A prospectus is a document issued by a mutual fund company to explain the details of a mutual fund it is offering for investment. A mutual fund is required by law to provide detailed information to an investor before they choose to invest with the company. This document can give you a clearer idea of what you will be investing in and the costs of investing.

Investment Objective

This is usually a short statement at the beginning of the prospectus. The objective is what the fund is trying to provide to the investor. This could be capital appreciation meaning that you want your money to grow. It could be capital preservation meaning that you want your original investments to avoid investing losses. You may be seeking income or a lot of growth in your investments. The objective gives you an idea if the fund will match your needs and wants.

Fees and Expenses

This section of a prospectus spells out the actual fees and expenses an investor will incur by investing in the fund. Different types of funds will have different fees. Index funds will have the least fees. Actively managed funds are likely to have more fees. Many times you will see a waiver of fees in the prospectus. This means that a percent of the usual fees have not been charged to the investor. The waiver may only last for a predetermined set of time which should be stated in the prospectus. Sales charges or loads are often included in this section.

Investment Strategy

This is how the fund plans to accomplish its objective. This section will list the types of securities in which the fund invests. It will explain the percentage of these securities the fund will hold.

Risks

The risks section explains the risks of investing in this fund. It will explain how the securities in the fund respond to market conditions. It will list the different types of risk you may encounter. These may include stock market risk, interest rate risk and loss of principal or other risks. This section helps an investor determine if the risks of the fund are in line with the investor's risk tolerance.

Performance

Performance lists the past performance of the fund over a number of years. This may or may not factor in fees and sales loads so read carefully. Of course, past performance doesn't mean the fund will perform the same in the future. However, the investor can get an idea how the fund performed overall in the past.

Additional Sections

Additionally, the prospectus will contain information on the advisors who run the fund and how to purchase and redeem fund shares. Other information will include the impact of taxes on the fund and the portfolio turnover rate. Portfolio turnover is how often the fund buys and sells the underlying securities. It will include information on whether a broker or other intermediary is involved in selling the fund.

A prospectus includes a wealth of information for any investor. A thorough perusal of this document will give a clearer idea if the fund will meet your investing needs. Then you can invest with more confidence.

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