Mutual Fund

Don't be a casualty of the mutual fund explosion.Many investors become overwhelmed by choices among mutual funds and panic, making the wrong decisions.There are 1,623 stock funds and 2,636 bond funds available to American investors, according to Lipper Analytical Services.That compares with 454 stock funds and 497 bond funds a decade ago.Reasons for growth of mutual fund assets from $300 billion to $1.5 trillion in a decade are simple.Mutual funds provide diversity by pooling a large group of stocks or bonds, then top off the bargain with professional management.

Oh, how we love our mutual funds: Throw money at them and it multiplies. If you had put $10,000 into a U.S. equity fund three years ago, odds are you would have $20,000 today. That's the good news.The bad news? This year, we might start loving our mutual funds a little less. "Investors have become pretty spoiled," notes Susan Dziubinski, editor of Morningstar Investor. "Expecting a 25 percent return each year is unrealistic. We're anticipating returns in the 10 to 12 percent range."The mutual fund, in its infancy 30 years ago, has matured into a $4.3 trillion industry.

For more than 25 years, the highly regarded Sequoia Fund was closed to new investors. But this past spring, the mutual fund once again flung open its doors to bring in more assets. Sequoia has plenty of company. As stock prices fall and redemptions rise, many mutual funds that were off-limits for years are suddenly open. A year or so ago, about 200 out of the 7,000 U.S. mutual funds were closed, says Russel Kinnel, director of mutual fund research at Morningstar Inc. Now, it's about 40 or 50. Investment companies close funds to new investors for all sorts of reasons.

If you think that the Federal Deposit Insurance Corporation (FDIC) would insure you against losing money on shares of a mutual fund bought at a bank, your view would be consistent with those expressed by most people questioned in two public opinion surveys.You also would be wrong.Whether a fund is managed by a bank or a bank affiliate -- or by an independent investment adviser -- its shares are no more covered by the FDIC (as bank deposits are) than when you buy them from a broker.The extent of confusion about federal insurance of bank-sold fund shares that seems to prevail among current and prospective fund investors came to light last November, when the U.S. Securities and Exchange Commission, which regulates funds under the Investment Company Act of 1940, released the results of a survey it had commissioned.

Mutual funds were supposed to make life so easy. They were a refuge for the woman without enough money to limit risk by diversifying investments, or for the man without enough time to research a universe of stocks.But now that the number of mutual funds is fast approaching the number of stocks, investors face a daunting array of rating systems, newspaper articles and "Annual Mutual Fund Top Picks!" magazine editions that purport to spotlight the best funds.There's just one problem: The criteria used for such ratings differ widely that almost any grade can be attributed to any fund at any time.

DO YOU WORRY about your mutual funds in this market?"Fund investors have had a rough few months," says Business Week, "and if the market doesn't correct quickly, they will feel more miserable come December. Not only could funds continue to go south but fund holders will also get hit with heavy taxes on capital gains that funds paid shareholders.""Don't bet on a sure thing. Avoid buying stocks that look certain to be big winners. Enthusiasm for high-fliers pushes prices to risky levels. On average, the 'most popular' stocks gained less than half as much as the S&P 500 from their popularity peaks through July 31, 1998."

One on One is a weekly feature offering excerpts of interviews ? conducted by The Evening Sun with newsworthy business 6 leaders. James S. Riepe is the managing director of T. RowePrice Associates Inc., a Baltimore-based mutual funds and : investment management firm. He is also director of the 7 company's investment services division.' Q. What is the outlook for mutual funds, money markets and equity funds in the 1990s in light of the impending bad economic situation?A. Well, we know the '90s will be hard pressed to be anywhere near as good as the '80s.

The mutual fund industry, which has rapidly ballooned to more than 5,000 different funds, is coming of age.It now has big-time problems, just like any other major investment vehicle. While they can be solved, investors should be aware of them.Critical mutual fund concerns in 1994 include:* Increased use of derivatives, the aggressive game of buying and selling in futures markets for stocks, currencies and interest rates. The risky portfolio techniques that have hammered short-term global income and option-income funds are much like those that led to Procter & Gamble's disastrous loss of $102 million from ill-timed interest-rate swaps.

With the Dow Jones industrial average at 2,930 on Dec. 3, 1991 -- 17 days before a Federal Reserve interest rate cut that triggered a 9 percent year-end surge in stocks -- Oppenheimer Management Chairman Jon S. Fossel predicted the Dow would reach 3,600 by the end of 1992.A month ago, as it appeared that the average would not top June's high of 3,413 in the absence of another strong year-end rally, Fossell gave his 1992 call a C+ grade --even though broader market averages were at record levels -- and bravely issued a 1993 forecast.

On and on the gains of stock funds go. Where they stop nobody knows.One thing's certain, however: Investing is becoming a trickier and trickier proposition."