Could someone explain the mutual fund problem for me?

[Brian Sweat]

I have been hearing an awful lot about the scandal, but I haven't seen any articles that explain exactly what the problem is. I have my 401K money in an equity fund indexed to the S&P 500. Is there some reason why this money might not be safe?

[RichM]

1. I don't think you personally have to worry, in the sense that the stealing

only skims a little bit of money off everyone's accounts. Roughly, the big fund managers have let favored big clients trade afterhours in a way that average fund investors aren't able to. They also gave privileged information to favored clients only. I think the net results amount to cheating millions of little investors out of a few bucks each (though of course, this adds up, if you're doing the stealing).

OnEdit: if your fund is indexed to the S&P, you only get hurt if the whole index tanks. In the summer of 2002, the scandals helped make the whole index tank. So far, though, this scandal has not had a big impact on the averages.

[WhoCountsTheVotes]

2. yes, you could very well lose a lot of money

The scandal is just beginning to surface.

[Patriot_Spear]

3. Mutual fund Managers used fund like a piggy bank...

After hours (foreign market) trading, return number games, etc- they're supposed to act as fund caretakers and instead they used the funds to like their own private investment capital.

Ya gotta love those GOP / Enron / Wall Street ethics, huh?

[Yupster]

4. Basically

a stock can be bought and sold throughout the day and the price changes minute to minute.

However, a mutual fund may contain 200 stocks within it. It's not possible for the fund to have a known current price from minute to minute for people to buy or sell. Therefore, all mutual funds only allow sales and buys at the end of the business day so that an accurate current price can be figured.

What some fund families are being accused of is allowing "favored" customers to buy and sell either during the day or after hours therefore getting a slightly better price than everyone else.

These favored custmers (mostly giant pension funds) are therefore getting a better deal which would mean the average customers are having to make up the difference and are getting a slightly worse deal. The difference of two or three cents a share may not mean much to a $ 5,000 investment but would to a pension fund for teachers.

What's going to happen?

Check out www.putnam.com for opinions and letters from their management.

My own opinion is some companies will be fined by the SEC, and similar to a class action lawsuit, investors will get compensated for the estimated losses so you may get a letter saying that .35 of 1 % was added to your account to reflect what damage was done to the account.

The funds themselves shouldn't be at risk. A stock fund still owns those underlying stocks regardless of how well the fund family is doing. Perhaps the family may raise the internal fee it charges to manage the fund to make up its losses from fines or payments to owners.

* Warning * Call your broker and do your research. Don't make decisions on what some guy in a political chatroom tells you.

[Champion Jack]

5. This article may help

http://www.newsday.com/business/ny-bzwhat1104,0,1488998,print.story?coll=ny-business-headlines