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Tags: finance, mutual funds, reading through a mutual fund prospectus
 I admit reading through a mutual fund prospectus is like sitting through a root canal. Ok maybe not necessarily a root canal, but it is a somewhat daunting task that can leave you, John Doe investor reeling and frustrated enough to throw the thing away. Hold your horses, because with a little assistance, you can actually get some fruits of wisdom from a mutual fund prospectus that can assist you in investing in them.
After all, with the current financial situation it is of utmost importance that you are informed with what it is exactly you are investing in. And that is exactly what a mutual fund prospectus does. Before you invest in this type of investment instrument you are entitled to get a free copy of a mutual fund prospectus to look over and to help you decide if you want to go with that investment company or not.
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This document will give you an idea as to what kind of securities the account holds, who the group managing it is, as well as their goals and objectives. It is basically your guide to the fees and expenses, investment strategies and other important information about the administration of said investment instrument.
Upon reading a mutual fund prospectus look through their investment policy. This will lay out the parameters in which account managers will choose the investments. Basically, it points out the risks you can take when you buy into the investment and at the same time you can compare it with your own financial goals to see if they match.
The next thing to check out in a mutual fund prospectus is the people who will manage the account. It will tell you whether the account is run by one person or a group of people. There are advantages to having more than one person manage an account foremost of which is continuity—should one manager leave, there will still be others who will pick up the slack.
At the same time you will also know just how much the account managers are getting out of it. A no loads account may look good in theory until you see that it is heavily loaded with management fees instead. This brings me to another thing you should look out for in a mutual fund prospectus: the account’s fee schedule.
There are typically two types of fees: shareholder fees and the fund’s expenses. As an investor you get charged the shareholder fees in the form of transaction charges. The 2nd type of fees on the other hand charges the account directly regardless of whether or not it is making money—basically it can lower the value of your investment.
After looking at the account’s fee schedule look at the turnover rate next. It’s basically the number of times the entire portfolio has been bought and sold. A high portfolio turnover not only results in high capital gains penalties but also higher transaction costs, both of which are passed unto you.
On the other hand, a low portfolio turnover avoids most of these charges and is seen as a long term prospect. However, also look at this section in the context of the investment’s rate of return. A low cost account may have one of the lowest rates of returns in the industry and it may not be worth it to invest your money in.
The 10-year performance history can come in handy. You can see their performance for the past 10-years and can see if they have outperformed or underperformed similar accounts. While most, if not all, mutual fund prospectus are quite long and carries a lot of jargon don’t skip any sections. The information they carry can help you in your investment decisions.
Should you have any questions concerning the mutual fund prospectus do contact the investment company so that you can get what you need for a successful financial investment.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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