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Subbu's Solution

I have been investing lot of money in mutual fund SIP route. My question is are all my money in these AMC really safe? Will I face any problem during redemption? So far, I have not redeemed. What is going to happen in-case of bankruptcy? This question strikes in my mind during recent mess in Gold ETF in commodity exchange. - srini
In today’s interlinked financial markets, a crisis at one end is enough to seed doubts of investors in similar spectrum of products though they may differ in every possible aspect.

Gold ETFs could potentially be on the investors worry list. The biggest issue with that commodity exchange was a regulatory vacuum. However, Gold ETFs are very well regulated by SEBI. There have been a host of measures that have been guide lined by SEBI right from valuation to underlying specifications to mandatory audit of the underlying gold backing Gold ETF units.

The major difference in the commodity exchange and Gold ETFs lies in the structure of their operations. In commodity exchange, two counterparties enter into agreement to buy and sell the underlying and the buyer is reliant on the seller to deliver the underlying commodity to actually transfer ownership from the seller to the buyer / investor.

Please understand that the Gold that a mutual fund buys is held by a custodian company, which is all together, a different company than the AMC. Each gold bar that the custodian accepts on behalf of the fund is verified and substantiated by legal documents stating information on origin, purity certificate, and import details. The gold also gets physically verified on a regular basis. A statutory audit being conducted by the statutory auditor every six months as prescribed by SEBI.

Moreover, Mutual Fund Industry is one of the most strictly regulated industries in India. However, it is important to know that all mutual funds are subject to market risks. You will get returns based on the market performance of the respective asset class may it be equity, debt or gold.

The above statements are largely in the context of Gold, for other holding in equities and debt; redemption will not pose any problem, as there are SEBI mandated guidelines by which the redeemed amount should be received by you. If there is large scale redemption, then price fluctuations may impact certain kind of funds e.g. those funds which have large investments in illiquid securities. In these cases, the NAV may decline more sharply, but you will still receive your redeemed amount.

Mutual Funds are actually excellent vehicles for investments; do not let what happened to Gold ETF in commodity exchange colour your outlook. You are making the right choice with mutual funds!

Disclaimer:

Subbu's Solution is authored by I. V. Subramaniam. I. V. Subramaniam is a director of Quantum Asset Management Company Private Limited. The responses expressed here are strictly for information and explanation purpose only. The responses are meant for general reading purpose and not to be considered as an investment advice / recommendation. The responses are not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or units of the Mutual Fund. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in the responses.

Risk Factors: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Please visit - www.QuantumMF.com to read Scheme Specific Risk Factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the scheme's objective will be achieved and the NAV of the scheme(s) may go up or down depending upon the factors and forces affecting securities markets. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the Sponsor / AMC/ Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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