Study Finds Some Confusion About Fund Risks

A majority of mutual fund investors understand they could lose money, according to a survey released Monday.

Consumer advocates said the bad news in the study by the Office of the Comptroller of the Currency and the Securities and Exchange Commission is the percentage of respondents who think investments in bond funds and money market funds are risk-free.

The study comes as mutual funds are enjoying a surge in popularity. According to the Investment Company Institute, mutual funds now have 40 million investors and about $3.1 trillion in assets.

For bankers and other mutual fund sellers, there is good news in the fact that 94% of the 2,000 mutual fund shareholders surveyed said they know they risk losing money investing in a stock fund.

Bankers have often said, in response to criticism, that they are doing an adequate job of disclosing to their customers the risks involved in investing in mutual funds.

“We think this means that [consumers] are getting the information from someplace and they have absorbed it, and we are quite encouraged to see that,” said an official with the OCC, which regulates national banks.

Seventy-two percent of investors in bond funds and 64% of purchasers of money market funds understood there is a risk of losing money. Of those who thought there was no risk investing in a money market mutual fund, 20% said it was because they believed such an investment would be covered by federal insurance.

Almost 20% of the survey respondents said they thought mutual funds sold through banks are less risky than funds sold elsewhere.

“I think there should be cause for concern that 1 in 3 mutual fund investors are not aware of something as basic as the risk involved,” said Mary Griffin, insurance counsel for Consumers Union, an advocacy group. “And it is disturbing that people believe that if they buy from a bank it is less risky, when that is just not the case. It highlights the need to have protections in place.”