What is a simplified prospectus?
Before a conventional mutual fund manufacturer can sell securities to investors, it must prepare several documents and file them with the appropriate securities regulator. One of those documents is the simplified prospectus.
What is a conventional mutual fund?
A conventional mutual fund is a type of investment fund whose units/shares can be bought and sold (or redeemed) by investors on demand, and that isn’t listed on a stock exchange. Most banks, credit unions and mutual fund companies offer conventional mutual funds.
Mutual funds can invest in many types of securities, from equities to bonds to money market instruments. Each fund has different objectives and strategies, which will determine what it invests in, and carries a different level of risk. Every fund also has different types of fees associated with it. That’s why the simplified prospectus is so important.
Simplified prospectus explained
The simplified prospectus is a legal document, filed with the appropriate securities regulator that gives investors important information about the mutual fund.
Here’s some of the information that is available in a simplified prospectus:
- the investment objectives of the fund
- the strategies the fund will use to meet those objectives
- what the fund invests in
- who is managing the fund
- any risks associated with investing in the fund
- information on who (i.e., what types of investors) the fund is most suitable for
- the fund’s distribution policies
- any tax implications of owning the fund
- fees and expenses associated with owning the fund, including:
- sales charges
- fees for switches and reclassifications
- redemption fees
- management fees
- operating expenses
Simplified prospectuses are no longer required to be sent automatically to investors; instead, they are available by request. If you are a financial advisor, consider walking through those simplified prospectuses for mutual funds that you recommend to your clients with them. It’s a great way to promote dialogue with your clients on key aspects of their investments and to ensure they understand what they’re investing in.
Learn more about the simplified prospectus and other disclosure documents in the Canadian Investment Funds Course.
Other blogs of interest:
• Introduction to capital markets
• Point of sale