Originally created 04/01/04

Mutual funds named in scandal saw sales tumble



NEW YORK - Mutual-fund companies pegged in the market-timing scandal experienced monthly net redemptions of $10.7 billion from their stock and bond funds in the last four months of 2003, according to the industry's primary trade group.

The surge of redemptions came just as other fund companies saw their sales improve sharply, according to the Investment Company Institute, the fund industry's primary trade group.

The result represents a significant deterioration in sales numbers for these companies, which had reported monthly net outflows of $1 billion for the first eight months of the year, before the first report of the regulatory investigations in early September.

By contrast, funds that escaped mention by regulators saw their monthly inflow rise to $28.9 billion during the last four months, from $18.9 billion between January and August, as investors returned to stock markets, lured by their rebounding performance.

Indicating the increasingly cost-conscious nature of investors, a larger share of stock fund flows went to lower-cost funds last year, with 64 percent of the net new cash flow targeting stock funds with expense ratios under 1 percent.

Overall, stock and bond funds pulled in $216 billion in new investor money in 2003, nearly an 80 percent increase from 2002.