For How Long Is a Prospectus Good?

Investors interested in purchasing shares of a new stock or shares in a mutual fund will want to study the prospectus carefully. Federal laws in the United States require any company issuing new securities to register a prospectus with the Securities and Exchange Commission, or SEC. The prospectus will contain standard information, such as the company's policy on dividends, a business plan, current financial condition and details on management and future plans. In addition, knowing the currency of the information contained in the prospectus will help the investor to make smarter choices with investment dollars.

Not only is a prospectus a legal document required to meet set federal guidelines, but the issuer also uses a prospectus to market a security or mutual fund. A publication released by the Missouri secretary of state in 2005 calls the prospectus the "primary sales tool" of the issuer. In other words, a corporation with securities for sale will attempt to make the prospectus as attractive as possible to potential investors. However, as falsifying information is illegal, generally a prospectus will hold true to the facts.

United States Code Title 15,77j outlines in detail the regulations concerning the information required to be given in detail in a prospectus. Paragraph three of the sub-chapter states once a new security is issued and has been available on the market for longer than nine months, the data in the prospectus cannot be more than 16 months old. Thus, by federal law, a prospectus should be good for 16 months on all securities older than nine months. Changes, if needed, should be made to the document by the issuing authority to meet this regulation.

BlackRock Investments calls a mutual fund prospectus "the most direct route to full fund disclosure." Investment companies known as mutual funds must update the information yearly, if needed. Thus, a prospectus for a mutual fund would be good for one year or less. All mutual funds are required by law to provide investors with a prospectus at the time an initial investment is made. According to SEC guidelines, a mutual fund must also provide an investor with the current prospectus, if requested.

In the January 26, 2009 issue of the "Federal Register," the U.S. Securities and Exchange Commission outlined the new rules for "Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies." Targeted at mutual funds, the new rulings permit investment companies to furnish investors with a summary prospectus only, as long as a detailed version is made readily available on a website.