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The mutual-fund scandal is like a noxious weed. Every day, it seems, regulators bring forth new allegations of improper trades and activity at large financial companies. New York Attorney General Eliot Spitzer initially named Janus (JNS), Strong, Nations Bank, and Bank of America (BAC). Now Putnam, Prudential (PRU), Alliance, and Alger have also been drawn into the scandal. Along with allowing illegal and improper trading in funds, mutual-fund firms also allegedly overcharged certain customers, according to the Securities & Exchange Commission.

For the 95 million Americans who have money in mutual funds, the spreading scandal has to raise growing concerns. But here's the good news: The effects on individuals have been quite muted. Regulatory changes will likely result that will tighten restrictions on mutual-fund trading for all investors down the road. But the prospect of catastrophic losses for many individuals doesn't appear in the cards, even as Spitzer & Co. dig more deeply into alleged wrongdoing (see BW Online, 11/7/03, "Spitzer's Strategy: One Fund at a Time").

If you owned one of the funds where improper trading went on, your monetary losses are likely minuscule. Essentially, what fund-company offenders did was allow certain of their best customers (and in some cases, employees) to trade in and out of funds in a way that let them skim some of the profits from the funds. While an unethical few made millions, the losses to any one investor were very small.

GETTING SOMETHING BACK. How small is small? It's near impossible to quantify how much money you may have been cheated out of due to this type of activity, but for most investors it was less than 1% of total invested assets, if that. Eric Zitzewitz, a finance professor at Stanford University, estimates that the total return of a $10,000 investment in the typical international fund was crimped by an average of $115 a year due to late trading or market timing.

A few international funds where the trading was most pernicious may have lost as much as 10% of their assets to this activity, says Mercer Bullard, president of shareholder-advocacy group Fund Democracy. That may be a substantial amount of money, but it's relatively painless compared to the wipeouts suffered by victims of past financial scandals.

In most cases, fund companies have promised to restore losses to the funds, so you may get some of the money back (although probably not as much as Zitzewitz and Bullard calculate you may deserve).

More good news: If you were a victim of overcharging, you stand a pretty good chance of getting some money back. A recent SEC probe found that volume discounts owed to investors who placed a large investment in what are known as "class A" shares of a fund through a broker weren't delivered in about one out of five cases. So, if you invested more than $25,000 in a load fund (usually sold through a broker), it's worth checking to see if you got the discount you deserved. You're entitled to it.

REFORMED COMPANIES? With the spotlight on abuses of investor trust, all the fund companies are in the process of reviewing their own practices. You can bet that any hedge funds that might have engaged in improper trading have stopped. "A fund that has been a bad actor may end up being the cleanest actor in town," says Dallas Salisbury, president of the Employee Benefit Research Institute.

So far, the scandal's effects on the broader market are also muted. Don't be alarmed by the articles about large institutional investors pulling their assets out of fund companies --- particularly Putnam, which has news reports say had about $8 billion (out of $272 billion total) pulled by retail and institutional investors since the SEC charged it with civil-securities fraud. While such outflows are devastating to that company, the values of the underlying stocks invested in the funds shouldn't be affected.

That's because the way the industry works, moving assets from one fund to another often amount to little more than a lot of paper shuffling. Even in cases where stocks are sold to meet redemptions, portfolio managers are required to do it in a way that doesn't affect the stock price. "Many of the big funds have the same names and symbols," says Steven Schonfeld, chief executive of Schonfeld Group, a brokerage for active traders in New York. "So if investors go from a large-cap growth fund at Putnam to one at another company, that's not going to have an impact on the market at all."

TWO EYES NEEDED. Some analysts speculate that the stock markets would be seeing a bigger rally off the positive economic news of late if the scandal hadn't discouraged investors from putting more money to work in the stock market. Maybe so. But overall, investors continue to invest in funds --- even at the companies named in the scandal -- despite the improprieties alleged. Equity fund inflows total about $100 billion this year. Last year at this time, nearly $20 billion net had been withdrawn.

This isn't to say the scandal won't eventually have some consequences for investors. More regulation is likely coming that could restrict all fundholders' ability to trade in and out of their funds on a timely basis. For example, if all trades have to be executed by 4 p.m. ET, retirement funds may be forced to close trading hours earlier. "It would make retirement-plan owners second-class citizens in the market," says Salisbury.

Investors need to keep an eye on not only the wrongdoing but also the proposals for preventing it in the future. Yes, the industry has weeds. But so far they don't show signs of being out of control.