Thursday, September 18, 2008

Should investors be worried about Mutual Funds filing for Bankruptcy

With the current financial crisis in the US, a lot of us has questions about what happens to our investments in mutual funds if the MF files for bankruptcy. To understand the implications, I would like to quote an extract from the Workbook published by Association of Mutual Funds of India.

"A mutual fund in India is constituted in the form of a Public Trust created under the Indian Trusts Act, 1882. It should be understood that a mutual fund is just a pass-through vehicle. Under the Indian Trusts Act, the Trust or the Fund has no independent legal capacity itself, rather it is the Trustee or Trustees who have the legal capacity and therefore all acts in relation to the trust are taken on its behalf by the Trustees. The trustees hold the unit-holders money in fiduciary capacity, i.e., the money belongs to the unit holders and is entrusted to the fund for the purpose of investment. In legal parlance, the investors or the unit-holders are the beneficial owners of the investments held by the Trust, even as these investments are held in the name of the trustees on a day-to-day basis."

The investments being managed by the mutual fund does not belong to them hence no one can claim them except the unit holders who invested in the fund. Investors of mutual funds need not panic about their investments even if the mutual fund files for bankruptcy.

8 comments:

Anonymous said...

Hi Raj,

Very nice Interesting Article...

Thanks
Nikhil Shah

Its Uts said...

Hi Raj,

Liked the content of your blog.

Infact, we have a mutual friend in Rama who has talked a lot about you. He was the one to direct me to your blog.

I too have recently started blogging with an objective that is similar to yours. So here's hoping that we are able to add value to each ones quest. :)

Cheers!

Uts

Bad Credit - Simple said...

Raj,
Good to know...
I too have a few mutual funds but also have them in US too. Are the ones in the US treated the same as the ones in India?

Jankit Shah said...

This is really interesting and a good wiil factor to lower any tension in volatile market.

By the way, was there any bankruptcy filed by any MF? What actions were taken at that time?

Seenath Kumar said...

Really thanks for this information on mutual funds. This will really help investors to know more about mutual funds.

Anthony said...

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Mutual Fund said...

Thanks for such a nice piece of information.Would like to read more about types of mutual funds & other investment schemes.

ULIP said...

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