Regulation

Mutual funds are closely regulated under the Investment Company Act of 1940, which is widely regarded as a very successful piece of federal legislation. ^[3] Under this act, the SEC closely regulates mutual funds, which must file semiannual reports with the SEC.

^[3] Mutual funds are also regulated under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.

Shareholders have specified voting rights, including the right to elect directors and the right to approve any material changes in the terms of a fund's investment advisory contract. Annual and semiannual shareholder reports are required.

Funds have operated with few problems in terms of fraud and theft of shareholder monies. Investors might lose from ownership of a mutual fund, but it will be because the prices of the securities held decline, not because of any malfeasance on the part of the fund's managers. The record here is very clear and very strong ”investors can have confidence in the mutual fund industry in terms of investor protection. Mutual funds are an outstanding success in this regard.