The SEC’s Division of Investment Management is cracking down on funds that use names that suggest safety or protection from loss.

In Guidance Update No. 2013-12, the staff said that fund names suggesting safety or protection from loss may contribute to investor misunderstanding of investment risks. The staff said that it recently requested that some funds change what it believes are misleading names. It also “encouraged” funds that expose investors to market, credit or other risks, and whose names suggest safety or protection from loss, to reevaluate their names.

The staff raised specific concerns about funds with names that include terms such as “protected” or “guaranteed” “without additional qualification.” High on the staff’s watch list are funds that use the term “protected” in their names and seek to manage volatility by investing a portion of their assets in cash, short-term instruments or short positions on exchange-traded futures.

Funds that offer third-party principal protection against NAV shortfall also concern the staff. The staff said that funds that contract with third parties to make up NAV shortfalls should not use the term “protected” unless the fund’s name adequately communicates the limitations of the “protection.” The staff said it is not enough to disclose the limitations of third-party protection in the text of the prospectus. Rather, the name itself must reveal those limitations.

The staff encouraged 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.