in mutual fund u invest in many companies...what you do when company suddently crash...like big companies like jet airways,kingfisher crashed in short period..u try to sell shares? if yes who buy such huge quantity... Ninad

Ans: When a mutual fund company shutdown or get sold to other company, it can indeed be concerning for investors, but there are regulations and procedures in place to protect investors' interests, at least to some extent. Let me try to explain the same in best of my knowledge:

Segregation of Assets: Mutual funds are set up as trusts, and they have a clear separation between the assets of the mutual fund and the assets of the asset management company (AMC) managing the fund. This means that even if the AMC goes bankrupt or shuts down operation, the assets of the mutual fund are typically kept separate and should not be affected.

Appointment of a New Fund Manager or AMC: In the event of a mutual fund company going bankrupt or shutdown operations, the regulator, Securities and Exchange Board of India (SEBI), usually steps in to ensure that investors' interests are protected. SEBI may appoint a new fund manager or a different AMC to take over the management of the affected mutual funds. This ensures continuity in managing the investments and reduces disruptions for investors.

Liquidation or Transfer of Assets: If a mutual fund company is unable to continue operating, SEBI may initiate the process of liquidating the assets of the affected mutual funds. The proceeds from the liquidation are then distributed to the investors.
Alternatively, SEBI may facilitate the transfer of the management of the mutual funds to another AMC. This transfer ensures that investors' investments are still managed, and they have the option to continue with the new fund manager or redeem their investments.

Investor Communication: Throughout this process, SEBI and the new fund manager or AMC appointed will communicate with investors to keep them informed about the situation and any steps they need to take. This communication is crucial for maintaining trust and transparency in the investment process.

Investor Rights: Investors have certain rights protected by SEBI regulations. They can choose to redeem their investments if they are not comfortable with the new management or if they believe it's in their best interest to exit the fund. However, it's important to note that redeeming investments in such situations may come with certain costs or tax implications, depending on the specific circumstances and the terms of the mutual fund schemes.

It's essential for investors to stay informed about the financial health and regulatory compliance of the mutual funds they invest in. Diversifying investments across different mutual funds and asset classes can also help mitigate risks associated with the bankruptcy of a mutual fund company. Additionally, consulting with a financial advisor can provide personalized guidance based on individual investment goals and risk tolerance.

Ans: First, it’s important to appreciate your achievement. Growing Rs. 60 lakh to Rs. 92 lakh in two years is a significant return.

However, the sudden Rs. 5 lakh loss triggered panic, leading to the withdrawal of your investment. This is a common emotional response during market volatility, but markets recover over time. Let’s explore strategies that can align with your goals and build confidence in your future investments.

Understanding the Market Correction
Market crashes, like the recent one, are temporary and part of economic cycles.

Reacting emotionally to short-term movements often leads to missed long-term opportunities. Your withdrawal might have interrupted the compounding growth that mutual funds offer over time.

If you stay invested and manage your portfolio with discipline, you can ride through such fluctuations. The market tends to recover over the long term, rewarding patience.

Why Asset Allocator Funds Might Not Be the Best Fit
Asset allocator funds distribute your money across equity, debt, and other assets based on market conditions. While they reduce risk, they also limit potential returns.

During bull markets, asset allocation funds may underperform compared to focused equity mutual funds. These funds reduce exposure to equity precisely when the market has the potential to grow.

Actively managed funds, where fund managers adjust portfolios proactively, offer better control over volatility and maximise returns over the long term. These funds perform better than funds passively following allocation rules.

Reassessing Your Risk Profile and Investment Strategy
Every investor has a unique risk tolerance. Based on your panic withdrawal, it seems you may prefer moderate to low-risk options.

You can rebuild your investment strategy by balancing risk and return through a combination of equity and debt mutual funds.

Instead of trying to predict market movements, adopt a strategy of gradual re-entry into the market through Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs).

SIPs will average out your buying cost, reducing the impact of market volatility. An STP will allow you to move your funds from liquid schemes to equity in small, periodic amounts.

Suggested Investment Plan: Combining Stability with Growth
Equity Funds for Long-Term Growth: These funds are essential for wealth creation. With a 5-10 year horizon, they can offset short-term losses and beat inflation effectively. Large-cap, mid-cap, and flexi-cap funds are good options.

Debt Funds for Stability and Liquidity: These funds can protect your investment during market downturns. Corporate bond funds or short-term debt funds offer better stability compared to liquid funds or savings accounts.

Balanced Hybrid Funds: These funds combine equity and debt exposure to provide stability and moderate growth. They are ideal if you prefer low-risk investments but still want some market exposure.

Gold Bonds as Diversification: Continue holding gold in your portfolio for additional stability. It acts as a hedge during market volatility.

Importance of Regular Funds through a Certified Financial Planner
Direct funds may seem cost-effective, but investing through a certified financial planner ensures expert guidance.

A certified planner helps track your portfolio performance, rebalance investments when needed, and align your portfolio with your long-term goals.

Regular funds through a planner also reduce your emotional involvement during volatile markets, preventing panic decisions.

Capital Gains Tax Implications to Consider
Since your mutual fund investments were equity-based, the gains you made are subject to long-term capital gains (LTCG) tax if held over one year.

For equity mutual funds, LTCG above Rs. 1.25 lakh is taxed at 12.5%, while short-term capital gains (STCG) are taxed at 20%.

Debt mutual funds are taxed according to your income tax slab. Planning your withdrawals efficiently can reduce your tax burden.

Rebuilding Your Investment Discipline
The best approach going forward is to rebuild your portfolio step by step. Avoid lump-sum investments to manage risk better.

Restart your investments using SIPs and STPs to ensure a steady return over time. Market volatility becomes less relevant with such disciplined investments.

Review your portfolio every six months. This will help identify any underperforming investments early and allow you to rebalance if required.

Maintaining Emergency and Opportunity Funds
Keep at least 6-12 months of household expenses in a separate emergency fund. This ensures financial security without interrupting your long-term investments.

Set aside a portion in liquid funds for short-term opportunities or immediate needs. This will prevent you from touching long-term investments during emergencies.

Finally
The market volatility you experienced is temporary. A disciplined approach to investing will give you better results in the long term.

It’s essential to diversify your investments and avoid making sudden changes based on short-term market movements. SIPs or STPs will help you re-enter the market safely, and debt funds will offer stability.

Invest through a certified financial planner to receive professional guidance. This will help manage your emotions and achieve your financial goals confidently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Hello;

If a mutual fund company gets sold or fails, the process is prescribed by SEBI:

In case MF company is Sold,
The new fund house may:
1. Continue the scheme with a new name and management.

2. Merge the scheme with similar funds and offer investors the option to exit without any exit load.

In case MF company shuts down,
The fund house will:
1. Pay out investors based on the fund's last recorded Net Asset Value (NAV) and the number of units the investor holds, after deducting expenses.

2. If the company is not in a position to do so then SEBI may liquidate the funds assets and distribute the proceeds to unit holders.

It is also pertinent to note that mutual fund regulation in India is one of the most stringent and hence best, from investor's point of view, globally.

This is not just in theory. We have seen how the Franklin Templeton abrupt closure of debt funds was handled with surgical precision, by SEBI, with no loss to unitholders.


Skin in the game regulation mandates that 20% salary of key mutual fund personnel and fund managers is paid in terms of units of their funds with a 3 year lock-in.

The stocks and bonds purchased by the AMC for the fund are held by a custodian, appointed by the trust that administers the fund.

The trust engages into a investment management agreement with the AMC for managing the fund as per their mandate and within regulatory guidelines.

Registrar and Transfer Agents handle the investor registration,kyc, maintaining records, providing account and tax statements etc.

Happy Investing;
X: @mars_invest