Monday, October 20, 2008

SIPC - Securities Investor Protection Corporation

In my current job as a Services Associate, I have recently been fielding a lot of calls by investors asking if their mutual funds are FDIC insured. The FDIC only protects deposits in bank accounts, not securities. While these funds are not protected under the FDIC, I am able to tell them about another protection that is out there known as SIPC protection. Since this seems to be a popular topic, I'd like to touch on it here.

The SIPC, which is short for the Securities Investor Protection Corporation, is an organization formed by the 1970 Securities Investor Protection Act. It is an organization designed to protect investors in the event of a brokerage firm failure. The SIPC will provide for the orderly dispersal of existing cash and securities from the firm to the investors. In the event that the firm does not have those assets, the SIPC insures up to $500,000 in equities, including up to $100,000 in cash accounts.

However, the SIPC only protects investors from the brokerage firm holding those securities. It does not protect investors from falling prices of those securities. All investments carry risk, and the SIPC does not insure you against the possibility that a security could decline in value. Also, not all assets are protected: Most mutual funds and equities are protected, but annuties and some other investments may not be protected. That is something that investors may want to consider before making any financial decisions.

If you would like to learn more about the SIPC, you can visit them HERE.

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