NEW YORK (MainStreet) — If you invest in a mutual fund that has the word "protected" or "guaranteed" in its name, you may see that fund suddenly disappear. And the Securities and Exchange Commission (SEC) says you may have been misled.

"When a mutual fund or other investment company uses a name that suggests safety or protection from loss, the name may contribute to investor misunderstanding of the risks associated with an investment in the fund and, in some circumstances, could be misleading," the SEC says in a recently issued investment management guidance update.

Mutual funds with such reassuring names that still expose investors to market, credit, or other risks, should consider changing their names, according to the SEC.

The SEC Division of Corporation Finance has previously expressed similar concerns about the titles of structured notes using the term "principal protected." The commission has advised issuers to include information regarding the limitations to the principal protection feature and to evaluate and reconsider the titles of such to avoid titles that stress positive features without also identifying limiting or negative features.

"We believe that the terms 'protected,' 'guaranteed,' and similar terms, when used in a fund name without some additional qualification, may contribute to investor misunderstanding about the potential for loss associated with an investment in the fund," the SEC statement says. "As a result, in the disclosure review process, the staff recently requested that some existing and new funds change their names."

The commission notes that some so-called "protected" funds seek to manage volatility by putting a portion of assets in cash, short-term fixed income instruments, short positions on exchange-traded futures or other investments. Because the degree to which such managed volatility strategies may succeed or fail is uncertain, the SEC has urged the funds to replace the term "protected" with terms such as "managed risk."

Some "protected" funds also seek to minimize losses by entering into contracts with third-parties that promise to cover any shortfalls in the net asset value of a fund. These arrangements are subject to credit risk and contractual limitations that may affect the shortfall coverage.

"We encourage investment advisers and funds' boards of directors to carefully evaluate any fund name that suggests safety or protection from loss and to consider whether a name change is appropriate to address any potential for investor misunderstanding," the SEC notice concludes.

--Written by Hal M. Bundrick for MainStreet