April 25, 2019

Should You Read a Mutual Fund’s Prospectus?

Written By Mary Beth Eastman
Last updated November 22, 2019

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Mutual funds offer great investment opportunities. From saving time with a professionally managed mutual fund to diversifying your portfolio, there are several advantages to investing in mutual funds. But if you’re investing in a mutual fund, then you should read that mutual fund’s prospectus. Here’s why:

Your mutual fund’s prospectus provides important information you should know about the fund to help you make better choices about your investments. It’s so important that the SEC requires mutual funds to disclose specific information in the prospectus. For example, your mutual fund prospectus includes information about the main risks you can expect when investing in the mutual fund.

You can also learn about the goals or objectives of the fund and the strategies used for achieving the fund’s investment goals. By understanding this information, you can determine if the fund’s strategies align with your strategies for investing. The prospectus also provides the fees and expenses you can expect to pay when investing in the fund. This information helps you get a better idea of the total cost of the fund.

Your mutual fund’s prospectus also includes information about the fund’s past performance. While no one can predict how well a mutual fund will perform, it’s important to read your prospectus to learn about the mutual fund’s past performance to determine the stability and volatility of the fund. By understanding this information, you can better determine if you are comfortable with taking on more risk for potentially higher returns or not.

While reading your mutual fund prospectus is ideal, it’s not uncommon for investors to need some extra help with understanding the prospectus. Moreover, some investors may not have the time to read and review the prospectus, especially if they make several investments. Luckily, you can take advantage of alternative options. For instance, you can use a robo-advisor like the ones from Betterment or Wealthfront to help you with making investments in mutual funds.

A robo-advisor can help you customize investment strategies, automate your investing and recommend ideal investments to make based on data and your financial goals. You can also take advantage of online investing sites to assist with portfolio planning, including brokers such as E*TRADE or Charles Schwab.

Reading your prospectus is crucial if you want to understand all the underlying costs, risks and strategies involved with investing in a mutual fund. The good news is that even if you forgo reading the mutual fund’s prospectus, you can use the help from online investment sites or a robo-advisor to help you tailor your investment strategies and recommend investments. By reading your prospectus and leveraging help from online investment sites and robo-advisors, you can get the information you need to make better investment decisions and help your portfolio grow.

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