Newspaper article St Louis Post-Dispatch (MO)

`Little Guy" Stirs Worry in Market

Newspaper article St Louis Post-Dispatch (MO)

`Little Guy" Stirs Worry in Market

Article excerpt

Vinod Mehta is confused. Over the past year, the bank branch manager has plowed money from his savings account into stock mutual funds - only to see the money fade away as the market took its biggest tumble in three years.

"I'm a first-time investor and I don't know what is going on," confessed Mehta as he scanned an electronic ticker at a Fidelity Investments office in New York. "I just know that if the Dow goes down 40 points, then I lose about $400 or $500."

So far, Mehta has stuck with his mutual fund investments - but he says he might pull his money out. If he and countless other newcomers to the market do abandon stocks, the market could be in for even more trouble.

"Small investors' purchases of mutual funds have had a major impact on the stock market," said Thom Brown, managing director at Rutherford, Brown & Catherwood, Philadelphia. "If these people become disillusioned, they will pull money out and put it back under the mattress, creating an incalculable danger for the market."

That's why many big investors have been reading weekly tallies of mutual fund redemptions with the scrutiny of doctors eyeing medical charts.

Analysts are concerned that small investors now will liquidate their funds shares as fast as they had been buying them, which doesn't seem likely.

But the huge inflows, which came to $229 billion in 1993, could dry up. If mutual funds, which hold 11 percent of all securities outstanding, have little or no new money to invest, demand for stocks will decline.

So far, no mass exit. While mutual fund inflows have slowed from previous record levels, investors still managed to funnel $962 million into stock funds in the week ended Wednesday, according to AMG Data Services.

In fact, since the Federal Reserve first roiled the market by raising raised the federal funds rate - the rate banks charge each other for overnight loans - on Feb. 4, investors have added more than $20 billion to equity funds.

In only one week - the period before the April 15 tax deadline - did investors remove more money than they added to stock funds.

Mutual fund investors don't redeem shares at the slightest sign of a market crack, said Erick Kanter, spokesman for the Investment Company Institute, a mutual funds trade group. …

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