Things to Consider in Mutual Fund Offer Documents

The first thing that comes to the mind with mutual fund is the popular television commercial ad saying, “Mutual fund investments are subject to market risks. Please read the offer document carefully before investing”. It is absolutely true, and as an investor, you must pay attention to the same. But reading the offer document is not that easy as said in the commercial. The scheme related offer documents (ODs), which can run into several pages, are full of legal and financial jargon that can’t be comprehended easily by a retail investor. As a result, investors get confused and rely on the advices of financial advisor to take decisions on mutual fund investments. So while reading ODs, make sure you study below mentioned aspects to put yourself in the right position.

Investment Objective

Investment policies and objectives are critical while you read ODs. You can be enlightened regarding the goals of specific funds and your likely underlying portfolio if you properly scan through the policies and objectives. You can also be aware of the strategies that will be adopted by the fund managers to achieve the objectives. Ensure you match these objectives with your own expectations regarding income, long-term capital appreciation, risk appetite, etc.

Comprehensive study of scheme

You should pay attention to the date on which the scheme is started, Assets Under Management (AUM) and its past performance. Compare your fund on similar parameters with related funds in the market, as well as with the set industry standards. You must choose schemes that have provided returns constantly over a long period of time. However, guard against any thoughts of predicting the future returns based on past information as it does not indicate the returns you will have.

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Risk Factors

The offer document clearly states the risks that the scheme will run into. Apply your knowledge and understand market dynamics to take an informed decision based on the risk appetite you have.

Fees and charges

While reading the offer document, make sure you keep an eye on the fees and charges. Common charges applicable to mutual fund investment include entry and exit loads, transaction charges, security transaction tax (STT), and several fund management charges. These are together called Total Expense Ratio (TER). It is vital to note that charges of mutual funds vary from each other.

Fund Managers’ Credentials

You must focus on the information regarding the credentials of the fund managers, their investment style and the experience as knowing the same will put you in the right position.

Documents that complete the offer documents

Scheme Information Document

Scheme Information Document (SID) is a collection of detailed information related to the scheme.

Statement of Additional Information

Statement of Additional Information (SAI), a supplementary document to the prospectus of mutual fund, offers additional information regarding the fund and discloses extensive details on its operations. SAI also forms Part B of the registration statement of the fund.

Key Information Memorandum

Key Information Memorandum (KIM) puts forward the information that a new investor must know before investing.

Fund Fact Sheet

This offers a detailed analysis of the fund with full of graphs, financials and other research tools that help investors get an insight of the fund performance under different market conditions.

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