generate good returns. There are multiple ways to invest, but not all offer high returns.
Traditional investment schemes provide fixed returns, while people seeking high returns quickly invest in the stock market. However, this comes with a higher risk. If you lack a proper understanding, you may incur losses.
Mutual funds are a boon for such people. Over the years, mutual fund schemes have offered high returns, attracting lakhs of people due to the ease of investment. This optimistic outlook has led to crores of rupees being invested in mutual funds every month.
More and more people choose mutual funds to achieve their future goals, such as children’s education, marriage, homeownership, and financial stability.
Television advertisements also promote mutual funds, with cricket legends like Sachin Tendulkar and MS Dhoni endorsing them.
Mutual funds are suggested to offer higher returns compared to conventional investment schemes. Many people are investing in equity funds, with investments starting from Rs. 500 per month through a systematic investment plan.
While it’s fine to expect easy investment and high returns, have you considered what would happen if the mutual fund company or app we invest in goes bankrupt or closes down?
Those investing in mutual funds must be aware of this; otherwise, they may risk losing their money.
Any investor would consider the sale or closure of a mutual fund company a serious matter. However, it’s important to note that mutual funds are regulated by the Securities and Exchange Board of India (SEBI). In the event of bankruptcy, a specific procedure is in place, providing a safety net for investors.
Mutual fund companies are operated and managed as trusts by a few individuals. They do not hold investors’ funds; they are invested in shares and bonds of other companies.
In bankruptcy, the trustees are required to approach SEBI, which, depending on the circumstances, may order the closure. Investors may worry when such events occur.
Nevertheless, there is no need for concern, as the mutual fund’s net asset value (NAV), which represents the value of the fund’s assets minus its liabilities, will be returned to the investors from the sale proceeds at the fund rate, ensuring they receive a fair share of the remaining assets.
If another fund house takes over a mutual fund, there are two options. The existing schemes can be continued as is, which means the investor’s money will be managed by the new fund house or merged with the schemes of the acquiring fund house, subject to approval by SEBI.
The merger may lead to changes in the investment strategy or fund management, which investors should consider before making a decision.
Investors have the power to decide whether to continue with the merged schemes or not. If they choose not to, they can sell their investments at the current rate and receive their money, giving them control over their financial decisions.