A prospectus is a formal legal document issued by a company when it offers securitiesósuch as shares, debentures, or mutual fund unitsóto the public. It provides potential investors with essential information about the companyís financial health, management, objectives, and risk factors, helping them make informed investment decisions. In India, issuing a prospectus is a regulatory requirement under the Companies Act, 2013 and the SEBI (Issue of Capital and Disclosure Requirements) Regulations.

The prospectus serves as a comprehensive disclosure document containing details such as the companyís business model, capital structure, purpose of the issue, utilization of funds, past financial performance, management profile, and key risk disclosures. It also includes information about the number of shares offered, price band, and the lead managers handling the issue. For mutual funds, the scheme information document (SID) and statement of additional information (SAI) act as equivalent prospectuses.

There are several types of prospectusesósuch as a draft red herring prospectus (DRHP), red herring prospectus (RHP), and abridged prospectusóeach used at different stages of the public offering process. The DRHP is submitted to SEBI for review before the final RHP is issued to investors.

By law, every prospectus must present truthful and complete information. Any misleading statement can result in penalties for the issuer and its directors. Therefore, investors should carefully read the prospectus to understand the companyís objectives, financials, and associated risks before subscribing to an issue. In essence, the prospectus acts as a transparency toolóbridging the gap between companies seeking capital and investors seeking reliable information to make sound financial decisions.