When you’re in search of a definitive source of information for a particular mutual fund, you can read through the fund’s prospectus. This publication is available for free from mutual fund companies, either online or by mail.
A prospectus typically ranges from 10 to 20 or more pages and includes a table of contents. It answers 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?
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. Reading and understanding a mutual fund prospectus takes a little practice, but it’s an important part of investing, especially if you are not working with an investment professional.
At Perspective Financial, we contract with multiple third-party companies to consolidate fund data and report key information to us in electronic formats. The data is easily searchable and screened. This enables us to analyze large quantities of information and subsequently make necessary buy-and-sell decisions to keep our clients’ investment portfolios in proper balance.