What is a mutual fund prospectus and how do I read it?

A mutual fund prospectus is a pamphlet or brochure that provides information about a mutual fund. Mutual fund companies must give potential investors a prospectus, free of charge, before they invest. You can get a prospectus by calling the mutual fund company directly or by visiting the fund's website. Once you receive the prospectus, read it carefully and completely. The prospectus will include information about the fund manager's objectives and practices. When reviewing a prospectus, you'll want to look at the kind of securities the fund holds and the kind of transactions it makes and how often. Make sure the fund operates in a way that's consistent with your own needs, investment goals, and tolerance for risk. For instance, if you need to invest for income and preservation of capital, and the prospectus describes the fund's investment policy as aggressive and growth oriented, then you haven't found a good match. The prospectus will also tell you about expenses and fees. It will ...