What You Should Know About a Prospectus

What You Should Know About a Mutual Fund Prospectus

Before you invest in shares of a mutual fund, you should understand the nature of the investment you are making. The fund's prospectus describes the nature of the fund offering. Before investing in a mutual fund, you should review its prospectus to determine if the investment is appropriate for you.

Technically, a prospectus is a legal disclosure document filed with the Securities and Exchange Commission (SEC) that provides information that a person can use to make an informed investment decision.

A prospectus may run more than 100 pages in length, but some fund companies use a more concise 'summary prospectus,' which covers key information about the fund. Information may include the following:

  • Investment objective (its overall investment purpose)
  • Fees and expenses (such as sales charges, if any, management fees, 12b-1 distribution fees, etc.)
  • Principal investment strategies (how the fund intends to invest to attempt to satisfy its investment objective)
  • Principal risks, including a narrative description of the fund's risks and including an illustration of the fund's historical investment performance (including one-, five- and ten-year average annual returns)
  • Portfolio managers
  • Procedures regarding how to purchase and sell the fund's shares, including minimum investment amounts
  • Tax information, including information about payments to persons who sell the fund's shares, if applicable



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