Whenever you buy anything, you see the reliability of the brand before selecting it. You make sure that the brand will provide good after-sales services. The same is the case with mutual funds. If you invest your money, you want to ensure the company sticks around for good returns. But at times, mutual fund companies shut down for various reasons. This article will help you understand what to do when something like this happens to a mutual fund company you have invested in.
Is Mutual Fund Safe?
Everything comes with its pro and cons. Mutual funds are considered safe investments, but there are certain things that you need to keep in mind, such as:
- For investors who would prefer to have complete control over their investment, mutual funds are not the best option because the fund house manages them.
- Rules and regulations may cause many funds to provide diluted returns, reducing prospective earnings.
- Security in terms of the entity or company holding your investment running away with your money.
What If A Mutual Fund Company Shuts down?
There are certain reasons why a mutual fund company might run away and shut down, but if you are aware of the situation beforehand, then you can safely take your money out. Let’s look at the reasons why mutual fund companies might shut down:
- Mutual Fund Closing Due to Exit From Business– One of the most frequent causes for a mutual fund to stop trading is the decision to leave the mutual fund industry. Several domestic and foreign asset management firms have established operations in India. Yet, a lot of them have decided to leave the mutual fund sector and eventually sold their companies.
- Shutting of Mutual Fund Because Of Merger Of Funds– A mutual fund may occasionally combine two of its own schemes for a specific reason. For example, when new regulations went into view in 2018, several such mergers took place. The Securities and Exchange Board of India (SEBI) announced new regulations for mutual funds in October 2017, which became effective in April 2018. These regulations required mutual fund companies to merge or close down schemes that had similar investment objectives, resulting in several mutual fund mergers in India in 2018.
Risks In Mutual Funds
- Market Risk: It is often referred to as systematic risk. This risk has an impact on the entire stock market. Things like investment cycles can bring it on, government policies, introducing new acts by the RBI, the pandemic like COVID-19, or any global financial crisis.
- Unsystematic Risk: This danger only affects a specific stock or industry because of its financial obligations, management, or other things. However, mutual funds seek to reduce unsystematic risk. Actively managed funds may still carry some of this risk.
- Liquidity Risk: This may occur if the fund manager cannot sell the underlying securities of the scheme when necessary.
Even though investing in mutual funds is considered very safe, considering the safety risks before investing in any company is important. To use the safest Indian Trading platform, try Shoonya. Download the App to use some advanced trading features and enjoy your profit growth journey.