SEC to Consider Plan to Simplify Mutual Fund Data

The Securities and Exchange Commission plans to consider today a proposal to streamline the information that mutual fund companies provide to potential investors.

The five-member commission will debate at an open meeting whether to allow the companies to provide a so-called “profile” of the fund, summarizing in a concise format information such as the fund’s investment strategies, risks, performance and fees. Then, if an investor wanted to buy shares in the fund, the company would include a longer prospectus along with the purchase confirmation.

Investors would also have the option of buying the fund’s shares after reviewing its detailed prospectus and other information.

The proposal, nearly three years in the making, is designed to encourage investors to take a more informed look in making a choice among the nearly 6,000 mutual funds available .

Even the longer prospectus itself would change under the SEC proposal, becoming streamlined.

Information about technical, legal and operational matters that generally are common to all funds would be minimized in the revamped documents. It would contain risk and performance information and tighten information concerning sales charges and marketing costs.

In January, the SEC approved a rule banning arcane jargon in specific sections of investment documents, mandating that companies convey that information in simple, clear language.

Those rules, which go into effect Oct. 1, will require companies and mutual funds to write the cover page, summary and risk factor sections of their prospectuses in short sentences using everyday words in an active voice.

It is compulsory that companies make those three specific sections of the document more streamlined. However, the commission said it will encourage them to write the entire document in clear, understandable language.