The Securities and Exchange Commission yesterday removed most restrictions on advertising mutual funds.

The decision for the first time allows mutual funds to advertise the return paid investors on their shares and the growth in the value of the investment.

The result is expected to be increased competition for investors money. The mutual fund industry has complained for years that it was at a disadvantage compared to sellers of other investments who could advertise without restriction.

Until now mutual funds were allowed to run only "tombstone" ads that named the fund, described its investment goals in terms defined by the SEC and urged investors to write for a prospectus detailing the offer.

The old SEC rules were so restrictive, "that you couldn't show a rocket pointing up, because that implied the stock would go up," complained David Silver, president of the Investment Company Institute, a trade association. "You couldn't even show an acorn because people would think, 'mighty oaks from little acorns grow'."

The old SEC regulations virtually ruled out radio and television advertising by funds and even prohibited photographs or drawings in most mutual fund advertising.

Under the new rules, any facts that are in the prospectus can be used in advertisement, explained Sidney Mendelsohn, director of SEC'S office of investment management. Now funds are free to use broadcast advertising with the usual television graphics, he added.

The SEC regulations prohibit mutual funds from resorting to the sort of hyperbole that is used to sell soap or cereal but "they can go far enough to whet the investors appetite." said Mendelsohn.

He said the SEC loosened the restrictions after several years of "intense pressure" from the mutual fund industry. There are an estimated 1,300 investment companies offering various types of mutual funds in which investors' money is pooled and used to buy a diversified portfolio of stocks, bonds or other securities.

Praising the SEC action, Silver said the decision shows the SEC has become more aware that the securities industry exists in a competitive environment.

"Now we can compete with banks, insurance companies, options and commodities that are simply not under the same restrictions," he said.

Silver said he expected the first round of mutual fund advertising to stress money market funds, which invest in short-term securities -- coporate notes, commercial paper, Treasury bills and the like.

Despite the lack of advertising money market funds have attracted $30 billion in investments and offering investors 9 percent to 10 percent interest, rates comparable to those paid by savings and loan associations on long term certificates.

Mutual fund industry sources said they expect the easing of advertising limits to increase competition within the field as well. Only a handful of mutual funds are well known to small investors but freedom to advertise is expected to create new consumer-oriented marketing of funds.

SEC officials stressed, however, that the agency is not turning loose mutual funds to make "blue sky" promises to investors. Mutual fund advertising will be subject to the same SEC regulations now applied to mutual fund prospectuses.

Making misleading statements in an ad will be considered the same as lying in a prospectus, Mendelsohn said. Sins of omission -- leaving out negative information that is included in the prospectus -- is considered misleading, he added.

Mutual fund ads will have to be filed with the commission, but will not have to be approved by the SEC in advance.

Because mutual fund ads will be limited to information that appears in the fund's prospectus, some funds are expected to rewrite their prospectuses to include more information aimed at marketing the product. A fund that wants to compare its growth to the Dow Jones industrial average or some other index will first have to write that fact into its prospectus and get it approved by the SEC.

Although the new SEC rules go into effect immediately, they are not expected to produce an instant boom in fund advertising. Most mutuals have neigher the plans, budget nor advertising agency needed to begin immediately.