Q&A: Bankruptcy and mutual funds
Question: With all the bankruptcies and bank failures lately in the U.S, and the news that Manulife Financial expects to lose $1.5 billion this quarter, I was wondering what happens if the company that holds your mutual funds goes bankrupt. Are the monies in the funds safe, assuming that the stocks in the fund still have value? – A.V., Windsor ON
Gordon Pape answers: Yes, the fund assets are safe. Almost all mutual funds are structured as trusts. That means the assets in a fund are separate and distinct from the assets of the corporation that sponsors that fund and are therefore not vulnerable to seizure by creditors.
For greater certainty, your investments are insured by the Canadian Investor Protection Fund (CIFP), which kicks in if an investment dealer becomes insolvent. This provides coverage up to $1 million for “losses of securities, commodity and futures contracts, segregated insurance funds and cash”. For more details, visit their website at www.cipf.ca