A prospectus is a legal document frequently seen in finance. Prospectuses contain all the information potential investors or existing investors need in order to make an educated investment decision. Depending on what the prospectus is for, this could include disclosure of what a mutual fund is invested in (or what their strategy is), information about an initial public offering, or details on a bond. Reading the prospectus before investing in a fund, offering, or bond is very important to ensure one makes an informed investment decision.

There are different kinds of prospectuses for different stages in a financial transaction – preliminary prospectuses, and final prospectuses. For example, in an initial public offering of a company, the preliminary prospectus could include in-depth company information and most details about the offering. Once the deal is finalized, investors will receive much more detailed information in the final prospectus, including details like exact company valuation based on offering, how many shares were sold, at what price, and more. For mutual funds, the only kind of prospectus offered is the final prospectus. 

AuthorIsabel Munson