It’s a bit like a yearbook

With quotes, images, facts, and everything one needs to know about a certain graduating class. A financial prospectus is a document that companies are required to compile and share with the public. These, like yearbooks, should have everything one needs to know about a certain company, its team, investments, etc.

What is a Financial Prospectus?

It’s not that we like to be so formal, but a Financial Prospectus is actually a legal requirement. In the U.S., the Securities and Exchange Commission is the one who is in charge of making sure everyone files it for a mutual fund. The aim is quite simple: it is to make sure that potential investors are informed about investments that are open to the public. This means that all the information provided need to be precise, and that the document should provide with an overall, but also in depth, overview of a specific company. This is one of the times regulations are meant to make things easier, so that investors can make more sensible decisions based on official documents.

financial prospectus

Who needs to file it?

Mutual funds, bonds, and stocks offerings all need to file a prospectus. Since it is a legal document, the elements of a prospectus usually don't differ much. It starts off with a nice summary of the company, going into its objectives and business model. Then it goes more in depth into the financial aspect, looking at its data, the classes, and the number of shares offered. Other information included can be dividend policies, management, risk factors, and anything that could be useful for investors to know.

Before and after

There’s two main types of prospectuses when it comes to investing. One is a preliminary prospectus, which is given before securities are issued. It is the first document provided, and it gives an overview of the business and its finances. This doesn’t include prices or the number of shares for sale, as it is meant to just spark investors’ interest. The other, and later, prospectus is the final prospectus, which is provided after offerings have been finalized and securities are for sale. This document does offer all the details of an investment that is offered to the public, and it holds all the other relevant information, like how many shares are issued and for how much (this is called the offering price). To make things easier for everyone, and especially people that don’t love to read, a summary prospectus is always readily available for investors to look at. But, if they want to read further and more in depth about the company, then they would look for the statutory prospectus (and that can be quite long…).

Why will your future self thank you

This is the official document where one can find all the information they require on a certain company. It is aimed at informing potential investors about a company’s management and finances, so that they don’t have to rely only on luck when making decisions. That being said, we’ll tell you a little secret...more investors actually don’t read a whole fund’s prospectus, but they actually just have a look at the summary and the information that are relevant to their objectives.

Extra bits:

The word “prospectus” comes from Latin. It means “to view, to prospect”. And yes, it’s the same thing that is used by universities to entice new students - show the best of yourself, and hopefully they will choose you.

2. S-1: legal name in the U.S. for the public filing

3. Most prospectuses are available online in PDF form, both in summary and statutory forms.