What is the purpose of a prospectus?

A prospectus serves a crucial role in the investment process by legally outlining the details of an investment offering intended for sale to the public. This document provides potential investors with essential information regarding the offering, including the investment's objectives, risks, fees, and other relevant details necessary to make an informed decision. It is a key regulatory requirement that ensures transparency and helps to protect investors from fraud by ensuring they are fully aware of what they are investing in.

The securities industry emphasizes the importance of a prospectus as it not only helps investors understand the specific investment opportunities but also adheres to legal standards set by regulatory bodies such as the Securities and Exchange Commission (SEC). By mandating that companies issue a prospectus, such regulations aim to uphold market integrity and foster investor confidence.