Description
This article is from the Investing Articles:
Mutual Funds series.
Mutual Fund Regulation
Investment companies (mutual funds) are regulated by the Investment
Company Act of 1940. The roots of government regulation of investment
companies are found in the great stock market crash of 1929, which
caused Congress to begin an extensive investigation of the
U.S. securities industry. The bulk of federal powers over the
activities of investment companies is contained in the Investment
Company Act of 1940, which provides for the registration and
regulation of companies primarily engaged in the business of investing
in securities. The major provisions of the Act are summarized as
follows:
- The Act provides for registration, "full" disclosure and
regulation of investment companies to prevent fraudulent abuses.
- Generally, not more than 60 percent of the board of directors may
be affiliated with the fund, its banks or brokers.
- Management (advisor) contracts must be approved by shareholders
and the fund's outside directors.
- A company must redeem shares duly offered by shareholders within
seven calendar days at per share net asset value.
- Open-end companies (mutual funds) may borrow from a bank and use
the proceeds for investment purposes (leverage); such debt must be
collateralized three to one.
- Shareholders must be sent complete financial reports at least
semiannually, and the SEC must see such reports.
- To qualify as a regulated investment company, the fund must have
at least 75 percent of its total assets invested in securities, with
not more than 5 percent of its assets invested in the securities of
any one issuer and not holding more than 10 percent of the voting
securities of any one corporation.
- A prospectus must be given to a prospective fund investor before
sales can be solicited.
- Securities and cash must be kept by either a bank or a broker who
is a member of a national securities exchange.
In addition to federal registration, a mutual fund must register in
and abide by the laws and regulations of each state in which its
shares are sold. In other words, unless a fund is registered in your
state of residence, it cannot legally sell its shares to you.
Continue to:
Share and Enjoy
Bookmark this story so others can enjoy it:
Tags
mutual funds, no-load mutual funds, DRIP, dividend reinvestment plan, stock tables, financial information, investing, investment tools, reference
