When you invest your hard-earned money in a mutual fund, you expect substantial growth over the long term. You believe your fund house will be up and running, at least till you reach your financial goals and sell your mutual fund units.
However, sometimes, fund houses can shut down unpredictably, which may cause panic among investors. You may have seen this in the case of recently closed mutual funds.
So, what happens after a fund house shuts down? More importantly, what happens to your money? Fortunately, the Securities Exchange Board of India (SEBI) has regulations to ensure that the investors’ money remains safe.
In this article, we’ll discuss four ways in which your AMC may cease operations and how these situations impact your money.
#1 Your fund house sells its business to an existing company
In this case, the acquiring company may take three actions.
- Close the scheme: In this case, you’ll receive a pay out from the fund house after the deduction of applicable expenses. Your pay-out will depend on the number of units you hold and the NAV of the fund on the final day of operation.
- Continue the scheme: This will have little impact on you. There might be a change in the scheme’s name and management.
- Merges the scheme: In case of a merger, you can close mutual fund online without paying any exit load charges. After the merger, your old mutual fund and its units will no longer exist. If you choose to stay invested after the merger, you’ll receive units of the merged fund, operated by the acquiring AMC.
Additional Read – What is the Difference Between AMCs and Mutual Funds?
#2 Your fund house sells its business to the JV partner
Some mutual funds in India operate under a joint venture (JV). When a JV partner buys a fund house, the management and the individual fund managers usually remain unchanged. Only the name of the scheme may change.
So, if you are an investor, you won’t face any negative impacts after the sale.
#3 Your fund house sells its business to a new company
Suppose your AMC closes by selling its business to a new company that is yet to start its mutual fund operations.
In this case, the impact will be minimal because the acquiring fund house will continue operating the old funds under a different name and management.
#4 Your fund house merges two of its schemes into a single fund
In this scenario, the AMC will close one of the funds and add its securities to the surviving fund. Then, the merged fund will operate with the combined assets of both schemes.
After the AMC announces the date of the merger, you can exit from the fund without any exit load by submitting an online mutual fund close application. Or, you can switch to another scheme of the same AMC.
If you stay invested, you can exchange your existing fund units for units of the merged fund.
Additional Read – How to Invest in NFO?
If your AMC shuts down, don’t worry. Mergers might boost the fund’s performance, so stay invested and observe its growth. If you feel it is underperforming, you can always sell your units.
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