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Is your investment safe with your Broker?

Created on 04 Dec 2019

Wraps up in 3 Min

Read by 1.5k people

Updated on 10 Sep 2022

person investing money with broker's firm

After Karvy’s alleged scam, there might be following questions tinkering in your mind. How Trustworthy is your Broker? How safe are your investments?

We’ve tried answering them below.

First of all, if you’re a client of Karvy Stock Broking whose stock investments are still stuck, our most sincere sympathies are with you (because, it’s impossible for us to offer something else apart from sympathy). But, if you’re a mutual fund investor who chose Karvy as a broker above others, you’ll be relieved to know that your money is still safe.

So, Mutual Funds investments are still subject to market risk only, just that you need to read all scheme related documents carefully. Whereas equity investors are getting skeptical about their money and fate (good for them… maybe).

Possible Threats for your Investments

What could possibly go wrong? It’s important to know first. So, usually when you invest you are signing up for a given certain amount of calculated risk. This entails the risk of valuation of your investment going down due to price fluctuations in the market. We would call that an organic risk as you take it against expected returns.

The other threat to your investment is an unwanted intervention that manipulates your investment and leaves you dumbstruck at the end. Because you didn’t know at all that someone acted on your behalf (most likely in an illegal way) and used your investment to serve a vested interest. We would call this an inorganic risk.

The last kind of risk that we could think of is what we would creatively call ‘The Last Laugh’. In this, your investment is at risk because the bank or AMC (asset management company) had to shut down its operations. There’s nothing much that you can do in this case. The fate of your investment will depend upon ‘Who has the last laugh’? The company/bank or the government?

Mutual Funds Sahi Hai?

Coming straight to the point, when you invest in mutual funds you do not transact with the broker but with the AMC directly. So, the broker or any third party is actually a referrer in this case. To understand this, imagine you wish to shop from a supermarket which has distributed discount coupons to some of its existing customers. And, you are not one of them whereas your friend is.

Now, when your friend agrees to let you shop on his coupon, you are ultimately transacting with the supermarket store and not your friend. Right? So, it’s just a sort of reference on broker’s side, which works in case of mutual funds investments. Till now, these investments are safe and we don’t posses a power to look into future.

Whom to Trust and Whom not to?

After seeing all that has been going on recently, you might have thought to yourself “I’ll do a Fixed Deposit and sit back & relax.” Hello! Remember there ‘used to be’ PMC Bank? So, you would now think that your money is safe in your home’s locker. But, the problem is money is not biologically capable of multiplying by itself.

See, an industry can’t be judged based on wrongdoings of a single company. We agree that this shouldn’t have happened but all companies do not work with the same intention. Take us (Finology) for example. We are in the same industry but our focus is on empowering investors, not deceiving them. Yes, we mean it.

Hope you liked this information. Comment below with your opinions/suggestions.

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Deb P Samaddar

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Deb is a keen learner and eager to learn about the finance world. He is that person who would never stop talking, but my oh my, the words he uses, are not something a normal human would in a regular conversation. While the conversations are well, interesting, the write-ups are faultless. With an increased proclivity towards tech and language, he aims to capitalise on his interests as a content writer at Finology.

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