A mutual fund prospectus is an important legal document that every investor should read before deciding to invest in a particular fund. Mutual funds are regulated by the Securities and Exchange Commission, which sets the rules for companies that offer mutual funds to potential investors. Among the rules is that a mutual fund must update its prospectus at least once a year.
Information about a mutual fund can generally be found from several sources, such as investment websites and online publications, but the best source of information for any mutual fund is its prospectus. SEC rules state that a fund prospectus must present key data for investors, including the fund's past performance and fees charged to investors. The prospectus must also be prepared in a standard format specified by SEC rules so investors can conveniently compare one fund with another.
Special Summary Prospectus Rules
Since Jan. 1, 2011, SEC rules require mutual funds to follow special prospectus rules that include preparing a short-form summary of important prospectus information. The summary must be attached to the mutual fund’s long-form prospectus filed with the SEC. The summary must include the required information in a specific order, as follows: investment objectives and goals; costs (including fee table and example); principal investment strategies, risks and past performance; management (including investment advisers and portfolio managers); purchase and sale procedures; tax information; and financial intermediary compensation.
Rules for Prospectus Update
The date that a mutual fund issues a prospectus should be on the front cover of the prospectus. SEC rules require a mutual fund prospectus to be updated at least once a year. The prospectus should also be updated whenever there is a significant change to the mutual fund, such as a resignation or firing of the fund managers. A mutual fund that frequently updates its performance information on its website or by a toll-free number must place this information on its prospectus summary.
Delivery of Prospectus to Investors
A prospectus must be provided to everyone who invests in a mutual fund; however, it is a better practice to request a copy of the prospectus before investing in the fund. The prospectus should be provided free of charge by the mutual fund company, its registered representative or a broker.
- SEC: Mutual Fund Prospectus
- Ropes & Gray, LLP: SEC Adopts Summary Prospectus Rule for Open-End Management Investment Companies
- SEC: Invest Wisely -- An Introduction to Mutual Funds
- SEC: Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies
- AXA Equitable Life Insurance Company: How to Read a Mutual Fund Prospectus