Investing term

What is Prospectus?

The legal document that describes a fund — its strategy, fees, risks, holdings, and tax treatment.

A prospectus is the legal document describing a fund or a new securities offering — its strategy, fees, risks, holdings, and tax treatment. It's the official, comprehensive source to read before investing, written to disclose rather than to sell. Skimming the fees and strategy sections of a fund's prospectus is a quick way to avoid unpleasant surprises later.

For example

Before buying a fund you check its prospectus and spot a 1.2% fee and a concentrated strategy — exactly the kind of detail marketing glosses over.

Prospectus is taught hands-on in Stage 6 — Index Funds, ETFs & Mutual Funds.

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Related terms

Active fundA fund whose manager picks stocks in the hope of beating a benchmark.BenchmarkThe reference index a fund compares itself to — e.g. the S&P 500, MSCI World, or Bloomberg Aggregate.Creation/redemptionThe mechanism that keeps ETF prices close to NAV. Authorized participants swap baskets of underlying stocks for ETF shares (or vice versa).DistributionThe income a fund pays out to its shareholders — dividends from stocks held, plus realized capital gains.
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