Your money is safe even if mutual fund is bought by another
The money that your AMC collects in a MF scheme lies in a trust
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Isn’t it worrying to invest in a mutual fund (MF) scheme only to find out a few months later that your fund house has been acquired by another one? When this happens, you have to ascertain if you still wish to continue with the new fund house. Many investors also wonder what happens to their money if a fund house decides to sell out.
In September 2014, Kotak Asset Management Co. Ltd acquired the schemes of PineBridge Investments Asset Management Co. Ltd. In May, Birla Sun Life Asset Management Co. Ltd acquired the schemes of ING Investment Management (India) Pvt. Ltd. And in December 2013, HDFC Asset Management Co. Ltd acquired the schemes of Morgan Stanley Investment Management Co. Ltd.
WHERE IS MY MONEY?
As per the guidelines laid down by the capital market regulator, Securities and Exchange Board of India (Sebi), there is a four-tier structure to a mutual fund set-up. The sponsor company (the first layer) is supposed to set an asset management company (AMC; the second layer) that would manage your money. The AMC is set up under the Indian Companies Act, 1956. The AMC will then launch MF schemes and solicit your money under them.
Here’s where the beauty of the Indian MF structure lies. The money that your AMC collects in a MF scheme lies in a trust that is set up under the Indian Trusts Act, 1882. This is the third layer. The fourth layer is the custodian who keeps custody of securities that your MF invests in. Take the case HDFC Asset Management Co Ltd. The sponsor is Housing Development Finance Corp. Ltd (HDFC). The AMC, which employs fund managers and the staff who manage investor’s money, is HDFC AMC. Your money—part of schemes launched by the fund house—lies in a trust called HDFC Mutual Fund. A board of trustees of HDFC Trustee Co. Ltd manages this trust. Neither the fund managers, nor the AMC’s chief executive officer nor any other HDFC AMC official, are allowed to be on the trustee board. Instead, the trustees are independent officials who are supposed to be renowned individuals from various others fields.
CAN MY MONEY BE SWINDLED?
The answer is no. The reason why your AMC can’t swindle—or run away—with your money is that the mutual fund is a trust. The trust’s beneficiaries are the investors. So, if a trust has to be dissolved, for whatever reason, the money must be given back to the investors, as per the law.
The trustees have the fiduciary responsibility to ensure that the money is properly taken care of by the fund managers. All the major decisions taken by a fund house are supposed to be approved by the trustees.
When an acquiring fund house takes over the schemes of another fund house, what it has actually acquired is the ‘trust’, or in other words, the MF schemes. If it decides to wind up any scheme, it will return the money from the scheme to investors at the prevailing price (net asset value).
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