Have you ever read a mutual fund prospectus? A summary prospectus is what the name implies -- a summarized version of the full prospectus. If you have read a prospectus, you would be in the minority of investors who can even say what it is and what it is used for. In fact, some who have read a prospectus might say its best purpose is a sleep aid. And an effective one at that!
Fortunately, for those investors who actually want to analyze a mutual fund and be responsible before buying shares, there is a lighter read, called a summary prospectus.
Summary Prospectus Definition
Not to be confused with profile prospectus or statutory prospectus, the summary prospectus offers an improvement over the full length mutual fund prospectus that is often confusing and muddled with legalese. The modernsummary prospectus rules were effective on March 31, 2009, and all mutual funds have followed these standardized regulations since January 1, 2010.
Since the full prospectus is not easy to understand for the everyday investor, the summary prospectus rules require that mutual fund companies provide investors with a brief summary (generally three to four pages)—in plain English—of the key information that will allow investors to make informed investment decisions about the respective mutual fund under consideration.
The SEC also adopted a rule that allows a summary prospectus to satisfy prospectus delivery requirements as long as the summary prospectus, the full, statutory prospectus, and other required information is available online. For this reason, you don't see those pesky little paper booklets anymore (for those of you who have been investing more than 10 years that might remember the old prospectus).
What's In a Mutual Fund Summary Prospectus?
The summary prospectus must contain the following items in standardized order and cannot include additional information, nor omit required information:
- Investment objectives/goals
- Fee and expense tables
- Principal investment strategies, principal risks and performance table
- Management information
- Purchase and sale information
- Tax information
- Financial intermediary compensation information
Alternative Information Sources to Mutual Fund Summary Prospectus
Requiring mutual fund companies to offer the summary prospectus was a beneficial step toward transforming the complexities of investing in mutual funds into a more simple, accessible format. However, investors can also find the basic information about mutual funds, such as the investment objective, the fees, manager background, and past performance, on websites that do all of the homework for investors and provide that information in an understandable way.
Some of the best websites to research mutual funds include Morningstar, Lipper Leaders, Kiplinger Mutual Fund Finder, and MAXFunds. Each site has its own look, feel, and specialization. So it's a good idea to look at each one to see which research site suits your needs the best.
And returning to the idea and purpose of reading the summary prospectus, it's much easier to read than the full prospectus; so investors are smart to read it, in addition to researching on websites. Once you do your homework, you'll be confident you've made the best possible choice before buying mutual funds.
See Also: Securities and Exchange Commission Final Action on the Summary Prospectus Rules
FAQs
A mutual fund prospectus contains details on investment objectives, strategies, performance, distribution policy, fees, and fund management. The risks of the investment are typically disclosed early in the prospectus and then explained in more detail later in the document.
What is a prospectus in a mutual fund? ›
A document that describes the mutual fund to prospective investors. Every mutual fund provides a prospectus with information about the mutual fund's investment objectives, risks, past performance, and expenses.
What is a prospectus summary? ›
The prospectus shall include a summary that provides the key information that investors need in order to understand the nature and the risks of the issuer, the guarantor and the securities that are being offered or admitted to trading on a regulated market, and that is to be read together with the other parts of the ...
What is a mutual fund summary? ›
A mutual fund is a pooled collection of assets that invests in stocks, bonds, and other securities. When you buy a mutual fund, you get a more diversified holding than you would with an individual security, and you can enjoy the convenience of automatic investing if you meet the minimum investment requirements.
Do you need a prospectus for a mutual fund? ›
Mutual funds must provide a copy of the fund's prospectus to shareholders after they purchase shares, but investors can – and should – request and read the fund's prospectus before making an investment decision. There are two kinds of prospectuses: (1) the statutory prospectus; and (2) the summary prospectus.
What is the purpose of a prospectus? ›
A prospectus is a written document that provides all material information about an offering of securities, and is the primary sales tool of the company that issues the securities (called the issuer) and broker-dealers that market the offering for the issuer (called underwriters).
Is a summary prospectus required? ›
The amendments to Form N-1A require that every fund include a summary of key information at the front of its statutory prospectus. The information included in the summary section must be presented in plain English and in the following standardized order: Investment objectives and goals.
What is a prospectus in simple terms? ›
A prospectus is defined as a legal document describing a company's securities that have been put on sale. The prospectus generally discloses the company's operations along with the purpose of the securities being offered.
How to read a mutual fund prospectus? ›
Start by focusing on sections detailing the fund's objectives, strategies, risks, and fees. Using the glossary and relevant Investopedia articles to understand specific terms will make the document more manageable.
How long is a mutual fund prospectus good for? ›
An advertising prospectus is one that discloses portfolio performance information to the investor ss part of the official offering document. If the mutual fund is going to disclose their performance, they must disclose their performance for one, five, and 10 years, or for the life of the fund.
The prospectus shall be signed by every person who is named therein as a director or proposed director of the Company or by his duly authorised attorney.
What are the 2 types of prospectus? ›
According to the companies act 2013, there are four types of the prospectus, abridged prospectus, deemed prospectus, red herring prospectus, and shelf prospectus.
When must a fund prospectus be provided to an investor? ›
When all comments are addressed, the prospectus must be made available to investors before the sale of the investment fund securities. There are different types of prospectuses.
What is a prospectus template? ›
The dissertation prospectus is a 20-25 page document that gives a road map for the proposed dissertation, arguing for its feasibility and significance to the field. Below you will find a template outlining the elements of a strong prospectus.
What is a prospectus and how do you get one? ›
A prospectus is a formal document that is required by and filed with the SEC that provides details about an investment offering for sale to the public. This document is used to help potential investors make a more informed decision on whether or not to invest.
