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Mutual Fund Scandals Impacts and Implications

There have been an increasing number of mutual fund abuses, which has led to the several well-known scandals. Many fund companies seem to have forgotten why exactly they are in business. In 1924 the first mutual fund was created, which accumulated the money of several investors for the purpose of enjoying diversification and lower transaction and operations costs. Nevertheless, nowadays mutual fund companies have started to misuse the benefits that mutual funds provide and have forgotten that the shareholders are the true owners of the company. And as such, their interests should be taken under consideration and defended appropriately.

Reasons for the Mutual Fund Misuses

The poor regulation of the mutual fund field, combined with the organization of the fund itself has led to the resulting misuses. Many experts believe that more outsiders should be included in the board of directors, so that such abuses are avoided. Additionally, greed plays an important role in the scandals, since most of them were pushed by their wish for more money.

The Impact of Scandals on Investors

So far, no damaging impact has been observed on the investors. Mutual fund scandals have had very minimal subsequences on the shareholders of the fund. There are approximate estimations of 0.1%, which is a very small percentage of their performance.

Continuing Use of Mutual Funds

Despite the many scandals that have quaked the mutual fund realm, investors still continue to invest their money there. Several theories aim at explaining this controversial trend. One of them states that if the market functions well, investors do not pay attention to the scandals that are going on. And why should they do since they enjoy their profits. Another theory states that it is hard to find a better alternative to mutual funds with their many advantages and diversification capabilities. Even if an investor gets hurt by his/her mutual fund company, s/he can easily switch to another thanks to the many other companies on the market.

Mutual Funds Remain Good Investments

Mutual funds excellent reputation as the appropriate parking place for your money cannot be spoiled just because of several scandals. They still remain profitable investments due to the low costs, diversification and ease of use. Additionally, mutual funds enjoy higher liquidity and reduced levels of risk, which turns them into excellent parking place for your money. It is hard to find in one place a concentration of so many benefits. The only alternative so far, but if you are ready to invest large sums of money are exchange traded funds. But they still deprive you of the opportunity of investing small amounts, which is possible with mutual funds.

Beware of Dingy Mutual Fund Companies

In order to avoid messing with a shady mutual fund company, try to purchase shares of funds that are 12b-1 fee free and have low expense ratios. In this way you not only have more cash to invest, but also significantly decrease your chances of ending up with a mutual fund company with shady activities.

Another way to avoid ending up in a dingy mutual fund company is by using the company matching of your 401 (k) plan.

Mutual Fund Investors Course of Action

If you have already invested in a mutual fund, which is under the scrutiny of the media, don't forget that the latter usually exaggerates the problems. Your company may not have broken any law, but just has allowed some of its investors to break certain company rules and policies in order to enjoy a profit without being punished for that. Many mutual fund companies that were involved in a scandal have promised to give compensations to their investors and several legislations have been passed in an attempt to restrict such misuses.

Do not rush switching your mutual fund company, unless there is an increase in its expense ratio or its ethical standards have become somehow dubious.

Finally, despite the many scandals, investors continue to invest in mutual funds. Nevertheless, this does not mean that actions toward preventing such activities should not be taken. On the contrary, the appropriate laws should be enforced so that mutual fund companies serve their shareholders the best way they can, since they are the owners and their interests matter.

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