What Happens if a Mutual Fund Company Closes or is Sold? (2024)

FAQs

What Happens if a Mutual Fund Company Closes or is Sold? ›

You'll never lose your money just because the fund closed. Part of the reason is that the fund doesn't legally own your money. So they can't keep it in any case. Your money (i.e. the holdings of the fund) is held by a trust where the investor is the beneficiary.

In the case of a Mutual Fund company shutting down, either the trustees of the fund have to approach SEBI for approval to close or SEBI by itself can direct a fund to shut. In such cases, all investors are returned their funds based on the last available net asset value, before winding up.

Buying and selling mutual funds works a bit differently from buying and selling shares of stock or ETFs. When a mutual fund is sold, it is called a redemption. Mutual funds typically keep cash reserves to cover investor redemptions so they aren't forced to liquidate any portfolio holdings at inopportune times.

Because the ETF is a separate legal entity from the issuer that manages it, the ETF will control all the assets in its portfolio up until the date set for its liquidation, at which point the manager will sell the assets and distribute the proceeds to investors.

You generally can withdraw money from a mutual fund at any time without penalty. 7 However, if the mutual fund is held in a tax-advantaged account like an IRA, you may face early withdrawal penalties, depending on the type of account and your age at the time.

"Closed to new investors" is a term that means a fund has decided to stop allowing new investments from any investors who are not already invested in the fund. Mutual funds and hedge funds may choose to close to new investors for various reasons such as excessive inflows or to maintain exclusivity.

Inherent in all closed-end bond funds are market risk and credit risk. Market risk involves the potential impact of increasing interest rates, which could lead to a decrease in the value of the fund's bond holdings.

Closed-end funds can own a greater number of illiquid securities than mutual funds. This can influence the fund's NAV and its premium or discount. But typically, the bigger risk is closed-end funds' potential use of leverage (i.e., borrowed money).

A closed-end fund has a fixed number of shares offered by an investment company through an initial public offering. Open-end funds (which most of us think of when we think mutual funds) are offered through a fund company that sells shares directly to investors.

Money managers who have spent generations building businesses based on mutual funds contend they will survive and even thrive because investors like and understand the product. It also continues to have advantages in specific areas such as small company stocks and retirement savings.

What are the disadvantages of closed ended mutual funds? ›

Full withdrawal, also known as complete redemption, involves liquidating the entire investment in a mutual fund scheme. Investors choose full withdrawal when they need to access all their funds for various reasons such as major expenses, financial goals, or portfolio restructuring.

You may cancel your mutual fund SIPs offline by notifying your bank and the respective AMCs. You can also have your mutual fund agent do it for you. Request a SIP cancellation form from your asset management firm or through online Mutual Fund Registrar and Transfer websites such as CAMS and KFin Technologies Limited.

For a mutual fund to lose its value and become zero means that all the holdings in the portfolio must become zero or worthless. The probability of all the assets becoming zero is extremely low. It is quite possible that your investments are giving negative returns.

Typically, when a brokerage firm fails, the Securities Investor Protection Corporation (SIPC) arranges the transfer of the failed brokerage's accounts to a different securities brokerage firm. If the SIPC is unable to arrange the accounts' transfer, the failed firm is liquidated.