Have you ever come across a "global" mutual fund or an "international" mutual fund and wondered if there is a difference? How about a mutual fund that says, "Asia ex Japan"? These aren't just meaningless titles - they actually are telling you certain things about the types of investments the fund owns.

What Is In a Mutual Fund Name? A Lot, Actually

A few years ago, the Securities and Exchange Commission, or SEC, passed a rule that requires mutual funds to invest 80% or more of the fund assets into securities that are compatible with the fund name.

For example, the XYZ Long-Term Bond Fund would need to keep at least 80% of the fund's assets in long-term bonds or it would be in violation of this rule. That means no matter how inexpensive the stock market looked or how risky management believed long-term bonds were at any given time, they would still be required to park the money in long-term bonds. Likewise, the ABC Utility Stock Fund would need to keep 80% of its assets invested in utility stocks.
What, then, is the precise difference between a global mutual fund and an international mutual fund?

• A global mutual fund invests in assets around the world including the home country.
• An international mutual fund invests in assets around the world excluding the home country.
• An "ex [insert country name here]" mutual fund invests in a region excluding the area after the "ex". For example, a fund that is called something like "XYZ Asian Stock Fund ex. Japan" would have to invest at least 80% in Asian stocks excluding Japanese stocks.

One lesson to take away from this is the name of your mutual fund really does matter.

This is a major improvement over the older days because inexperienced investors who pick a fund for its name, say a "dividend fund", now at least have the basic guarantee that they are getting something close to reality. It is still absolutely vital that you take the time to read a fund's prospectus, which is the document that explains the risks and strategies used by the portfolio manager to select investments. It also gives you information on the fund expense ratio, which is really important to your success as a mutual fund investor.