While small-time investors are able to invest more often and safely, some caveats in mutual fund regulations have prevented them from maximizing their returns, according to a Milken Institute Review article.

The article, written by Professor Eugene White of Rutgers University, says that as assets in funds have risen almost six-fold from $1.1 trillion in 1990 to $6.3 trillion in 2002, reforms like making directors independent and implementing incentive shifts for fund managers are needed to stop investors from getting the shaft.

"As the market for funds grew and became more sophisticated," White wrote, "opportunities exploiting the governance structure and liquidity rules appeared. Conflicts of interest arising from incentive structures and the diversity of fund activities led investment advisers to pay less attention to the interest of fund shareholders."

On the mutual fund trading scandal, White added, "No magic bullet would prevent late trading and market-timing arbitrage."

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