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What is Red Herring prospectus?

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Red Herring prospectus

Importance of Red Herring prospectus

Red-herring prospectus is a preliminary prospectus. It is the preliminary registration of a company that has to be filed with the Securities and Exchange Commission stating the issue (IPO) and prospects of the company.

Red Herring for IPO

The red herring prospectus does not have the particulars of the public offering price and quantum of the securities offered. By issuing red-herring prospectus it enables its potential customers become aware of the essential facts concerning the issue of the company. Since the red herring is a preliminary prospectus containing information of the company, its financial aspects and investment risks may be revised several times before it is called the final prospectus.

This preliminary registration statement describes the issue (IPO) and prospects of the company which has to be filed with the Securities and Exchange Commission (SEC). The issue price and size need not be stated in the red herring.

Contents in Red Herring

In the Red herring prospectus the company accepts responsibility and confirms that this preliminary prospectus contains all information with regard to the company and the Issue. It also states that the company shall sell its shares only after the registration is approved by the SEC.

Importance of Red Herring for Mutual Funds

Before making an investment in mutual funds the investor must carefully go through the information in the Red herring prospectus. The company would mention its risks and uncertainties in this preliminary prospectus.

Red herring prospectus acts as a guide and provides necessary information on the investment. It enables the investor to know certain facts about the company like its history, the management and promoters of the company, the objects and prospects, the financial performance etc. All this would help the investors gain comfort to invest and take a right decision.

Analysts stress to go through the red herring prospectus as this would give you a direct understanding on the fundamentals of the company you are planning to invest.

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4 COMMENTS

  1. RED HERRING PROSPECTUS-as the name declares that it is a kind of prospectus ,which contains an overview of the company ,it’s policies,claims,services etc. So this helps a going to be investor to know everything about the company in which he is going to invest. It can also be used as to compare the prospectus of different companies and conclude as to where the money should be invested. So it not only provides the information but also acts as a guide to the user.

  2. I always consider red herring prospectus like medical reports, a language which is difficult to interpret to understand what exactly is the state of something. An expert is possibly the best person to deduce the facts mentioned in the red herring prospectus and accordingly guide an investor to take further action. An investor on the other hand should insist broker or his financial expert to clarify more on the RHP terms and conditions so that in future the investor can do a self analysis.

  3. Red herring is a preliminary prospectus, which is issued to make people aware of the essential facts of the company like investment risk and financial aspects. This prospectus is further revised and becomes final prospectus. It simply clears the fundamentals of the company to the customers. Mutual fund investors very carefully consider the red herring prospectus to know about the risk involved.

  4. A very common term describing the company’s financial report and the growth prospectus. It is issued initially by the company at the time the shares are issued in the market. It is not a balance sheet report because balance sheet is of a particular year .

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