How safe are mutual funds in terms of reporting fraud? I don’t mean market risk.
What’s stopping mutual funds from publishing dummy holding reports (like Madoff)? Are the holdings of a mutual fund audited by a third-party? Any other checks that exist?
I understand that the units themselves are safe with the RTA or DMAT CDSL in case of Zerodha Coin. I am just wondering how can we be sure that the fund is actually holding the underlying it says it’s holding.
I know that the gold held by gold ETFs are audited for sure. I would think that the equity and debt MFs holding financial assets would also be audited. It’s not all that hard to audit them actually, everything is digital these days.
Mutual funds are pretty safe and well regulated by SEBI.
If you are concerned, then may be you can avoid new AMCs, AMCs with less AUM, AMC with very high expense ratio etc.
Each and every mutual fund is audited and the audit report of the AMC is published. However as in any transaction, if two or more people collude anything can happen. Think of DHFL, IL&FS, all were audited too but the fraud or mismanagement these guys did was humongous.
People will always accept market risk as stock market investment is prone to market risk, but what is not expected is MFs not doing the job right. They can use our money to invest in unscrupulous companies. This no one in the world can help. Hence it is critical that we choose the AMC very carefully.