SEC Amends Fund Names Rule, Including Inline XBRL Tagging

SEC Amends Fund Names Rule, Including Inline XBRL Tagging

By Prathamesh 21 September, 2023

The US Securities and Exchange Commission (SEC) is adopting amendments, including introducing Inline XBRL tagging, to the Fund Names Rule (rule 35d-1). The aim is to reduce the risk of investment companies misleading investors with misnomers not aligned with the actual investments held.

The fund name rule has been in operation since 2001, requiring funds to invest 80% of their assets in line with their name’s focus – a fund called GreenGrowthUSA, for example, could reasonably be expected to focus on sustainability investments in the US.

The amendments aim to modernise the rule by improving and expanding the requirements. This expansion includes fund names focusing on “growth” or “value” and those related to environmental, social, or governance (ESG) factors. Funds falling under the requirement will need to include disclosures in their prospectus that define the terms used in their name, including the specific criteria used to select the investments described by that term. This information would then need to be tagged with Inline XBRL.

The introduction of Inline XBRL will enhance transparency and investor protection by making the extraction and searching of this information easier. Investors and analysts will more efficiently be able to access and compare disclosures related to fund names and their investment policies across different reporting periods.

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