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By Sharon Epperson Correspondent
CNBC

If you own mutual funds from Putnam, Strong, Janus or any other fund companies that have recently been hit with allegations of fraud or impropriety, you’re probably wondering whether to yank your money out or ride out the storm. Well, financial advisors may offer some guidance.

Many advisors say it really depends on the individual investor, the funds they’ve invested in and the tax bite they’d face by pulling out vs. the possible return on the investment.

Other financial planners are taking a far tougher stance.

“When a little scandal is exposed, I think it’s almost like a cancer, you don’t know whether it’s metastasized or whether they’re going to be able to stop it,” said Vern Hayden of Hayden Financial Services. “But, I would pull everything out of any of these funds or fund families that are connected to any of these schemes because I think that’s the only safe way to go.”

But whether you decide to stay with a fund company under scrutiny or to jump ship, the criteria you should consider to evaluate the funds are the same:

Study the fund’s track record over a long period of time and compare it to certain benchmarks.

Read the fund’s prospectus to find out what expenses are associated with the fund. It will also tell you the fund’s rules regarding market timing and getting in and out of a fund.

And, of course, investigate the fund manager’s tenure.

InsertArt(2060014)Yet as the Strong investigation has revealed it is also important to check out the tenure of the person leading the fund company and the board that oversees it. Hayden likes to see a significant number of independent board members, including the chairman.

If you’re still not convinced that these criteria will keep your fund out of hot water, consider exchange traded funds that are based on certain indices.

“There’s been a tremendous advent of exchange-traded funds (ETFs) where an individual through an IRA or an individual brokerage account can actually create a diversified portfolio and an asset allocation portfolio with all of the different segments that they want to and have a passive manager so they avoid the fallibility of any fund manager scandals or fund manager changeovers,” said Jonathon Satovsky of American Express Financial Services.

But again, ETFs are not usually offered in 401(k) or company-sponsored retirement savings plans. In that case, you still have to do a lot of homework when picking a fund.

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