Survey Finds Investors Confused over Risks in Mutual Fund Industry

Article excerpt

Associated Press

WASHINGTON _ U.S. consumers have sunk nearly $23 billion a month in the soaring mutual fund industry since January, but a government survey shows many are mistaken about their investments' safety _ especially if purchased at a bank.

Nearly half of those polled thought incorrectly that all money market mutual funds sold through banks are federally insured, the Securities and Exchange Commission said Wednesday.

"Clearly, many investors are confused," SEC Chairman Arthur Levitt Jr. said, detailing the survey of 1,000 households, 47 percent of which already owned mutual funds.

Levitt disclosed the findings in conjunction with testimony before the Senate Banking Committee's securities subcommittee. Mutual fund operators who testified doubted the survey's findings.

Levitt said the amount of money invested in mutual funds has mushroomed from $135 billion at the beginning of the last decade to $1.9 trillion now, an increase of more than 1,300 percent.

Part of that boom is due to bank customers, unhappy with the low interest being paid on bank deposits, plowing their money into mutual funds.

Those funds pool money from investors to buy stocks, bonds, options, and other securities. Investors can lose their money if market values drop, unlike bank deposits which are guaranteed by the government for up to $100,000 per account.

Although 74 percent of all respondents to the telephone survey believed they could lose money in a money market mutual fund, 49 percent believe such funds are federally insured like savings accounts if sold through banks. And 28 percent of the survey respondents think all mutual funds, if sold through banks, are federally insured.

Money market funds usually invest in short-term, low-risk securities like Treasury bills, but they aren't risk free.

Levitt told the subcommittee he was most concerned about a survey finding regarding those who had already purchased mutual funds from a bank. Of that group, which numbered just 70 people, 66 percent believed their investments are federally insured.

Mark Williamson, the head of mutual funds for Charlotte, N.C.-based NationsBank, told the subcommittee the SEC survey findings were "highly inconsistent with my experience in the industry. …

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