Mutual Fund Prospectus

What is a Prospectus?

A Mutual fund prospectus outlines everything that an individual needs to understand about a given company with regards to the risks involved and the investments that a given company will be involved with.

The investment objectives, strategies, risk, and past performance are all outlined in the business Investment prospectus. There are basically 3 sections that an investor needs to concern themselves with.

Risk Section

In this section the fund outlines all of its objectives as well as what they invest into. Does the fund invest into stocks, bonds, or other mutual funds? Is it involved in riskier strategies such as shorting? All of that information should be in the prospectus.

If you don’t understand the risks involved you can call the mutual fund company and have them break it down for you. It is very important that you understand the risks involved and what the company actually invest into.

That way you can be sure that you do not fall into a scam or an overly risky or overly conservative fund.

Reward

The business investment prospectus should also have some data on their past performance. Take into consideration how conservative the fund is. A more aggressive fund should have a better long term return then a fund which only invest into money markets and bonds.

Ideally a fund should have a better long term history then the S&P history, because it is considered to be the market average and anything it is what most fund managers are trying to beat. If they can’t beat it then they are not doing any better than a portfolio of stocks in the top 500 companies and are not worth paying a fee for.

Fees and Expenses

The last thing to look at is the net annual fund operating expenses. This tells you how much you can expect to pay in maintenance fees every year.

It would be a shame to have to pay a large percentage of your return back into the mutual fund, so make sure that it makes sense to pay it.

You can use the S&P as a standard here too, if the fund made an 11% return over the past 30 years then it beat the S&P’s 10% return. However if they charged 3% a year to do it then you might as well have invested elsewhere.

Statement of Additional Information

Now that you know what is a prospectus it is important to know what the Statement of Additional Information is. Basically this is a statement that the fund lists everything that they “forgot” to mention in their standard mutual fund prospectus.

By reading through these you might just find some critical information that would change your opinion on the fund. So it can be a wise idea to scan it as well as the regular prospectus.

External links about Mutual Fund Prospectus

Find a Mutual Fund Prospectus Report

How to Read a Prospectus

Return From Mutual Fund Prospectus to Types of Mutual Funds