What is the fate of my investment if mutual fund company goes into liquidation

Mutual funds are run by asset management companies (AMCs) that earn their income through asset management fees that is charged on the value of your units. Mutual funds manage a pool of money subscribed by the investors in return for a percentage fee. The money invested in the schemes of a mutual fund always belongs to the investors at all times and is not mingled with the capital or other funds of the AMC.

All mutual funds have to register with SEBI before they launch any scheme. The mutual fund houses are set up in the form of a registered trust by the sponsors and it ensures that the sponsor of the mutual funds does not have direct access to any transactions. The trust are headed and run by a board of trustees with majority of them being independent directors, who seek or suppose to act in the interest of the investors only. As per SEBI guideline, two third of the directors of the trustee company must be independent directors and they should not be associated with the sponsors. While trustees work for the benefit of the unit holders (i.e. investors of the scheme), AMCs manages the schemes (post approval from SEBI) in various securities based on the fund mandate. Then, there are custodians who hold the securities of various schemes in its custody.

AMCs do not act or transact like investment bankers or stock brokers and their only earning is management fee which they earn as percentage of the total amount managed in a scheme.

Investment and fund management process of mutual funds are also very transparent in a sense that portfolio of the schemes are disclosed once every month along with returns on various parameters, total units held by the fund, total assets under management, number of unit holders and break-up of the entire investments across various securities and asset classes (These are commonly available on the monthly fact sheet). Not only that, mutual funds are subject to regular audits by SEBI and all asset management companies are required to show returns to the public according to the SEBI prescribed format, at the end of each quarter.

Therefore, chances of a mutual fund going in liquidation is very remote. However, in India or other parts of the globe, we have seen consolidation of mutual fund houses. It means a sponsor can sell the fund house to another player. In this case the sponsor informs the unit holders, post SEBI approval, and all the unit holders are given an opportunity to redeem their funds without any exit load otherwise the respective investments are transferred to the new asset management company who continue the management of the scheme based on the scheme mandate.

Hope the above helps you and answers your query.

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