| As a new investor, you’ll probably be looking at open-end mutual funds, which are the most common. With an open-end mutual fund, you can buy or sell shares at any time, but you’ll receive the net asset value (NAV) for each share. NAV reflects the actual value of all of the assets in the fund’s portfolio. NAV is recalculated at 4:00 p.m. EST on a daily basis and may be higher or lower than the amount you paid per share.
The fund manager decides which investments to buy and sell. The parameters for these buy and sell decisions must be consistent with the fund’s investment objective, which can be found in the prospectus.
What the Prospectus Tells You About a Mutual Fund
Much like the syllabus for a course you are taking, the prospectus gives you important information about a mutual fund. The prospectus is a legal document that tells you all of the following:
- The fund’s objectives
- The fund’s fees
- The fund’s strategy for making money and the background of its managers
- The fund’s holdings
- The fund’s risks, including potential legal problems, as well as a whole lot of information that will help you decide whether it is a good investment
Unfortunately, no prospectus can tell you if your investment will perform as well as you hope it will.
Although you'll find information on past performance in the prospectus, a fund's past performance cannot predict and is no guarantee of future returns.
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