Scheme related information

A distributor's job is to explain a scheme accurately, and the only safe source for that is the scheme's own documents. The exam checks that you know which document contains what, the NFO rules, the product label with its riskometer, and the disclosure timelines that SEBI has standardised across all fund houses.

SID, SAI and KIM: what goes where

Every scheme is offered through an offer document that has two parts.

The Scheme Information Document (SID) is scheme-specific. It contains the investment objective, asset allocation pattern with minimum and maximum ranges, investment strategy, risk factors specific to the scheme, fundamental attributes, the benchmark, the fund manager and their experience, fees and expenses including the maximum total expense ratio, load structure, minimum investment and redemption amounts, the options and plans, NFO dates, listing details for close-ended schemes, and the product label with the riskometer. Anything that changes a fundamental attribute requires the exit window discussed in the previous chapter.

The Statement of Additional Information (SAI) is fund-house-level and common to all schemes of that mutual fund. It describes the sponsor, trustees and AMC with their directors, the other constituents (custodian, RTA, auditors, bankers), the rights of unitholders, the tax treatment of investments, how investor grievances are handled, penalties and pending litigation, and the valuation policy. An investor reads the SAI once and the SID for each scheme.

The Key Information Memorandum (KIM) is a condensed SID that must accompany every application form. It carries the essentials: objective, asset allocation, risk, benchmark, fund manager, loads, expenses, minimum amounts, options and the product label. SEBI prescribes a standard format for the SID, SAI and KIM so that investors can compare across fund houses.

The draft SID is filed with SEBI through the trustees, SEBI gives its observations, and the final SID is issued before the NFO. The SID is updated regularly (the updated version is uploaded within the period SEBI specifies after the end of each financial year), and in between any change is communicated through an addendum that forms part of the SID and KIM.

New fund offer rules

A new fund offer (NFO) is the first sale of units in a new scheme, usually at a face value of ₹10 per unit. The timelines are fixed by SEBI:

• An NFO may stay open for a maximum of 15 days (ELSS schemes may stay open longer, as notified).
• Units must be allotted, and refunds made to unsuccessful applicants, within 5 business days of the NFO closing.
• An open-ended scheme must reopen for continuous transactions within 5 business days of allotment.
• The scheme must meet the 20-25 rule and any minimum subscription amount stated in the SID; if not, the money is refunded.
• The AMC must invest its own money in each scheme, in a proportion linked to the scheme's risk level, so that it has skin in the game, as notified by SEBI.

The NFO price of ₹10 is not a bargain. A ₹10 unit of a new scheme and a ₹250 unit of a 15-year-old scheme buy exposure to the same market; what matters is the portfolio behind the unit and the percentage return from here. There is no track record to evaluate in an NFO, which is a reason for caution, not enthusiasm.

Reading a factsheet and the product label

Every AMC publishes a monthly factsheet for each scheme. The fields a distributor should be able to interpret: scheme AUM and NAV; the top holdings and sector allocation; the asset allocation; performance over 1, 3 and 5 years and since inception against the benchmark, shown as CAGR and as the value of ₹10,000 invested; the total expense ratio for regular and direct plans; exit load; minimum investment; the fund manager and tenure; and the quantitative ratios. For equity schemes these are standard deviation, beta, Sharpe ratio and portfolio turnover ratio. For debt schemes they are yield to maturity, average maturity, Macaulay duration, modified duration and the credit rating profile.

The product label appears on the front page of the SID, KIM, factsheet and every advertisement. It has three parts: the scheme name and type (for example, "an open-ended equity scheme predominantly investing in large cap stocks"), a line beginning "This product is suitable for investors who are seeking" with two or three bullets (long-term capital appreciation; investment in large cap equity), and the riskometer. The riskometer has six levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High. It is computed from the actual portfolio every month and disclosed on the AMC and AMFI websites within 10 days of the month end, and any change is communicated to unitholders. The benchmark's riskometer is shown alongside the scheme's. Investors should consult their financial advisers if in doubt about whether the product is suitable, and that sentence appears on the label.

The ongoing disclosure clock

SEBI has standardised when a fund house must tell investors what. The timelines come up repeatedly:

• NAV: computed every business day and published on the AMC and AMFI websites by 11 pm (fund of funds by 10 am the next business day).
• Monthly portfolio: on the website within 10 days of the month end, with an email or link to unitholders.
• Half-yearly portfolio: as on 31 March and 30 September, within 10 days of the half-year end, published on the website and intimated to investors.
• Debt scheme portfolios: fortnightly, within 5 days of each fortnight, as an additional disclosure.
• Half-yearly unaudited financial results: within one month of the half-year end.
• Annual report: scheme-wise, within 4 months of the financial year end, with an abridged version sent to unitholders and the full version on the website.
• Riskometer: monthly, within 10 days of the month end; TER: daily on the website, and any increase intimated to investors at least 3 working days before it takes effect.
• Addenda: for any change to the SID or KIM, published in newspapers where SEBI requires and on the website.

Performance in advertisements must follow SEBI's advertisement code, which chapter 11 covers: CAGR for periods above a year, the benchmark alongside, and the standard warning that past performance may or may not be sustained. A distributor who quotes numbers to a client should quote them from the factsheet, with the date.