The SEC has stated that the amendments are intended to prevent fund names from misleading investors about a fund’s investments and risks. In particular, the changes address the use of broad or ambiguous terms that may create expectations that are not supported by the fund’s actual holdings.
The change to the SEC’s Investment Company Act Names Rule (Rule 35d-1) could significantly increase the administrative burden on asset managers handling single-state tax exempt funds1.
Under the change, if a fund’s name suggests a focus on a particular asset type, industry, or strategy, at least 80% of its assets must be invested in line with that description.
Ensuring compliance will require managers of these U.S. registered investment funds to ensure their names accurately reflect their investments and underlying risks. This will require a review of each individual [LZ2] asset held in the fund – a significant burden on resources if handled manually
Under the new change, managers will need to cross reference individual fund holdings against key reference data, while analyzing the fund holdings at a granular level to determine their compliance with threshold rules.
If a fund’s name suggests a focus on a specific asset type, industry, or investment strategy, at least 80% of the value of the fund’s assets must be invested in accordance with that focus. This policy must be consistently applied and monitored.
Additional record-keeping rules will also need to be followed, including six-year retention of:
- Written records from the time of investment evaluations and quarterly evaluations, including a fund’s basis for having each investment in its 80% bucket.
- A record of any identified departure from the 80% threshold and reason for the departure.
- A record of any shareholder notice provided in accordance with the rule.
“Names Rule reporting should be viewed as more than just compliance: it’s transparency into your funds holdings, truth in fund labelling, and reputational risk management,” said BBH’s Jessica Sacco. “But it does pose a significant challenge for those it applies to. It’s important for managers to review their options now and look for ways to automate what will otherwise be a burdensome process.”
The impending deadlines to comply are June 11, 2026, for larger fund groups and December 11, 2026 for smaller fund groups.
The latest amendment to the Names Rule is designed to correct those managers using broad categories of investment company names that might mislead investors.
Enhancement of the rule was designed partly to address materially deceptive and misleading use of the terms such as “growth,” “value,” and “ESG” terminology in fund names.
Under the Investment Company Act ‘Names Rule’ (Rule 35d-1), a fund may not deviate from a fundamental policy unless it has been authorized by the vote of a majority of its outstanding shareholders.
Commenting on the upcoming change the SEC said: “The amendments to this rule are designed to increase investor protection by improving, and broadening the scope of, the requirement for certain funds to adopt a policy to invest at least 80 percent of the value of their assets in accordance with the investment focus that the fund’s name suggests.”
For more information on this and other upcoming rule changes please contact your relationship manager or Reed Apfelbaum.
The Names Rule, specifically Rule 35d‑1 under the Investment Company Act of 1940, requires investment companies to adopt policies that accurately reflect the actual investment focus of their names.
Under the updated rule, fund names that suggest a particular investment focus must more clearly align with how the fund is actually invested, reducing the risk of misleading or deceptive fund names.
If a fund’s name suggests a focus on a specific asset type, industry, or investment strategy, at least 80% of the value of the fund’s assets must be invested in accordance with that focus. This policy must be consistently applied and monitored.
Funds using broad or descriptive terms such as “growth,” “value,” or ESG‑related terminology are particularly impacted. The amendment is designed to address materially deceptive or misleading use of such terms in fund names.
Fund managers will need to:
- Review fund names to ensure they accurately reflect investment strategies
- Conduct detailed reviews of individual securities held in each fund
- Maintain compliance with the 80% investment policy where applicable
This may increase the administrative burden, particularly for managers of single‑state tax‑exempt funds.
A fund may not deviate from a fundamental investment policy required by the Names Rule unless it has been authorized by a vote of a majority of its outstanding shareholders.
The compliance deadlines are:
- June 11 for larger fund groups
- December 11 for smaller fund groups
Funds must meet the new requirements by the applicable deadline.
The amended Names Rule is designed to:
- Improve transparency and clarity
- Reduce misleading expectations created by fund names
- Strengthen alignment between a fund’s name, investments, and risks
Overall, the changes aim to enhance investor protection and confidence.
1 This includes funds using the term “municipal” in their names which are treated like tax-exempt funds. Source: Thompson Hine. SEC’s 2025 Names Rule FAQs: Clarifications and Updates. 15 January 2025.
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