Fund Facts and Prospectuses
One of the best ways of protecting investors who would like to invest in a business corporation or mutual fund is to ensure that they have access to accurate and up-to-date information.
Reading the prospectus is an important step for an informed investor. It gives essential information about an issuer, including information on its products, management team, strategic and financial planning and risk exposure.
Take time to read the Fund Facts
The Fund Facts is a document written in plain language, no more than two pages double-sided, which highlights key information for investors about a mutual fund. You can consult the Funds Facts on the website of the institution offering the fund, or simply ask for a copy. As of May 30, 2016, if you purchase units, the institution must send you the Fund Facts before the purchase.
Currently, Fund Facts are available only for traditional mutual funds. They may, however, eventually be available for other types of investment funds, such as exchange-traded funds (ETFs) and non-redeemable investment funds.
The Fund Facts provides core information about the fund and briefly explains the fees and expenses you will pay, the dealer’s remuneration, and your rights. For more details, consult the fund’s simplified prospectus.
Here is a sample Fund Facts document. You can also view our web capsule (Available in French only).
What is a prospectus?
A prospectus is a detailed information document that normally must be prepared whenever an issuer plans to sell securities to the public.
The purpose of a prospectus is to inform investors and their representatives to help them make sound investment decisions. Under the Securities Act, a prospectus
must provide full, true and plain disclosure of all material facts relating to the securities being issued. It must disclose all material facts likely to affect the value or the market price of the securities to be distributed.
A prospectus is a good starting point in your search for information. It contains a great deal of information that you can analyze.
Why do issuers have to file a prospectus?
The regulatory authorities require a prospectus to ensure that investors have access to complete information on the securities to be issued.The purpose is to standardize the information available to investors and facilitate analysis of and comparisons between various investments. This way, investors may do a thorough and careful analysis before investing in a security.
If you are asked to take part in an investment but you are unable to obtain a prospectus, be careful.
Some issuers may be exempted from the obligation to prepare a prospectus in order to sell securities, but only under certain conditions.
Why should you read a prospectus?
A prospectus gives you detailed information about the issuer and the securities being sold. You can find the answer to many questions before making an investment. In reading a prospectus, you should find out the following information:
- Is the issuer well established or does it have little or no history?
- What business is it in? Who are its competitors?
- What are its strategic plans?
- In the case of a company, how does it plan to spend the proceeds from this offering?
- In the case of a mutual fund, what is its investment strategy?
- Has the issuer been profitable in the past? Has its financial performance been improving or declining in recent years?
- What assets does it hold?
- Does it have substantial debt?
- What other securities have already been issued?
- What are the major risk factors that could affect the issuer’s performance in the future?
- Who are the directors and officers? Do they have successful track records?
- Do they have management qualifications? How will they be compensated?
- Have they had any regulatory problems in the past?
- Is there a market for the issuer’s securities? Will the securities be listed on an exchange?
By examining the prospectus, you will be better able to determine whether the investment suits you and whether the levels of risk and potential return fit your particular investment needs and objectives. Securities that are issued without a prospectus (under certain exemptions) generally cannot be sold to the public and, in most cases, they are subject to resale restrictions.
To learn more about the basic features of investment fund securities and Fund Facts, watch our web capsules (Available in French only) and read the Choosing Investments brochure.
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