What is a Prospectus?

A prospectus is a legal document mandated by SEBI that outlines a company’s securities and other information important to investors. It typically provides details about the company's operations and the objectives behind the securities offering.  

Understanding the Prospectus 

A prospectus can comprise legal documents such as notice, advertisement, circular, etc., to invite the public to participate in the offering. The issuance of a prospectus must be done solely for the purpose of purchasing the company's securities, according to the Companies Act, 2013. A private company seeking conversion to a public company must either issue a prospectus or file a statement in lieu of the prospectus under Section 70 of the Companies Act, 2013. 

Prospectus Example

The various types of mutual fund prospectus issued by organisations are listed below: 

• Equity Fund Prospectus: This document describes the types of stocks that are favoured and the market sectors.  
• Balanced Fund Prospectus: This type of mutual fund prospectus is issued to explain how assets are assigned between bonds and stocks, thereby detailing the investment strategy.  
• Index Fund Prospectus: It outlines the target index the fund seeks to track. Additionally, it provides a method to mirror the index's performance. 
• Bond Fund Prospectus: Corporate or government bond investments along with the credit quality and bond tenure are detailed in this type of mutual fund prospectus.  

Prospectus for Mutual Funds 

A prospectus for mutual funds is a detailed guide that potential investors can refer to obtain information about the performance, objectives, and strategies of the fund. Its main goal is to help investors make informed decisions by outlining the risks related to the investment. The details regarding the management team, charges, and distribution policies are mentioned in a prospectus.  

Components of a Prospectus 

A prospectus consists of the following information: 

• Investment objectives and strategies 
• Different types of fees and expenses 
• Risks associated with the specific mutual fund scheme  
• Historical data on the fund's Net Asset Value (NAV) and returns 
• Types of securities the fund invests in 
• Information about the fund manager's experience, qualifications, and track record