Question

Mutual funds sometimes face the ethical problem of putting personal gains about client interest. Explain the tow primary issues central to the find scandal described in connecting Theory to practice 5.4

ordinal → Connecting Theory to Practice l 11 per cent in November ts fal Putnam assets fall which is under investigation for improper t on fo 2 n in assets in November, or more than 11 per centanpr 11 per cent of its total, as retail of the group's involvement. Putnam, the mutual fund companyw investors pu investors pulled their money out after hearing tional also said on Friday it had outflow is set to continue as and institu just pulled its agency, has advised investors to steer clear a US arm of Amvescap. Calstrs, the Californian Teachers Retirement System $312 m allocation to Putnam, indicating that the ou Smeet to considel atial mutual fund rating agency, has advised investors to Putnam, along with four other funds named or charged by re also advise investors to avoid the products of Invesco Funds (IFG regulators. It is expected shortlyt of The move will come as a further blow to Invesco, which was hit this week with civil by both the SecurIsm, IFG's chief executive, is also facing civil charges from the SEC and Exchange Commission and Eliot Spitzer, the New York charges New York attorney and Mr Spitzer. The eight US fund managers charged or named by Mr Spitzer over market Putnam, Alliance Capital and Janus, have seen big outflows. timing, including (Mr Spitzer] has claimed that Denver-based Invesco had engaged in massive mutual fund timing- allowing excessive trading or investors to take advantage of stale prices. "The evidence in this case speaks for itself' Mr Spitzer said. "Top managers knew market timing was harming buy-and-hold investors but they condoned and facilitated it because it was a lucrative source of management fee revenues.

Answer 1

Mutual funds are among few relatively less riskier sources of income, primarily for the investors and considerably for the Fund Managers. Fund managers always play safe in the market initially by formulating the portfolio and later changing the mix of the funds. Asset management industry is considered to be one of the most wealth accumulating industries in the financial sector, since majority of the investors fall under medium risk taking capacity (or in the age group 35 years – 65 years).

While Investors always expect a secured and good return from Mutual Funds, Asset management companies earn a considerable management and performance fees out the mutual fund trading on behalf of the Investors. Average 20% commission upon the fund gain and 0.5% - 2% of the management fees on the total assets managed, are the healthiest amounts of revenue earned by Fund managers or the Asset management companies.

Putnam and Invesco, the big names in the Asset management industry have been under scanner for the practicing the unfair means to attract investors for multiplying the Commission and Management Fees from the investors. Eying the market and competitors’ downturn in similar or different sectors, Asset managers always try to allure Investors with better provisions like exemption Load or exit charges, marketing more open ended Funds than the other.

Asset managers or the fund managers most of the times aim at accumulating more funds and improving on market share within the industry to and try to lead the sector to call more investors for investing in the funds.