Mutual funds carry market risk and are not government-guaranteed or insured by DICGC like bank fixed deposits. However, mutual funds hold diversified baskets across dozens of companies or bonds, making a 100% total loss mathematically improbable under standard SEBI diversification mandates.
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Mutual funds carry market risk and are not government-guaranteed or insured by DICGC like bank fixed deposits. However, mutual funds hold diversified baskets across dozens of companies or bonds, making a 100% total loss mathematically improbable unless every underlying issuer defaults simultaneously. While interim portfolio values fluctuate with market cycles, risk levels vary significantly from overnight debt funds (lowest volatility) to thematic equities (highest volatility).
In India, mutual funds are structured under a strict three-tier regulatory framework governed by SEBI: the Sponsor, the Board of Trustees, and the AMC. Investor funds and portfolio securities are held in independent custody accounts by registered Custodians, segregated entirely from the AMC's corporate balance sheet. If an AMC ceases business operations, the Board of Trustees, under SEBI supervision, transfers management to another registered AMC or liquidates the portfolio to return fair NAV market value to unitholders.
The SEBI Riskometer is a standardized regulatory graphical depiction that AMCs are legally mandated to publish for every scheme, categorizing portfolio risk into six tiers: Low, Low to Moderate, Moderate, Moderately High, High, and Very High. Unlike static marketing materials, the Riskometer is computed dynamically on the last business day of every month based on actual weighted portfolio metrics including volatility, credit ratings, duration, and liquidity.
Under SEBI regulations instituted in 2019, open-ended mutual fund schemes are strictly prohibited from investing fresh unitholder capital in unlisted equity shares to protect retail liquidity. Only close-ended schemes and certain pre-existing legacy exposures subject to severe regulatory caps are permitted, ensuring that portfolio valuations remain transparent and readily realizable during market redemptions.