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Let's suppose you buy a index fund issued by some financial firm. In that case, who is the actual owner of the fund's underlying shares, you or the financial firm?

In case of the answer to the above question is 'you', let's suppose that the financial firm goes bankrupt. Are the assets you are supposed to own transferred to you?

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The fund itself is a separate legal entity that owns the actual shares, but you own a part of the fund. The company that manages the fund is just a custodian of the assets.

So if, say, Vanguard goes bankrupt, then the funds it manages will not disappear. Most likely the bankruptcy courts would find another custodian, or another company would buy the custodial rights. I admit I'm not well versed on this aspect of the answer, but to answer the question, you would not lose your investment if the custodian goes bankrupt. There may be some bureaucracy to go through to get everything sorted out, but you'd still retain ownership of the fund in the long run.

  • Thanks. Could you explain a bit deeper what do you mean when you say '[...]he fund itself cannot go bankrupt (in the sense that it gets protection from creditors[...]'? – Martel Jan 10 at 15:54
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    I took that out since it's confusing and not relevant. The bottom line ids that you own part of the fund which owns the shares - the firm just manages the fund - it has no direct ownership. – D Stanley Jan 10 at 15:59
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    Vanguard is a special case, because Vanguard the management company is owned by the funds it manages. – The Photon Jan 10 at 23:44

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