How (and Why) to Read a Fund Prospectus
When you're in search of a definitive source of information for a particular mutual fund, all you need to do is take a look at a publication known as the fund's prospectus.
Each fund prospectus is issued by the fund provider and contains all the details investors need when choosing an investment. For example, prospectuses answer questions such as:
•In what types of securities does this fund invest?
•What is the fund's historical long-term rate of return?
•How much has the return fluctuated in the past?
•How does the fund's performance compare with that of the underlying market?
•Is the fund seeking income or capital growth?
•What risk factors are associated with the fund?
•What time frame is appropriate for an investor in this fund?
•What are the fees associated with this particular fund?
You can receive prospectuses free from mutual fund companies either online or by mail. You'll generally have no trouble finding the information you need -- prospectuses typically range from 10 to 20 or more pages and include a table of contents. To simplify the process of reviewing a prospectus, certain information is required to appear in the same place. For example, the performance table must appear at the beginning.
After reviewing a few prospectuses, you'll become accustomed to the language and be able to reduce the time it takes to find information and make a sound investment decision. Be sure to read the prospectus before investing in any fund.
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Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
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