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Good Funds Gone Bad

Should you dump shares of fund companies implicated in scandals?

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This story appears in the February 2004 issue of Entrepreneur. Subscribe »

The finer points of late trading and market timing might be lost on the majority of mutual fund investors, even after months of scandal-bearing headlines, but the bottom line is not: Namely, that big investors were given breaks that hurt the little guy. Everybody can grasp that much, and securities regulators and politicians are frothing at the mouth to hold fund houses accountable. That's fine for them, but what should you do if you happen to invest in a fund that's been publicly tarnished by the growing scandal?

After all, it's not as if a fund is going to become worthless the way Enron Corp. shares did when the bottom fell out. A fund's net asset value (NAV) is calculated daily by adding up the value of its investments and dividing by the number of shares outstanding. Unless most of a fund's investments go bad all at the same time, its NAV won't drop off a cliff no matter what its parent company says or does.

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