On June 4, 2018, the Securities and Exchange Commission (SEC) voted to improve the experience for investors who currently own mutual funds.
This ruling is called 30e-3 and is a new way for mutual fund investment companies to let shareholders access annual and semiannual report information.
Let us go over the implications of the new ruling.
Find out about the most important criteria for selecting a mutual fund here.
The new rule, called 30e-3, creates a “notice and access” method for delivering mutual fund shareholder reports to investors. In the past, if an investor owned shares of a specific mutual fund, the fund investment company was required to mail annual and semiannual reports. On average, these reports can range anywhere from 25 to 100 pages long. If an investor has several mutual funds, each fund company is required to provide reports of each individual fund, even if it belongs to the same fund family. For example, an investor that owns five different American Funds mutual funds would receive five different reports around 40 pages each. Between the reports and the prospectuses, shareholders are often bogged down by the amount of literature that is sent.
In an effort to be more cost-efficient, the SEC will soon allow a fund to deliver its shareholder reports by making them publicly accessible on a website, free of charge, and sending investors a paper notice of each report’s availability by mail. This ruling is to be effective January 1, 2021.
Click here to get a better understanding of the mutual fund prospectus.
Benefits for Investors
One way this new ruling is a benefit is that it can reduce the amount of clutter that investors already receive. Shareholders that already have their brokerage statements, confirmations and other transaction information set up for e-delivery can now have their annual and semiannual reports set up the same way. However, shareholders who do not want the option to receive the reports electronically can “opt-out” and still receive paper copies.
Another benefit for shareholders is also a large benefit to the investment companies. According to the Investment Company Institute, this new ruling will save nearly $2 billion over the next decade. If investment companies are no longer required to print out reports and pay for the postage for every shareholder, they should undoubtedly see a significant reduction in administrative costs. That savings could possibly be passed directly to the investor by lowering the fund’s expense ratio. The American Funds AMCAP A (AMCPX) fund, for example, had a direct line item for reports to shareholders in its annual report ending as of February 28, 2018. The annual cost for the AMCAP fund to produce and mail all of its shareholder reports was $1.85 million. With the new ruling, this cost should be cut significantly, which could result in American Funds reducing the AMCAP fund’s expense ratio.
Click here to find out the where mutual fund expenses are headed.
How to Access Reports
Shareholders who are looking to readily access an annual or semi-annual report can do so directly from an investment company’s website. Using American Funds as an example again, the information can be found on their website under “Investments” and then under “Prospectuses and Reports.” The page then shows every single mutual fund available, with the corresponding prospectus and report information available.
The Bottom Line
Overall, this ruling is an effort for the SEC to keep up with the times and technology. The financial industry has always been behind the times when it comes to technology, with many elements still requiring paper documentation versus being electronically delivered. However, with this new ruling, shareholders can reduce their clutter while also potentially seeing savings within the mutual fund themselves.