What are Scheme-Related Documents that You Need to Read Carefully Before Investing?

Investor profile to keep in mind before investing

You must be aware of your profile before investing in mutual funds. Have a holistic view of your financial goals and risk tolerance.

Ensuring that the fund’s objective and risk match yours is equally essential. This is where various scheme information documents (SIDs) can help you make an informed choice.

Scheme-related documents meaning

Scheme-related documents provide key information and insights about the fund. There are three main documents, which are as follows:

• Scheme information document
• Statement of additional information
• Key information memorandum

Scheme information document

A SID carries all the necessary information of a mutual fund, including:

• Minimum subscription amount
• Exit load
• Details regarding systematic investment plans (SIPs)
• Fund managers and their experience
• Objective and risk level of the scheme

While the format of a SID may differ across fund houses, the general layout remains the same. The primary sections of a SID are as follows:

• Information about the scheme

This section contains the fund's investment strategy and objectives. It also highlights the fund's category, its performance, and its top 10 holdings.

• Units and offer

This section of the SID explains how to access the scheme. It contains information regarding plan availability, minimum investment amount, investment eligibility, taxation, etc.

• Benchmark and performance

It tells about the benchmark against which the fund's performance is evaluated, along with its historical performance.

• Fees and expenditure

This section of the SID tells you about the fees and expenditures related to your scheme. You get information about a fund's expense ratio, exit load, and any additional charges, if any.

Statement of additional information (SAI)

SAI is a supplementary document that arms you with a fund's legal and operational aspects. SAI in mutual funds helps you understand:

• The fund's legal structure, including its formation, registration details, and organisational aspects
• A mutual fund's current holdings and a granular look at its investment methodologies
• Specific risks associated with the fund, providing a more detailed understanding than the general risk disclosures
• The fund's transaction costs, including brokerage fees and commissions
• Tax implications of investing in the fund, thus aiding you with efficient tax planning
• The fund's legal information, including regulatory compliance and any other ongoing litigation against the fund

Along with these, SAI in mutual funds also contains personal information about the investment manager and the advisory team.

Key information memorandum

The key information memorandum (KIM) is another essential scheme-related document. The information in the KIM is more or less the same as that in the SID. The table below highlights the various sections of a KIM and the information you are likely to find in it:

Note that the information in a fund’s key information document is likely to change over time.

Fund factsheet

Mutual fund factsheets are documents made available every month. It contains detailed information on how a fund is managed. Other information you are likely to find in the factsheet are:

• Basic fund information

This section provides general information about the fund, including its objective, NAV, AUM data, minimum investment amount, etc. It also has risk-o-meter details that outline the fund's risk.

• Performance aspects

This section helps you understand how a fund is likely to perform in the future. You are likely to get historical data for different periods in this section with illustrations. However, note that past performance does not reflect future results.

• Fund manager's details

You will get information about the fund manager's experience and qualifications here. You can find their track record of schemes they manage here.

• Portfolio aspects

In this section, you will get information about the fund's asset allocation and its exposure to various asset classes, including equity, debt, cash, etc. You will also find info about the sector and companies (top 10) in which the fund invests.

In Conclusion

Going through scheme information documents in a mutual fund helps you better understand it and aids in intelligent decision-making. They allow you to get vital information about a fund that ensures you pick one that matches your goal and risk tolerance.

They also help you compare various funds. You will find them on the website of the AMC managing the fund. It is vital to regularly go through these documents to be aware of any changes. Happy investing!

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.