What Is Mutual Fund Prospectus?

With a seemingly unlimited supply of mutual funds to choose from, it can be tough to determine the best place to invest your money. The U.S. Securities and Exchange Commission, or SEC, requires every mutual fund firm to provide potential investors with a document called a prospectus, which lists basic information about the fund. Reading the prospectus for each fund you're considering investing in can help you make an informed decision.

Overview

Each mutual fund prospectus contains the same basic information, though the way this information is organized can vary slightly between companies. In each prospectus, investors will find the fund's stated objective, its strategies for achieving the objective, and an outline of the risk involved in investing in the fund. The prospectus also contains a bar graph illustrating historical performance and returns for the fund, along with a list of fees and expenses associated with investing in the fund. The prospectus informs investors how to buy and sell shares, as well as how earnings will be distributed. Each prospectus includes information on the fund managers, including their experience and credentials.

Types

Investors can utilize two different types of mutual fund prospectuses when comparing different funds. A statutory prospectus is the longer of the two and contains a great deal of information related to the fund. Because so many investors struggled to understand these thick, jargon-filled documents, the SEC enacted a new requirement that firms provide a second prospectus starting in 2010. This new document, the summary prospectus, must provide a basic overview of the fund in clear, plain English with no technical jargon. While the summary prospectus has no specific requirements in terms of length, the SEC suggests that three to four pages should suffice for this information.

Access

You can obtain a mutual fund prospectus directly from your financial adviser or the fund's custodian. You might also contact the fund directly to obtain a written copy, or visit the fund's website to read an online version. The SEC also files copies of all mutual fund prospectuses, which can be accessed through the SEC's EDGAR database. A link to the SEC system can be found in the Resources section of this article.

Annual Reports

Each mutual fund firm must provide an updated mutual fund long-form prospectus and summary prospectus to the SEC each year. When consulting a prospectus, check the date on the document to ensure you have a current copy. If you still have questions about a fund after consulting the prospectus, consider reading through the company's annual report, which can be obtained from the company or through the SEC database.