What would happen to investors’ money in case a mutual fund company files for bankruptcy? Which fund should an investor pick between one that has a long track record of around 25 years but a high NAV or one that has a track record for 4-5 years and a low NAV? Would you recommend UTI Mastershare, HDFC Prudence and HDFC Balanced for conservative investors?
-Ajay
The money invested by mutual fund investors would remain safe even if a fund company goes bankrupt. The legal structures under which mutual fund companies are formed are such that the money invested is kept in a separate account. Every mutual fund has an individual account that is supervised by an independent trust. Furthermore, there is very little chance of an asset management company going bankrupt because the company doesn’t take any such risk that could lead to such a situation.
Coming to your second question, the NAV of a fund shouldn’t have any major bearing on its selection. When two funds with different NAVs see a similar increase in returns, both of their NAVs will go by the same percentage. The three funds you’ve mentioned are good funds for conservative investors. UTI Mastershare has seen an improvement in its performance in recent times. You can hold onto these funds.
This article was originally published on March 19, 2012.
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