Glossary
Prospectus
A prospectus is the legal disclosure document a fund or securities issuer must provide to investors, describing the investment's objectives, strategies, risks, fees, and past performance.
For mutual funds and ETFs, a shorter summary prospectus covers the essentials in a few pages, with the fee table near the front: expense ratio, any sales loads, and transaction costs. The document is standardized precisely so investments can be compared line for line.
Why it matters in practice
Almost no one reads prospectuses, which is why fee differences persist. Ten minutes with the fee table and the principal risks section answers the questions marketing material is designed to blur: what this costs every year, what it actually holds, and what has to go wrong for it to lose money. When a salesperson's description and the prospectus disagree, the prospectus is the version with legal force.
Related terms: Expense Ratio · Mutual Fund · Load Fund · ETF (Exchange-Traded Fund)