SIPC

Insurance for mutual fund accounts is provided by the Securities Investors Protection Corporation (SIPC) in which most investment firms are members. If your investment firm fails, the SIPC steps in and makes sure that all customers are made whole, either by the investment company itself, or through the reserve funds of the SIPC, up to a value of $500,000 per separate account. The SIPC will then move your account to another SIPC-member firm, although you have the option of moving your account to the firm of your choice.

Additional Protection

Many brokerage and mutual fund firms purchase additional insurance through private underwriters. Both Schwab and Vanguard, for example, offer additional insurance through Lloyds of London well beyond the SIPC coverage, which means you wouldnt have to break up your account if you have more than $500,000 in investments. Many firms also offer security guarantees to cover fraudulent activity in your account, although you remain responsible for not giving away your password or other identifying account information.

Litigation

If you believe your investment losses are due to negligence on the part of the fund managers, you can always file suit. In addition, class action lawyers will likely step in if they can make a case that a funds losses were related to negligence or fraud. They dont even have to win the case, since a mutual fund company might choose to settle rather than pay expensive court costs. After attorney fees are paid, the settlement fund generally distributes payments on a pro-rata basis to the investors, though you shouldnt expect to be made whole.

Expert Insight

References

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