All mutual fund ads contain a message: “Read all scheme related documents carefully.” But what are these documents?
There are 3 important documents:
- Key Information Memorandum (KIM)
- Scheme Information Document (SID)
- Statement of Additional Information (SAI)
KIM, SID and SAI are the most important and detailed scheme related documents. Investors should read them thoroughly before investing. These documents are the most important sources of information about the scheme for the investors.
These are prepared by the Asset Management Company (AMC) about a particular scheme and submitted to the Securities and Exchange Board of India (SEBI) for approval.
Scheme Information Document (SID)
It is a document which has all the details of a particular scheme. SID is to be prepared in the format prescribed by the SEBI and submitted to SEBI. SID is to be updated every year.
The SID has information like:
Statement of Additional Information (SAI)
- All Fundamental Attributes like Investment Objective and Policies, Asset Allocation Pattern, Fees and Liquidity Provisions.
- Fund Management Team details
- All Risk Factors in the scheme as well as risk mitigation mechanisms.
- Scheme details like load, plans and options, past performance, benchmark.
- General Unit holder information.
- Other details like list of AMC branches, Investor Service Centres, Official Points of Acceptance.
Statement of Additional Information (SAI) has statutory information about the mutual fund that is offering the scheme. Regular update is to be done by the end of 3 months of every financial year. Material changes have to be updated on an ongoing basis and uploaded on the websites of the mutual fund and AMFI.
The SAI contains information like:
Key Information Memorandum (KIM)
- The constitution of the Mutual Fund – Sponsors, Asset Management Company and Trustees.
- All information on key personnel of the AMC and associates such as Registrars, Custodians, Bankers, Auditors and Legal Counsel.
- All Financial and Legal issues.
As the name suggests it is a document which contains all the key points of the offer document that is essential for the investor to know to make a decision on the suitability of the investment for their needs. It is a summary of SID and SAI. As per SEBI regulations, every application form is to be accompanied by the KIM. KIM is to be updated at least once a year.
Contents of KIM
Some of the key items are as follows:
Mutual Fund Fact Sheet
- Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
- Dates of Issue Opening, Issue Closing & Re-opening for Sale and Re-purchase
- Plans and Options under the scheme
- Risk Profile of Scheme
- Price at which Units are being issued and minimum amount/units for initial purchase, additional purchase and re-purchase
- Dividend Policy
- Performance of scheme and benchmark over last 1 year, 3 years, 5 years and since inception.
- Loads and expenses
- Contact information of Registrar for taking up investor grievances
A mutual fund fact sheet is a basic three-page document that gives an overview of a mutual fund. For potential investors, this is a necessary and easy report to read before investing.
It contains the following information:
- Basic information, such as the fund objective, nature of the fund, fund manager’s name, fund’s inception date, benchmark index, corpus size, current NAV, and other details.
- The portfolio strategy of the fund through investment style, fund portfolio with top holdings, and allocation across sectors and issuers.
- Volatility measures pertaining to ratios, such as Standard Deviation and Sharpe Ratio, are also mentioned to measure the risk of the fund.
- Details about charges in terms of expense ratio and loads.
- Returns of the fund and the representative benchmark index to enable comparison of the fund’s performance with its benchmark.
The mutual fund fact sheets are made in such a way that it can be understood by any person. It mainly explains the pros and cons of the mutual fund, which helps the investor to make a decision to invest in that fund or not.