Making mutual funds easier to understand for rest of us

Mutual fund investors need only grab a prospectus, which describes the rules and strategies for the fund, to find out how confusing it is to find information.

In fact, most investors don't even bother reading much past a few pages.

The Securities and Exchange Commission, which regulates the investment industry, wants to make understanding mutual funds easier.

This summer, look for new rules aimed at making that happen.

The SEC is poised to require mutual funds to issue simple outlines with key facts, including investment objective, strategy, risks, costs and performance.

Even better, that statement must be in plain English rather than industry garble.

The old in-depth prospectus still will be available for information junkies.

A big difference will be the clear disclosure of costs.

Included in this will be an explanation of portfolio turnover, or how much buying and selling a fund is doing, and how it affects costs.

The more turnover, the more in transaction fees that are taken out of returns.

As part of the plain-English initiative, wording such as "expenses that are deducted from fund assets" will be changed to "expenses you pay each year as a percentage of the value of your investment."

Sound clearer?

The change is supported by the Investment Company Institute, the mutual fund industry association.

"After 15 years of effort by the fund industry and the SEC, it appears that fund investors may soon get their wish," said Paul Schott Stevens, president and CEO of the institute, in a press release.

"The SEC's proposal will increase the chances that investors will actually use funds' key investment information."

Understanding that key information can go a long way in making better investment decisions.

Reach Dan Serra at serrafinance@yahoo.com.