“Mutual Fund investments are subject to market risks, read all scheme related documents carefully”. If you know mutual funds you know the warning. Chances are even if you are not investing, you are still familiar with this disclaimer. But do you know what these scheme related documents are or have you ever cared to read them.
If you are an investor, you must have checked your Account Statements mailed by the respective mutual fund houses or even the Consolidated Account Statement (CAS) shared by your Share Depository. As a serious investor you may also have checked the Scheme Factsheets provided by respective mutual fund houses and the Portfolio Valuation provided by your broker.
There are a variety of mutual fund documents providing information to the investors and the general public. In this article we will discuss the three mandatory documents which the regulator wishes investors to refer.
- Scheme Information Document (SID)
- Statement of Additional Information (SAI)
- Key Information Memorandum
Scheme Information Document (SID)
The Scheme Information Document is a scheme related document issued by a mutual fund house during the launch of a specific scheme and periodically updated thereafter. It is a comprehensive document of a specific mutual fund scheme and has all information that a prospective investor ought to know before investing. Existing investors too would benefit browsing the SID as it is periodically updated.
The SID presentation may vary slightly across AMCs, but the format is largely same. A typical SID is categorised in six to seven different segments.
The cover page has the AMC name, Scheme Name, Scheme Suitability, Initial Offer Price and the Riskometer on the top. A quick glance helps you know how risky the scheme is and if it is suitable for you or not. The next section “Table of Contents” is self-explanatory and allows us to know the contents of the SID at a glance. Scheme Highlight following next is a short summary of the scheme and highlights the most relevant features of the scheme that you seek like the minimum investment amount, the scheme type, scheme benchmark, exit load among others. ‘Introduction’ introduces the various risk factors associated with the scheme and articulates risk mitigation strategies the AMC proposes to embrace. ‘Information’ possibly the most voluminous section in SID introduces the scheme in detail. Prospective investors get to know the scheme type, investment objective, benchmark index, the fund manager and much more from this section. If you wish to know where the scheme would invest, what are credentials of the fund manager or if the scheme suits your investment horizon, you check this section.
Subsequent sections elaborate on the aspects of New Fund Offer, disclosures, computation of NAV and the rights of the investors. You can find out the minimum investment allowed, SIP dates allowed, mode of payments and more. The final section relates to disclosures regarding any penalty, litigations or proceedings against the AMC or the group by any regulatory authority.
Statement of Additional Information (SAI)
While the SID is all about a specific scheme, SAI is more about the mutual fund house. The Statement of Additional Information as the name suggests provides additional information on the mutual fund house. Investors & prospective investors would get detailed information on the key personnel of the AMC, their sponsor & trustees from the SAI. You also get to know about the investment procedure in schemes of the particular mutual fund house, their transaction procedures, KYC norms, information on minor investing among several other relevant topics.
If you are redeeming your funds or receiving income distribution (dividend), how long will it take you to receive it or who’s the Registrar & Transfer Agent of your fund house are all part of the SAI. Unlike SID, the SAI is AMC specific, hence you will find one single SAI for each mutual fund house.
Generally, the SAI is categorised in five different sections.
- The first section has information on the mutual fund house along with the service providers.
- Second section would elaborate on ‘How to Apply’ and informs prospective investors on methods of investing. From how cheques should be drawn to Online Investment norms, Third Party investments norms, NRI Investment guidelines to information on minor investments and power of attorney are all available here.
- Third section dwells on the investor’s rights. How long will you need to wait for allotment of units or how frequently you will receive the Consolidated Account Statement are among the several investor rights elaborated here.
- Fourth section is on the valuation norms. This section informs us on how shares are valued or which is the principal exchange for valuation and similar other valuation policies adopted by the AMC.
- The final section is on Taxation and informs the investors on Tax & Legal matters related to mutual fund investing. You get to know about different taxes that are likely to be levied on you immediately or at a future date.
Key Information Memorandum:
Although an investor is advised to read both the SID & SAI, distributing them along with printed application forms is both difficult and expensive. Many investors often reluctantly give these voluminous documents a miss. To ensure investors get the basic information before investing a Key Information Memorandum – KIM, is mandatorily circulated along with the application form.
The KIM is essentially a summary of the SID & SAI and contains the key information of these documents. SEBI regulations mandate every application form is accompanied by the KIM thereby empowering prospective investors easy access to the most relevant information. If you wish to know the Scheme Options, the Investment Objective,Asset Allocation staretegy the scheme takes, minimum investment amount or the multiples in which additional investment can be made a quick reading of the KIM will suffice. In fact a brief reading of the KIM will help you with the most sought information.
KIM is prepared scheme wise but is mostly circulated with the Common Application Form which has consolidated KIM of many schemes. However, if you invest online, you may access the KIM from AMC website.
The SID & SAI together are part of the mandatory documents which mutual fund houses must share with investors. However, if you find them too detailed for your liking the KIM summarises the Key Information for you.