How to Analyze a Prospectus
- 1). Start with the date of issue. This date should appear on the cover of the prospectus and is updated at least once a year. This will help to make sure you are reading the most recent version of the prospectus.
- 2). Analyze the risk/return bar chart. This is near the front of the prospectus. It will provide you with a history of the funds' total return for each year--up to 10.
- 3). Review the fee table. This is one of the most valuable disclosures in the prospectus. The fee table, which is located just after the performance chart, will provide a breakdown of the annual fees and expenses associated with investing in the fund. This includes shareholder fees and operating expenses, which is one of the best ways to compare funds (especially index funds).
- 4). Review financial highlights. This is usually located in the back of the prospectus. Here you will find the audited financial statements for the fund over the past five years. You will also find the net asset value (NAV), total return and other performance ratios of concern, such as "expenses to average net assets" and the "rate of turnover" in the portfolio.
- 5). Read through the shareholder information section for instructions on how to purchase and sell shares of the fund. The placement of this section varies but is generally toward the front.
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