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Class Mutual Fund Prospectus

The document discusses how to read a mutual fund prospectus. It explains that a prospectus contains key information about a mutual fund such as its objective, fees and expenses, historical performance, investment policies and risks. It also outlines how to purchase and redeem shares in the fund. The prospectus is an important document for investors to review when selecting a mutual fund to ensure it aligns with their financial goals and risk tolerance.

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101 views20 pages

Class Mutual Fund Prospectus

The document discusses how to read a mutual fund prospectus. It explains that a prospectus contains key information about a mutual fund such as its objective, fees and expenses, historical performance, investment policies and risks. It also outlines how to purchase and redeem shares in the fund. The prospectus is an important document for investors to review when selecting a mutual fund to ensure it aligns with their financial goals and risk tolerance.

Uploaded by

sandeep199
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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How to Read a Mutual Fund Prospectus

What is a Prospectus?

A legal document required to be given to mutual fund investors


Potential time and money saver Written in legalese A mutual fund screening tool A reference tool Start a fund file

Class Objective

To review the important sections of a mutual fund prospectus To learn how to use the information in a prospectus to make fund decisions

Name of the Mutual Fund

Prospectus must be updated at least annually May be a consolidated prospectus for several funds from the same fund family
Example: Vanguard U.S. Stock Index Funds

Required Cover Statements

Standardized CYA language


Clearly states in bold print that there is no government approval of the fund To state that there is approval is a crime

Tells investor about the availability of


Statement of Additional Information (SAI)
Annual and semi-annual reports to shareholders

Statement of Fund Investment Objective


Varies with the type of mutual fund Almost 30 different objectives (ICI) Three PRIMARY Objectives:
Stability (preservation of principal)
Example: Money market mutual funds

Growth (increased value of principal over time)


Examples: Stock mutual funds, stock index funds

Income (generating a stream of payments)


Example: Bond mutual funds

Example of a Mutual Fund Objective

The fund invests with the objective of capital growth. Although income is considered in the selection of securities, the Fund is not designed for investors seeking primarily income rather than capital appreciation.

Fees and Expenses

Shareholder Fees
Charged to an individual investors account Examples: sales load, redemption fee, account maintenance fee, exchange fee

Annual Fund Operating Expenses


Paid by mutual fund as a % of assets Examples: management fee, 12b-1 fee, other expenses

Standardized hypothetical example


1, 3, 5, and 10 years of fees on $10,000

Financial Highlights Table


NAV, beginning of period NAV, end of period Net assets, end of period

Ratio: total expenses & average net assets


Number of outstanding shares

Total return for period


Turnover rate

Investment Policies
The personality of a fund
What it will do and wont do Securities purchased to meet fund objective Investment quality of securities Use of speculative practices (e.g., selling on margin, futures contracts, derivatives) Limits on % of fund assets in one industry

Investment Risks

Describes principal risks associated with investing in a particular fund


Example: currency risk (global fund)

Describes risks associated with a type of investment


Example: interest rate risk on bond funds

Describes range of quality ratings allowed


Example: low rated bonds in junk bond funds

Investment Advisor Information

Name of advisor (e.g., The Vanguard Group)

Beginning of operations (e.g., since 1975)


Amount of assets under management
(e.g., $592 billion in assets)

Services provided by investment advisor compensation to investment advisor as a % of assets Special arrangements such as bonuses

Fund Distributions and Taxes

Frequency of fund distributions


Dividends Capital gains

Sale or exchange of shares is a taxable event

Procedure for reinvesting distributions

How to Purchase Shares

Method(s) of Purchase
Online, by check, by exchange, through a broker/sales agent

Price of Purchase
NAV or NAV plus a sales load
Price breaks for large purchases

Minimum Purchase Amounts


Minimum initial deposit and later deposits Minimums for IRAs and automatic purchase plans

How to Redeem Shares

Methods by which shares can be redeemed (e.g., check-writing, telephone request, written request, wire transfers) Description of redemption price
Example: You redeem shares at the funds next-determined NAV after [company] receives your redemption request.

Process to exchange fund shares

Profile Prospectuses

Short and sweet


One double-sided page

Key pieces of information only


Short paragraphs Sometimes in Q&A format

Should still request full prospectus

Five Key Factors to Scrutinize


Fund objective Fees and expenses (for type of fund)

Historical performance
Investment policies relative to personal risk tolerance Minimum initial and subsequent deposits

Wall Street Journal Screening Factors

Sector funds
Load funds

High-cost funds
High minimum deposit funds

Newcomers
Poor performers (relative to indexes)

Follow The Rule of Three

Start a File For Every Fund That You Own

Most recent prospectus


Copy of original application form

Annual account statements


Periodic statements Articles about the fund, manager, etc

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