Mutual Funds

Bond mutual funds, which for most of the late 1990s had trouble holding on to investors, let alone attracting new ones, suddenly are back in vogue in a big way. Bond funds, including those that own government, corporate and municipal bonds, attracted $16.5 billion in net new cash in August, the Investment Company Institute said Thursday. By contrast, stock funds saw a net cash outflow of $5.25 billion, according to ICI, the fund industry's chief trade group.

Momentum is building in Congress behind long-stalled efforts to legislate reforms in the mutual fund business, in the wake of the scandal tarnishing the $7-trillion industry. Three public hearings on mutual funds are set for this week in the Senate and the House, with testimony expected today from New York Atty. Gen. Eliot Spitzer and the chief enforcer for the Securities and Exchange Commission, Stephen Cutler.

Where are they now? Mutual funds, like former classmates, can be easy to lose track of. The financial press has a tendency to play up its coverage of new types of funds, with less ink devoted to follow-up reports. With this in mind, here's an updated look at several unusual mutual funds that premiered in 1995 and were covered in this column during the year: * Warburg Pincus Post-Venture Capital Fund. Few mutual funds, whether established or rookie, have fared as well as this one.

Investors added a net $29.1 billion to stock and bond mutual funds in February, a jump of 46% from January's inflows, the Investment Company Institute said Wednesday. Los Angeles-based American Funds again took the biggest share of the cash inflows, according to a separate report from data firm Financial Research Corp. The fund manager's stock and bond portfolios took in a net $7.9 billion in February. Vanguard Group was the second-best-selling fund company, with a net inflow of $5.

The staff of the Securities and Exchange Commission is working on a proposal that would change the way that mutual funds use and disclose fees paid by funds to market their shares, an SEC official said Thursday. So-called 12b-1 fees are taken out of a fund's assets, reducing the value of its shares, and are used to pay brokers to promote the fund. Critics say the fees no longer serve their original purpose, which included creating economies of scale to reduce expenses paid by shareholders.

The stock market's surprisingly strong rally to post-crash highs makes a jump back into the market look tempting. But common sense suggests that--as during the summer rally preceding the 1987 crash--much of the easy money has already been made. The best advice for small investors is to avoid getting overly caught up in the euphoria. Invest, but with caution. Fortunately, there are ways through mutual funds that you can still cash in on any further rally while minimizing risks should it fizzle out. Some funds have done better than the market in good times and not as poorly in bad times.

Carl McWade thought he was making a foolproof investment a year ago when he bought a mutual fund investing in bonds backed by the Government National Mortgage Assn. (Ginnie Mae). After all, McWade thought, the U.S. government was standing behind the bonds. But his delight turned to anger seven months later when he cashed in the fund and discovered that he had lost about 5% of his original investment.

The end-of-year mutual fund tax trap is a particular risk this year, with many portfolio managers sitting on huge profits. Indeed, the Markman MultiFund Trust of Minneapolis will make a highly unusual--if not unprecedented--move Nov. 1 when it temporarily shuts its doors to new investors to protect them.

When you buy or sell stocks and bonds, it's pretty simple to determine whether you have a taxable profit or a loss. But that's not always true if you're buying and selling stock and bond mutual funds. Indeed, if you subscribe to a popular practice among mutual fund investors called dollar-cost averaging, figuring your gain or loss--especially when selling only a portion of your holdings--can take hours, says Philip J.

For mutual funds, 1987 was the ultimate roller coaster. They began 1987 riding an unprecedented boom in sales and performance. But they ended the year hoping that the worst was over. Equity funds--blasted by the Black Monday stock market crash--posted their worst performance since 1981 and again failed to beat the major market indexes.