Truth in Labeling for Mutual Funds

The Securities and Exchange Commission said Wednesday that it adopted a rule intended to make mutual fund names better reflect the type of investments, either stocks or bonds, that a fund makes.

The rule requires a fund to invest at least 80% of its assets in stocks if its name suggests it focuses on stocks, or 80% into bonds if the name suggests a focus on bonds. Shareholder approval or a 60-day advance notification allows a fund to change the direction of the fund’s focus.

The 80% requirement would not apply to a fund whose name suggests it focuses on several types of investments.

The SEC said the adopted rule is an attempt to achieve “truth in labeling” and reduce confusion when an investor selects a fund for specific investment needs.

“We caution investors, however, that a fund’s name cannot tell the whole story about the fund and that, before investing, investors should consult other sources of information, particularly the fund’s prospectus,” said Paul Roye, head of the SEC’s mutual-funds unit.