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Conference nyoss1::market_investing

Title:Market Investing
Moderator:2155::michaud
Created:Thu Jan 23 1992
Last Modified:Thu Jun 05 1997
Last Successful Update:Fri Jun 06 1997
Number of topics:1060
Total number of notes:10477

276.0. "Mutual Fund Insurance" by COGITO::LMARCOCCIO () Tue Sep 15 1992 16:30

    I am new at investing in mutual funds. Given all of the S&L scandles
    and the apparent ease in which a high-ranking executive at a bank can
    walk away with the funds, I am uncomfortable with the level of
    insurance in mutual fund firms. In particular, I can feel good about
    puting my money into a bank CD or savings with the FDIC insurance.
    However I am not aware of any equivalent insurance against firm
    employee fraud etc.  Has anyone else got any additional perspective on
    this "risk"?
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276.1Don't worry, be happyRT93::HUOlympic GameTue Sep 15 1992 19:3013
    
    In the newsletter I received from Vanguard, it stated that it's 
    mutual fund money is set up by seperate trust entity, it's board
    member and employee have no way to tab the customer fund. IN the case
    of fraudent or fund company bankruuptcy etc, customer fund will be
    fully protected.
    
    I didn't know how the mechnism work, however, I do believe there 
    must have some regulation by SEC to the mutual fund industry.
    
    In the meanwhile, I'm full wind ahead with mutual fund investment.
    
    Michael... (Janus/20 is up another .50/share)
276.2bondedSLOAN::HOMWed Sep 16 1992 11:5625
You can loose money in mutual funds because of:

1. market risks
2. misrepresentation by brokers (eg: First Investors junk bond funds)
3. high fees and 
4. out right theft.

Because the mutual funds are closely regulated by the SEC as well as the
states the probability of #4 occurring is extremely low.  In many cases, the
securities themselves are held by trust company. For example, the PAX
fund uses State Street Bank as custodian.

In addition, the operations are closely monitored by the auditors.

Finally, mutual fund officials are bonded.  According to a statement by
Arthur Loring, general counsel for Fidelity, FMR officials are bonded for
$100 million.  For Vanguard, the number is $70 million. 

Of course, given that the assets of these funds companies are in the
100+ billion range, $100 million would not cover a theft on a grand
scale.


Gim

276.3They do watch, and they do try to repair damageTLE::JBISHOPThu Sep 17 1992 15:3915
    I had some shares in United Services Prospector Fund.  One of the 
    buyers for the fund violated rules on fractions of companies owned
    and did some other semi- or non-legal acts.
    
    Over the last few years I have gotten various compensating payments,
    due to things like United Service's "errors and omissions" insurance,
    sucessful lawsuits against the criminals, other insurance, sell-offs
    of the incorrectly-acquired shares and so on.  The most recent letter
    claimed that they have recovered a lot (possibly over 90%) of the 
    lost money.
    
    It is clear to me that though bad things can be done, there's a lot
    of structure in place to detect and correct.
    
    		-John Bishop