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Question: If an investment firm like Fidelity or T. Rowe Price goes bust would I lose the money I have in mutual funds in IRAs and other accounts? —Gerry Cheok, Gaithersburg, Maryland

Already in this financial crisis, we’ve seen investment banks, commercial banks and mortgage firms fail or require some sort of government bailout to keep them afloat.

To date, however, no mutual fund companies have bitten the dust or required a government loan or investment to prevent them from going under. I hope that will continue to be the case, although in this wild and wooly market, I suppose anything is possible.

But the good news is that even if a fund family were to get in trouble or go belly up, the money you have invested in mutual funds - whether in an IRA, 401(k) or any other type of account for that matter - would still be safe.

Indeed, the value of your mutual fund accounts is pretty much unrelated to the health of the fund company itself.

Why? Several reasons.

Separation of assets

First, the money you invest in a mutual fund doesn’t actually become part of the assets of the mutual fund firm, as is the case when you buy a CD at a bank. Instead, your money goes to whichever mutual fund you’re buying. You receive shares in the fund for your investment, and the fund manager then invests your money in securities that become part of that fund’s portfolio of assets.

And although most people think that the mutual fund firm - be it Fidelity, T. Rowe Price or any other fund sponsor - owns the mutual funds with the firm’s name on them, that’s not the case.

The fund firm - or sponsor as it’s known in fund industry lingo - merely has an agreement with the fund to manage its assets and sell the fund’s shares. The fund itself is a separate entity from the sponsor and has its own board of directors. And the owners of the fund are the fund’s shareholders, the people like you who have invested money in the fund own its shares.

That goes for all the securities in the fund as well - stocks, bonds, Treasury bills, whatever. The mutual fund firm doesn’t own them either. The fund’s shareholders own them. So if a mutual fund company were to get into financial trouble or go into bankruptcy, the assets of the individual funds would not be available to the mutual fund company or its creditors to meet the firm’s obligations.

No funny stuff

But, ah, you may ask, in dire circumstances wouldn’t the mutual fund company somehow manage to dip into the till even if only temporarily to get them out of a financial bind? Couldn’t fund shareholders’ money be at risk that way?

Actually, the odds of a struggling fund company getting its hands on fund assets are remote at best. To avoid such malfeasance, federal law requires that the securities owned by a mutual fund be held separate from the fund’s sponsor in a custodial account, usually at a bank or trust company. The fund’s assets are also segregated from the custodian bank’s or trust company’s assets as well.

Finally, to protect shareholders from the possibility that a dishonest employee of the mutual fund company, custodian bank or some other person could get at a fund’s assets, federal law requires funds have fidelity bond insurance which covers instances of fraud, embezzlement and the like.

I’ve sketched the main outlines of how mutual funds operate. But if it would make you feel better, you can get more detail by checking out this investment company fact book.

Should you be worried?

If your mutual fund company were to fail, the assets of your fund would be secure, totally insulated from the fund sponsor’s financial problems. The failing mutual fund company would arrange for another mutual fund company to assume management of your fund, or your fund’s board of directors would do so. Either way, you and other fund shareholders - who are still the fund’s owners - would have to approve the new arrangement.

Of course, these protections have nothing to do with the market value of the funds you own in IRAs or other accounts. That will be determined by the market price of the securities owned by your fund. If your IRA is invested in shares of a mutual fund that tracks the overall stock market and the stock market drops, so will the value of your IRA. But that has nothing to do with the financial health of your fund company.

To sum up, there are plenty of legitimate reasons to be concerned about our economy and the markets right now. But worrying that your retirement security might be jeopardized should your fund company fail isn’t one of them.