SEC Adopts Rule Enhancements to Prevent Misleading or Deceptive Investment Fund Names

U.S. Securities and Exchange Commission

Published: September 20th, 2023

The Securities and Exchange Commission today adopted amendments to the Investment Company Act “Names Rule,” which addresses fund names that are likely to mislead investors about a fund’s investments and risks. The amendments modernize and enhance the Names Rule and other names-related regulatory requirements to further the Commission’s investor protection goals and to address developments in the fund industry in the approximately 20 years since the rule was adopted.

Typically, a fund’s name is the first piece of information that investors receive about a fund, and fund names offer important signaling for investors in assessing their investment options. The Names Rule currently requires registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). The amendments to the Names Rule will enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy, including funds with names suggesting a focus in investments with particular characteristics, for example, terms such as “growth” or “value,” or certain terms that reference a thematic investment focus, such as the incorporation of one or more Environmental, Social, or Governance factors. The amendments will also include a new requirement that a fund review its portfolio assets’ treatment under its 80 percent investment policy at least quarterly and will include specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy.

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