Although the mutual fund prospectus isn't a light read, it contains valuable information that every investor should know prior to purchasing shares of the fund. This lesson outlines the answers that a mutual fund prospectus should provide to some of the most commonly asked questions from investors. The prospectus identifies the fund's investment goal and should present a clear statement about the fund's basic investment objective. This section explains the strategies that the investment adviser uses in pursuit of the fund's stated objectives. It should also describe the types of securities the fund expects to hold.
Most prospectuses list minimum or maximum percentage limitations for certain types of securities.
For example, the fund's policies may permit the manager to diversify assets across common stocks, bonds, and money market instruments. This section describes the risks assumed by the fund's investment strategies and should relate specifically to the types of securities being held by the fund. This section should disclose the costs of investing in the fund. Since fees vary from one fund to another, a table near the front of every fund prospectus makes it easy to compare the costs of funds. Fees and expenses, which are deducted from a fund's gross income, are an important consideration when selecting a mutual fund.