After months of criticism, some mutual funds that magnify investors' bets on the direction of the stock market are being scaled back.

On Wednesday, Direxion Funds said its so-called "leveraged" mutual funds will double investors' bets on the direction of the stock market on a monthly - rather than a daily - basis.

The change will apply only to Direxion's conventional mutual funds and not to its exchange-traded funds that, along with those from Bethesda, Md.-based ProShares ETFs, have provoked the most controversy.

Leveraged mutual funds and ETFs, which have collected billions of dollars in the past few years, use complex investments like swaps and futures contracts to give investors a more convenient alternative to moves like trading stocks on margin or short selling.

For example, on a day when the stock market rises 1%, a triple-leveraged long fund might rise 3%, while a leveraged short fund would fall 3%.

While such tools appeal to a wide range of investors, many use them to make bets that last longer than a single day. In that case, results can be disappointing, especially in volatile markets when compounding daily returns tend to work against fund investors.

For instance, while the Russell 2000 was up about 2.6% over the first six months of the year, the effect of daily compounding meant the Direxion Daily Small Cap 3X Bull ETF was not up 7.8%, but down about 21% during that span.

Funds that aim for monthly rather than daily returns could still produce similar discrepancies, but the longer time frame would give investors more time to react.

Andy O'Rourke, head of marketing at Direxion, says the funds' new goal may be a "better fit" for investment managers using leveraged mutual funds to hedge other bets or get exposure to a certain slice of the market over the medium term. Day traders may continue to favor the ETFs.

-By Ian Salisbury, Dow Jones Newswires; 212-416-2241; ian.salisbury@dowjones.com