Summary of Mutual Fund Regulations

Securities laws regulate mutual funds and securities transactions.

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A mutual fund offers shareholders an opportunity to invest in stocks, bonds and other investments. Consumers who purchase mutual fund shares rely on the fund's management to choose buy investments that will earn the highest possible returns. Securities laws regulate mutual funds’ organization and management as well as the purchase and sale of securities.

Securities Act of 1933

The Securities Act of 1933 attempts to ensure that transactions are based on accurate information to investors, rather on than deceptive or fraudulent practices. The act requires all issuers to register non-exempt securities with the Securities and Exchange Commission. All information that supports a prospectus must be submitted to the SEC. Such information includes a description of the securities issuer’s business, audited financial statements and business risks. The SEC reviews registration statements to ensure that appropriate disclosures are made, and it can prosecute sellers of unregistered securities.

Securities Exchange Act of 1934

The Exchange Act of 1934 regulates sales after a security is initially offered by the issuing company. Congress passed this act to impose mandatory disclosure in support of investors' decision-making and to prohibit fraud. The Exchange Act also regulates the securities exchanges and financial markets participants. In addition, the act established the Securities and Exchange Commission, which regulates the securities market and enforces the Securities Act, the Exchange Act, and later the Sarbanes-Oxley Act and other legislation. In particular, the SEC requires periodic filings, and it acts against companies that disseminate fraudulent or incomplete information.

Investment Company Act of 1940

To minimize conflicts of interest, the Investment Company Act regulates the organization of mutual funds and other investment companies, and the actions of the organizations' directors. In particular, this act separates the functions of investment banks and investment companies, and it restricts transactions between the two types of firms. The act also requires mutual funds to disclose their financial condition when stock is sold and on an ongoing basis. The funds must also describe their investment objectives, organizational structure and operations.

Investment Advisers Act of 1940

The firms that manage mutual funds are regulated under the Investment Advisers Act of 1940. This act requires advisers to register with the SEC and to conform to the agency's regulations to protect investors. Under the act, the National Association of Securities Dealers regulates -- with SEC oversight -- its member brokers through rules, examinations and enforcement actions. In turn, the act grants the SEC the authority to makes such rules, establish examination policies and conduct mutual fund and adviser examinations.

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About the Author

Billie Nordmeyer works as a consultant advising small businesses and Fortune 500 companies on performance improvement initiatives, as well as SAP software selection and implementation. During her career, she has published business and technology-based articles and texts. Nordmeyer holds a Bachelor of Science in accounting, a Master of Arts in international management and a Master of Business Administration in finance.

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