Read a Mutual Fund Prospectus

Reading the mutual fund prospectus is the most important part of investing in a mutual fund, yet many investors don't know how to read it. There are three main elements to the mutual fund prospectus: the investment objectives, the costs and the fund's performance. Once you know how to read these, your mutual fund prospectus will seem far less daunting, and you will be a much better informed investor.

Learn How to Read a Mutual Fund Prospectus

Request the prospectus from the mutual fund in which you are interested. Sometimes these can be downloaded for free from the mutual fund's website.

Open the prospectus to the first page. There should be an explanation of the type of mutual fund it is and the fund's objectives.

Decide from the description of the fund if its objectives and risk levels are in sync with yours.

Find the fee table. It typically looks like a regular table graph.

Look for sections in the fee table pertaining to shareholder transaction costs, if any, and annual expenses. Your mutual fund may not have any shareholder transaction costs, or fees for buying or exchanging shares.

Determine your annual fees, including any transaction fees. The Securities and Exchange Committee (SEC) requires that the prospectus include an example of how much money in fees you would pay for a $1,000 investment with a 5% return over a period of 1, 3, 5 and 10 years.

Find the performance chart in your prospectus. This is also generally near the front and looks like a table graph.

Read the performance chart. It may also be called a condensed financial statement. It will include the fund's Net Asset Value (NAV), costs and dividends.

Tips & Warnings

• Keep in mind what you are looking for: the fund's objectives, or what they want to achieve, the costs, or how much you will pay to own shares in the fund and the performance, or how well or how badly the fund has done over time.
• Read carefully. A quick glance through the prospectus can miss a lot, which you will end up paying for.
• If you are new to investing, attempting to read the prospectus all in one go may get frustrating. Consider breaking the prospectus up into sections before you start to read.