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The Fund Industry: How Your Money is Managed, 2nd Edition by Robert Pozen, Theresa Hamacher

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CHAPTER 3

Researching Funds: The User Guides

Now that we've studied the advantages and disadvantages of mutual funds and taken a look at how they work, you're ready to begin researching a potential fund investment. Much of the information you'll need will come directly from the fund itself. In fact, funds are required by law to disclose essential information to investors in the fund—providing what are, in effect, user guides for potential buyers. This chapter examines the documents that funds prepare to do just that. Looking ahead, in the next chapter, we'll take a look at independent sources of information that you can consult to learn even more about possible fund choices.

This chapter reviews:

  • The principle of disclosure and how it applies to mutual funds.
  • The content of the summary prospectus, the key document that funds provide to prospective buyers.
  • The other documents that must be prepared by funds: the statutory prospectus, the statement of additional information, and the shareholder reports.
  • How investors can use the information in these documents to help select funds for their portfolios.

Readers who would like to take a deeper dive into the regulations discussed here should consult the Notes posted on this book's website. They contain legal citations.

MUTUAL FUNDS AND DISCLOSURE

The underlying principle of U.S. securities regulation is disclosure, the concept that the seller of a security has an obligation to tell potential buyers essential facts about the investment. ...

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