Have you been in this situation? You pick up the prospectus for an investment and wonder, what is this? It looks so boring, why should I even bother reading it? How can it help me?
This post is to help you find some value in those printed pages and keep from being be overwhelmed by the information provided there. Yes, it is more fun to look at magazines and catalogs which are colorful and clearly designed to attract our attention to buy, buy, buy. Just think of the prospectus as part of the process for purchasing a specific investment and try to overlook the lack of pizzazz in the presentation. Once again, this is an educational blog and not a recommendation to make a buying decision of any particular investment or product. You may use a prospectus from any fund you wish as a tool to learn more about the investment.
Since my earlier posts were about a mutual fund which offers an investment option called gender lens investing, I’m going to refer to mutual funds as the type of investment—or security—for this discussion. There are, of course, other investments, such as individual securities like stocks or bonds, but mutual funds have evolved into a popular investment choice. The prospectus for the Pax Ellevate Global Women’s Index Fund is as good as any to use as an example and was mentioned in my series about gender lens investing.
First, it is important to remember that the securities industry is highly regulated. The government organization with the main responsibility for setting rules and regulations is the Securities Exchange Commission (SEC). The organization which is responsible for setting a framework for firms (such as broker/dealers) and registered representatives (licensed individuals who work in the industry and serve clients), is called the Financial Industry Regulatory Agency (FINRA). Previously it was called the National Association of Securities Dealers (NASD). FINRA is not a government agency, but is referred to as a Self- Regulating Organization. The SEC makes the rules and FINRA members (firms and individuals) implement them through more rules and regulations. This is a simple explanation. To learn more, please click here for the SEC website and click here for the FINRA website.
When you, as the client, make an investment in a mutual fund, you are given a prospectus. This is a regulatory requirement. The prospectus is supposed to be presented at the time of the investment, but there are some other guidelines which allow a slight delay. For your purposes, you should expect to receive the prospectus when you meet with your representative. It is pretty easy these days as the prospectus is usually readily available on-line.
So what is a prospectus? It is the story of the investment, in this case a mutual fund. Some companies issue a separate prospectus for each fund. Others, offer a booklet listing information about more than one fund. The Pax Ellevate Global Women’s Index Fund is one of seven funds listed in the prospectus we will be reviewing. So when you look at the prospectus, please go to the index and you will see that information about the Pax Ellevate Global Women’s Index Fund starts on page 49.
The prospectus contains a lot of information, but a good way to start is to locate the following information:
- The name of the company that manages the fund.
- The goal of the fund.
- The minimum investment for a lump sum and/or a periodic automatic investment.
- When the fund originated. Information showing the long-term performance of the fund.
- Fees. What is the initial front load (cost to the investor) or a back-end load (cost to the investor)? What is are the annual operating expenses paid each year as a percentage of the value of the investment? Are there other fees and restrictions?
The best way to learn is to explore a prospectus and identify the items described above. Please link to the prospectus at Pax Ellevate Global Women’s Index Fund and review pages 49-58 and page 89. You probably commit a lot of time to making money and spending money. So, please make a small commitment of time to understanding how to gain some value from a prospectus when considering an investment.
Next time–a review of the details provided by the prospectus for the Pax Ellevate Global Women’s Index Fund.
(This information is designed to educate you about basic financial management concepts. Questions relevant to personal finances specific to the individual should be address to an appropriate professional to ensure that the situation has been evaluated carefully and appropriately. The Authors and Publisher specifically disclaim any liability loss, or risk which is incurred as a consequence directly or indirectly from the use and application of any contents of this work.)
Copyright2014©by Debra Hadsall