Prospectus

A prospectus is the official document containing everything an investor should know about a fund or a newly issued share or bond. Producing and providing it is a legal requirement.

It covers what is invested in, the strategy, risk factors, fee structure, information about the manager, and past performance. The risk factors section in particular lists weaknesses the issuer has disclosed itself.

The parts genuinely worth checking are few: the total expense ratio, how long redemption takes and what it costs, and what the product actually holds. Those three reveal most of its character.

An IPO prospectus matters even more. Before listing, almost nothing about the company is public, making this document effectively the only source for its business model and finances.

The problem is that nobody reads it, because it is long and difficult. You need not read all of it — finding just the fees and the risk factors sharply reduces the chance of an unpleasant surprise later.