Joint investments are undoubtedly the most sought after investment vehicles due to their ability to generate attractive profits that help investors create wealth. Distributors or agents or brokers of mutual funds take advantage of this opportunity and convince budding investors to invest in joint ventures. However, in the pursuit of wealth, many investors tend to overlook certain important aspects of investing. One of those features is, read the text of the mutual fund offer.
Making any kind of investment, the best way to take responsibility, research the various options available, compare, and make a wise decision. The same applies to mutual fund investments. Instead of relying solely on your mutual fund / agent / distributor, you as an investor should go through the mutual fund scheme documents you wish to invest in, carefully and make a decision.
What is a Mutual Fund Offer Document?
A document containing details of a specific benefit plan provided by the Asset Management Company (AMC) to the public for investment is known as a mutual fund or prospectus donation document. This document has two parts – the Strategic Information Document (SID) and the Extended Information Statement (SAI).
The Strategic Information Document contains important information about the plan such as the investment objective, asset allocation pattern, risk involved, investment method, fund manager, benchmark index, fees and expenses, etc. Additional Information Statement, on the other hand. Manually, containing all the official details of the mutual fund house.
Your adjustment of both SID and SAI is done in a format determined by the Securities and Exchange Board of India (SEBI) and must be submitted to SEBI. The fund house may include any disclosure that it feels is necessary for the investor.
How do you read mutual fund documents?
Since SID contains important system information, it is important to examine it carefully. While doing so, be sure to read the points listed below in the SID:
Purpose of the investment – This section describes the purpose of the project launch and how it will be implemented. The purpose of the investment is to clarify the potential investors’ concerns about the names of the programs. For example, the ‘Capital Protection Oriented Funds’ may not guarantee capital protection and therefore, the purpose of the investment is to eliminate that ambiguity.
Asset Allocation – This section outlines how the system will classify its assets into appropriate asset classes (such as debt, equity, and gold) under normal market conditions. The asset distribution pattern indicates the extent of the maximum and minimum exposure to the various categories of assets. Investors can judge whether a plan is more debt-oriented, equitable, or asset-based, etc., from the asset allocation and give them an idea of whether the plan is in line with their investment needs or not.
Investment Strategy – This section describes the method or style the fund organization will follow when choosing securities to invest in. This is important because the investment strategy is a reflection of the plans and processes followed by the fund. Fund houses with a clear investment strategy offer a sense of confidence in the minds of investors.
System benchmark – A benchmark system for a particular co-op program is selected to build the system according to the benchmark elements.
Risk factors – Joint funds carry certain risks that may affect the investment balance. Investors should be aware of the various risks involved in this process so that they can assess whether they can withstand the risks of obtaining financial recognition.
Fund Manager – The ability of a fund manager is critical to the overall performance of the scheme over time. A few qualifications to look for in a fund manager experience, qualifications, track record, etc. This information can be accessed and highlighted in SID.
Past performance – Although past fund performance does not guarantee future performance, it can be used to guide your investment decision. The SID for an existing mutual fund program will have a previous program function from time to time. This information can be used to assess whether a particular fund’s record meets the investment objective of the fund.
Fees and expenses – The expenses charged by the AMC are directly proportional to the net returns delivered by a particular scheme. In the process of fetching optimal returns for the investor, the AMC will levy charges in the form of loads, fund management fees, switching charges, etc. These charges are deducted from the NAV of the scheme and hence, as an investor you should look for a scheme that has a lower expense ratio which would translate to you achieving higher capital gains.
Investment options – Most mutual fund schemes offer 2 options of investment – growth and dividend. The dividend option further offers a payout and reinvestment option. Also, there are various modes of investing such as the SIP (Systematic Investment Plan), lump-sum investment, and STP (Systematic Transfer Plan). Remember to read through the SID to look for these options so that you can make an informed decision based on your investment needs.
These are some of the important aspects of a mutual fund scheme that will be mentioned in the SID and which you need to look out for. Reading the SID thoroughly will help you judge the credibility of the AMC and the scheme in which you are planning to invest your hard-earned money on.
What is a Key Information Memorandum?
A KIM or Key Information Memorandum is the condensed form of the SID and contains the essential components of the offer document. The KIM contains the following information:
Details of the AMC and the scheme such as the mutual fund’s name, its AMC and Trustees, etc.
Details of the scheme such as the inception date, issue date, investment objective, risk profile, name of the fund manager, benchmark index, etc.
Options and plans offered by the scheme
Minimum investment details
Scheme’s past performance over various time frames
Loads and recurring expenses
Contact details of RTA (Registrar and Transfer Agent)
Comparison with other existing schemes.
Mutual fund offer documents, as stated above, can help you gauge the credibility of a scheme and the AMC. It can be used as a guide to making a prudent investment decision and aid you in wealth creation.
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