What is Prospectus
Prospectus
A prospectus is an essential disclosure document that a company has to issue at the time of issuing investment securities to the public. These formal documents provide detailed information to prospective investors about mutual funds, bonds, stocks, and other investment offerings to the public.
One of the most common forms of the prospectus that you may have seen is that of mutual funds. In the United States, companies or investment entities who want to offer securities for investment to the public have to file a prospectus with the SEC (Securities and Exchange Commission).
Prospectus: What Information Does it Provide?
While issuing a mutual fund or other financial instruments for investment to the public, the issuing company or fund house provides a wide array of information, including:
You can get the prospectus of a mutual fund, stock, or bond from a broker, website, or email of a mutual fund company and other certified/registered financial professionals.
Prospectus: An Example
Mutual funds are among the most common financial instruments where most investors (both professional and newbies) invest. So, let¡¯s consider an example of a mutual fund prospectus.
You¡¯ll find the following information in a prospectus for the mutual fund:
Mutual funds usually mention information about the fees at the prospectus beginning. This is mainly because the fees are usually taken away from the returns of the investors. The fund houses issuing mutual funds include all the fees related to sales, purchases, and moving among funds in the prospectus. This information helps investors to compare the costs associated with multiple mutual funds. Mutual fund fee generally varies from 1% to 2%, depending upon the fund house issuing it. The low-cost funds usually charge 1% or fewer fees and the high-cost funds charge over 1.5% fee.
In 2019, PNC Financial (PNC) filed a prospectus of offering with the SEC. It requested the securities watchdog to issue a new debt scheme. The company wanted to issue a bond or promissory note to the public. They pledged to pay the investors a specific maturity yield.
In case of bankruptcy, the senior notes are paid first (if assets are available after the liquidation of a company). This means the senior notes offer you a higher level of security than the junior unsecured bonds. In fact, they have comparatively lower default risk also. Senior notes offer you lower coupon interest rates than their junior counterparts.
Basic information listed in this prospectus are:
How does a Prospectus Help an Investor?
A prospectus provides all the information an investor needs to make an informed investment. A company or fund house has to file the prospectus with the US Securities and Exchange Commission for approval. Once approved, this formal document helps investors understand the offered security, mutual fund, or bond risks. All the risks associated with the investment are usually listed at the beginning of the prospectus.
As an investor, you should always check information in the prospectus and study a company's financials before investing. You should only invest in financially viable schemes. This is because you must be very sure that the company is financially capable of honouring its commitments.
Preliminary Prospectus vs. Final Prospectus
The preliminary prospectus is used by the issuing company or fund house to get a preliminary idea about the demand for the security proposed. It provides you with detailed information on business and transactions. However, the financial instrument's price, number of shares, and other finalised background information are not provided.
The final prospectus, on the other hand, offers all types of information that the public needs at the time of investing in it. You¡¯ll also find finalised background information, offer price, and the number of certificates or stocks. You can make a sound investment decision after going through this final prospectus.
Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.
A prospectus is an essential disclosure document that a company has to issue at the time of issuing investment securities to the public. These formal documents provide detailed information to prospective investors about mutual funds, bonds, stocks, and other investment offerings to the public.
One of the most common forms of the prospectus that you may have seen is that of mutual funds. In the United States, companies or investment entities who want to offer securities for investment to the public have to file a prospectus with the SEC (Securities and Exchange Commission).
Prospectus: What Information Does it Provide?
While issuing a mutual fund or other financial instruments for investment to the public, the issuing company or fund house provides a wide array of information, including:
- Objectives of the investment
- Public (Initial Public Offer or IPO) or Private Placement Offering
- Type of security offered (like a mutual fund, bond, stocks, etc.)
- The issuing company¡¯s name, background, financial information, and other related information that gives you an idea about its fundamentals
- Past performance
- Risks
- Strategies
- Distribution policy including the number of shares issued
- Expenses (including all kinds of fees and exemptions)
- Fund management
- Name of the financial entities or banks that are carrying out the underwriting process
- Name of the principals of the company
- Basic information about the issuing company such as the experience of the management, company¡¯s age, and others
You can get the prospectus of a mutual fund, stock, or bond from a broker, website, or email of a mutual fund company and other certified/registered financial professionals.
Prospectus: An Example
Mutual funds are among the most common financial instruments where most investors (both professional and newbies) invest. So, let¡¯s consider an example of a mutual fund prospectus.
You¡¯ll find the following information in a prospectus for the mutual fund:
- Objectives of the fund
- Risks
- Strategies of investment
- Performance
- Fund management details
- Expenses
- Policy of distribution
- Fees
Mutual funds usually mention information about the fees at the prospectus beginning. This is mainly because the fees are usually taken away from the returns of the investors. The fund houses issuing mutual funds include all the fees related to sales, purchases, and moving among funds in the prospectus. This information helps investors to compare the costs associated with multiple mutual funds. Mutual fund fee generally varies from 1% to 2%, depending upon the fund house issuing it. The low-cost funds usually charge 1% or fewer fees and the high-cost funds charge over 1.5% fee.
In 2019, PNC Financial (PNC) filed a prospectus of offering with the SEC. It requested the securities watchdog to issue a new debt scheme. The company wanted to issue a bond or promissory note to the public. They pledged to pay the investors a specific maturity yield.
In case of bankruptcy, the senior notes are paid first (if assets are available after the liquidation of a company). This means the senior notes offer you a higher level of security than the junior unsecured bonds. In fact, they have comparatively lower default risk also. Senior notes offer you lower coupon interest rates than their junior counterparts.
Basic information listed in this prospectus are:
- Type of securities offered: Senior notes paying 3.50% return.
- Maturity Dates of the Senior Notes: January 23, 2024.
- Date of issue
- How will interest payment be made?
- How will the denominations be issued?
- How will the raised money be spent?
- Financial operations
- Debt payment
- Buyback stocks
How does a Prospectus Help an Investor?
A prospectus provides all the information an investor needs to make an informed investment. A company or fund house has to file the prospectus with the US Securities and Exchange Commission for approval. Once approved, this formal document helps investors understand the offered security, mutual fund, or bond risks. All the risks associated with the investment are usually listed at the beginning of the prospectus.
As an investor, you should always check information in the prospectus and study a company's financials before investing. You should only invest in financially viable schemes. This is because you must be very sure that the company is financially capable of honouring its commitments.
Preliminary Prospectus vs. Final Prospectus
The preliminary prospectus is used by the issuing company or fund house to get a preliminary idea about the demand for the security proposed. It provides you with detailed information on business and transactions. However, the financial instrument's price, number of shares, and other finalised background information are not provided.
The final prospectus, on the other hand, offers all types of information that the public needs at the time of investing in it. You¡¯ll also find finalised background information, offer price, and the number of certificates or stocks. You can make a sound investment decision after going through this final prospectus.
Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.
