Investors in mutual funds receive a fund prospectus when purchasing a fund. Updated versions of the prospectus are sent to investors throughout the year as per legal requirements. While it can be tempting to shove the prospectus in a drawer or throw it away, remember it contains relevant information that will directly impact your pocketbook. While many funds offer a summarized version of the prospectus spanning one or two pages, the traditional prospectus contains the bulk of information on fees and administration.
A mutual fund prospectus provides investors with detailed information on the fund holdings and administration. Information on buying and selling shares, early redemption policies and administrative fees makes up a substantial portion of the document and is required by law. The prospectus remains one of the best tools for investors to evaluate mutual fund performance and administration. Firms usually include information on investment philosophy, estimated risk, strategy and research on the overall economic outlook as well. The most recent prospectus is usually regarded as the legally binding version. Each prospectus a firm issues is filed with the U.S. Securities and Exchange Commission.
Fund managers mail hard copies of the prospectus to investors at predetermined intervals. The industry standard is quarterly, though there are exceptions. Depending on how returns are calculated, an updated prospectus is sent to investors on a monthly, quarterly or annual basis. Although uncommon, a few funds may offer prospectuses on a semi-annual basis. Most firms now list the fund prospectus online for easy retrieval. Prospective investors can also request a prospectus before purchasing shares of a mutual fund. Each prospectus must be in compliance with federal reporting regulations at the date of issuance. The date of issuance is listed on the front page of the prospectus.
Since a mutual fund contains several types of investments, the prospectus will outline each specific holding. Typically, the market sector of each investment is given, along with estimated risk. Quarterly and annual performance of the mutual fund occupies a portion of the prospectus. A segment devoted to legal disclosures makes up several pages. The names and qualifications of the fund managers or administrators are listed. Many fund managers also include a letter to the investor outlining market and economic conditions and predicted impact on the fund performance. Administrative fees and costs are outlined according to SEC regulations and requirements.
As a general rule, the type of investments held in a mutual fund dictate the frequency of the prospectus. Investment firms compile information on traditional investments like stocks and bonds on a quarterly basis. Mutual funds that contain more sophisticated investment vehicles like private equity and foreign holdings may be evaluated on a quarterly, biennial or annual basis. A prospectus will be dated, and the most recent publication remains valid until a new prospectus is issued. Occasionally, firms list specific expiration dates on policies or fees. Investors should keep mutual fund administration fees in mind when analyzing performance.
- U.S. Securities and Exchange Commission; Mutual Fund Prospectus Tips; July 2010
- U.S. Securities and Exchange Commission. "Registration Under the Securities Act of 1933." Accessed Nov. 4, 2020.
- U.S. Securities and Exchange Commission. "Investor Bulletin: Investing in an IPO." Accessed Nov. 4, 2020.
- U.S. Securities and Exchange Commission. "Information Available to Investment Company Shareholders." Accessed Nov. 4, 2020.
Born in Chicago, Clare Archer has a background in art history, music, investing, travel and personal finances. She has written professionally since 2004 and her work has been published in publications such as "Creative Loafing" and Daily Kos. Archer holds a Bachelor of Arts degree in English with a minor in Economics.