Mutual funds have become one of the popular investment options and you must have seen on all Mutual Fund adverts, “Mutual Funds are subject to market risk. Please read the offer document carefully”. Ever wondered what does “offer document” mean and have we really read the offer document ever? Let us now understand what this Offer Document is all about.

What is an Offer Document?

Mutual Fund Offer Document contains details of the scheme offered by the Asset Management Company (AMC) to the public. This will provide the details of the scheme which will assist the investor in making a decision on whether to purchase the fund or not after reading the offer document. These offer documents are prepared in the format prescribed by Securities and Exchange Board of India (SEBI) in simple terms that can be understood by anyone without prior knowledge of the terms. These documents consists of – Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM). 

• SID – SID carries important information about the scheme that will help you in deciding about the purchase of the scheme. Some of the information provided are – 

• • Investment objective that explains the purpose of the scheme and how this will be achieved. 

• • Asset allocation explains how the funds are invested in the asset classes – debt, equity or gold under usual market conditions. This will also clarify proportions in which funds will get invested in each of the above asset classes. So that you will be able to ascertain if the scheme is debt oriented, equity oriented, etc., and whether it fits your investment purpose or not.

• • Investment strategy will detail the approach the fund house is going to employ in choosing securities to invest. For eg: Some funds follow growth style in picking up stocks, while some may follow value style or momentum style. This is essential as it reflects the process the fund house follows and one with a clear strategy will give the investors’ confidence.

• • Risk factors list the risks the Mutual Funds carry and will help you be aware of the varied risk that the scheme carries and allow you to decide if you can tolerate the risk.

• • Benchmark of the scheme tells you the benchmark chosen for a particular mutual fund scheme so as to structure the scheme according to the constituents of the benchmark.

• • Fund manager is crucial as he/she takes the decision to buy/sell securities in the portfolio as per his/her views. Scheme performance is the result of a portfolio made by the fund manager. Qualities that you should check for the fund manager are experience, qualification, track record, etc.

• • Investment options that a scheme provides are growth and dividend. There are various investment modes offered by the scheme through which one can invest like SIP (Systematic Investment Plan), lump sum, and STP (Systematic Transfer Plan). Read through the SID to be aware of these options to make an informed choice.

• • Past performance though does not guarantee future returns but is a good indication as how the scheme has been performing. The SID will show the performance of the scheme over different time frames.

• • Fees and expenses that are charged by AMC to cover costs such as salary of fund manager and research team, trading costs, registrar and transfer agent charges, etc. These charges are deducted from the NAV of the scheme and are directly proportionate to the net returns of a particular scheme. 

•  SAI – contains all statutory information like Sponsors, AMC, Trustee and associates like Bankers, Registrar, etc. and all Financial and Legal Issues.

• KIM is a concise version of the SID that is attached with the application form. It contains all the key information that you should know before investing.

Mutual fund offer document help you determine the credibility of an AMC and the scheme, acting as a guide to make an informed investment decision and these documents are available for free on request and also on the mutual fund websites.