Let us take an example, suppose you want to buy a good smartphone and you have a lot of options to choose from. One of your friends asked you to purchase an Apple iPhone saying that it is the best phone you could have. But you want a phone that can be connected to all the android devices you have, so if you by hearing what your friend said purchased an iPhone then it would disappoint you, whereas if you would have studied about the features of the phone and had all the information you wouldn’t have purchased it. So, being informed plays a very important role when you want to invest your money in any assets not only Mutual funds.
Similarly, here in this article, you would come to know about the documents and the information that is provided by the Mutual Fund through which you can invest in that fund which suits your investment objective, risk profile, and the period you want to invest for. So, let us see the documents available through which you can choose your investments wisely.
#1. Scheme Information Document (SID)
As the name suggests, Scheme Information Document (SID) provides you the details about the specific scheme. SID prepared by the Asset Management Company (AMC) of the scheme, gives you almost all the information related to the Mutual Fund Scheme. It then has to be submitted to the Securities and Exchanges Board of India (SEBI) for its approval.
Let us look into the information that is generally available in the SID of most of the schemes :
1. Riskometer and AMC information
Riskometer is the representation of the amount of risk the fund is exposed to. There are five divisions of risks in Riskometer namely; low risk, moderately low risk, moderate risk, moderately high risk, and, high risk, through which you can analyze the risk and invest in one suitable to you. Almost every Mutual Fund scheme shows the amount of risk they are exposed to in the form of a Riskometer. So, in SID you will be able to find the Riskometer on the first page itself.
Along with the Riskometer the first page of the document also gives you little information about the AMC.
2. AMC-related information
The AMC is the company or a group of companies selected by the Trustees or the Sponsors of the Fund, is responsible for managing the Assets/investments of the Fund. This part of the SID provides us with information like; Name of the Mutual Fund, the Name of the AMC, the Name of the Trustees, and other information related to the Fund and AMC.
Both the information of Riskometer and AMC are provided even before the contents part in the SID.
3. Contents of Scheme Information Document (SID)
- Information about the Mutual Fund scheme
- Units and Offers
- Fee and Expenses
- Rights of Unitholders
- Penalties and Litigations
Let us discuss some of the above-given contents of the SID.
a) Introduction: The introduction part of the SID gives you an idea about all the risks associated with the scheme like risks related to funds of a specific asset class (equity, debt, or hybrid), credit risk, currency risk, risks relate to strategies used, etc.
Most of the investors fail to evaluate the amount of risk they can afford. To get a clear picture of the risks related to the scheme you are investing in, the introduction part can be of great use to you.
b) Information about the scheme: You as an investor must know about the avenue where you are parking your funds. This section gives you the information regarding the asset allocation (how much will be invested and in which asset), details about the Fund Managers (experience, name, etc.), the strategies that will be used for investing, the asset class (equity, debt, or hybrid), performance of the Fund, and the top 10 holdings in which the scheme has the maximum allocation.
c) Units and offers: The types of Funds available i.e. Direct( without brokers) or Regular (through brokers). the details about the Systematic Investment Plan (SIP), entry and exit loads (charges), a minimum investment that you have to make ( SIP or lumpsum), taxation, details about Net Asset Value (NAV), and other details related to the offers and units of the scheme is disclosed in this section.
d) Fee and Expenses: As we know that no one gets anything for free. So, even if you are investing in Mutual Funds, there are certain charges that you will have to bear like Audit Fee, Maintenance Fee, etc. for the services provided to you. You will get the information related to fees and expenses in this part of the SID. It will be given in the form of an Expense ratio. The lower the expense ratio the better it will be for you and vice versa.
#2. Key Information Document (KIM)
From the name itself you can understand that it presents the key information related to the Mutual Fund scheme. KIM can be understood as a shorter version of the SID that provides you the same information but in a short way. You can find KIM attached with the application form of the Mutual Fund Scheme.
#3. Statement of Additional Information
It provides you with additional information rather than just about the scheme. Information related to the AMC, trustees, sponsors, bankers, auditors, custodians, financial matters, legal matters, and others. So, those who are interested in reading in-depth about the Mutual Fund scheme can consider going through the Statement of Additional Information.
It is a document where you as an investor can get almost all the information regarding the mutual Fund scheme you want to invest in. It is provided by the Mutual Fund scheme itself and is available on the website of that particular Fund.
You will be able to get all the details regarding the Sponsors, Trustees, AMC, and other members of the Mutual Fund in the Statement of Additional Information.