How is our money safe in a Mutual Fund in India?

Mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI), which is responsible for ensuring the protection of investors’ interests. The following measures are in place to ensure the safety of your money in a mutual fund:

1. Segregated portfolios

Mutual funds in India have the option of creating segregated portfolios (also known as side-pocketing) in case of a default by a company in which the fund has invested. This helps ensure that the default doesn’t impact the entire fund and that investors who have not invested in that particular company are not impacted.

2. Asset Custodian

Mutual funds have to appoint a custodian who holds the securities on behalf of the fund. The custodian ensures that the assets of the mutual fund are held separately from those of the asset management company (AMC).

3. Independent trustees

Mutual funds have to appoint independent trustees who oversee the functioning of the fund and ensure that it is managed in the best interests of the investors.

4. Transparency

Mutual funds are required to disclose their investment portfolios regularly, which enables investors to monitor their investments and ensure that the fund is investing in line with their expectations.

5. Fund Manager Qualifications

The fund managers of mutual funds in India are required to have certain qualifications and experience, as per SEBI regulations, to manage the fund in a professional manner.

6. SEBI Regulations

SEBI has laid down several regulations for mutual funds in India to ensure the safety of investors’ money. These regulations cover areas such as investment limits, disclosure requirements, and the valuation of securities.

Overall, these measures help ensure that your money is safe in a mutual fund in India. However, it’s important to note that mutual fund investments are subject to market risks, and there is no guarantee of returns. It’s always advisable to consult with a financial advisor before making any investment decisions.


What to do if a Mutual Fund Company runs away with your money?

You have a question in mind if the fund company runs away with your money. So yes it can happen, in that case, you can take legal action against the mutual fund company.

In the unlikely event that a mutual fund company runs away with investors’ money, there are measures in place to protect investors:

1. SEBI’s Investor Protection Fund (IPF)

SEBI has established an IPF that acts as a safety net for investors. In case of any fraudulent activities by a mutual fund company, the IPF can provide compensation to affected investors.

2. Insurance Coverage

Mutual funds also take insurance coverage to protect investors against potential risks such as theft, fraud, etc.

3. Legal Recourse

Investors can take legal recourse against the mutual fund company and seek compensation through the court system. The investors can approach SEBI, which is the regulator for mutual funds in India, and lodge a complaint against the company.

It’s important to note that such events are rare and usually do not happen in the mutual fund industry in India. However, it’s always advisable to invest in mutual funds that are managed by reputable and established companies and to regularly monitor your investments to ensure that they are performing as per your expectations.

It is a significant topic to discuss as nowadays a lot of people invest a lot of money in mutual funds. It is considered to be safer to invest in mutual funds than trading in the share market. So, first of all, what do you think about the safety of your money in a Mutual Fund? Write it down in the comment box below.

All funds are under the regulations of the SEBI (Securities & Exchange Board of India). SEBI is a government regulatory body that is established in 1992.

Our money is safe in mutual funds as long as it is from a reputed company and follows all the guidelines. In case of any default, SEBI is there for the protection of our rights.

Before moving further let us know the regulations set by SEBI.

Some Regulations For Mutual Funds

SEBI has some regulations for mutual fund companies that are set by the regulations act of 1996. These regulations are amended from time to time as per requirement.

In this act, SEBI first mentioned all the important terms in Mutual Funds and explained them like Asset Management Company, Closed Ended Scheme, etc. All points mentioned below are as per the Regulations Act 1996.

  • For getting the certificate of registration the sponsor should have a sound track record and a good reputation in the last five years.
  • Appointment of trustees should be as per the act. No trustee shall be appointed without the prior approval of the board.
  • The sponsor, director, or any other officer selected by the mutual fund should not be guilty of fraud or not be convicted of an offense.
  • All the transactions shall be as per the regulations.
  • No scheme of an asset management company can be launched without the approval of trustees and filed to the board.
  • The offer document shall not use be contain any misleading statements.
  • No guaranteed return is provided until it is ensured by the trustee, asset management company, and mentioned in the offer document.
  • The net asset value of the scheme is calculated by dividing the net asset by the number of units outstanding.
  • If a mutual fund company or asset management company defaults then SEBI can close it. All the money of investors is returned as per the last net asset value.

These are a few points to know in detail you can check the official page in detail.

Note: To know in detail you can directly go to the SEBI’s official page.

There is a very rare chance of defaults as SEBI checks and controls all the AMCs closely. Here in the above points sponsor means who is acting to establish a mutual fund and the trustee is who holds the property of the mutual fund in trust for its holders.

One thing you should always remember is that your money’s value increase and decreases as per the market conditions.

Important Points

  1. The SEBI approves new mutual funds as per the regulatory guidelines.
  2. It observes and controls all the operations of a mutual fund. It also audits and inspects funds to check their authenticity.
  3. SEBI has the power to take action against the violation of regulations and guidelines.
  4. An Asset Management Company or Mutual Fund Company has to follow the guidelines and regulations of the regulations act of 1996.

After seeing that I can say that your money is safe but it is subject to market risk as there are lots of ups and down in the market.

Leave a Comment

error: Content is protected !!