CHAPTER 5: SCHEME RELATED INFORMATION

LEARNING OBJECTIVES:

After studying this chapter, you should know about:

• Mandatory Documents
o Scheme Information Document
o Statement of Additional Information
o Key Information Memorandum
• Non-Mandatory Documents

5.1 Mandatory Documents

“Mutual fund investments are subject to market risk. Please read all scheme related
documents before investing.” These lines are mentioned in all mutual fund related
communications. So, what are the scheme related documents?

The legal documents that provide the information that the investor requires are available
called in the scheme related documents - Scheme Information Document (SID), Statement of
Additional Information (SAI) and the Key Information Memorandum (KIM).

Scheme related documents can be used for making an informed investment decision. The
suitability of a mutual fund scheme to an investor depends upon the features of the scheme
and matching it to the needs of the investor from the investment.

Investors need to note that their investments are governed by the principle of caveat emptor
i.e., let the buyer beware. An investor is presumed to have read and understood the scheme
related documents before investing in a mutual fund scheme. In fact, since this is a
contractual arrangement, the person signing the application form has legally accepted the
terms of the offer. Therefore, an investor cannot claim at a future date of being unaware of a
fact that was disclosed in the scheme related documents.

There are primarily two important documents for understanding about the mutual fund
scheme:

a) Scheme Information Document (SID), which has details of the particular scheme
b) Statement of Additional Information (SAI), which has statutory information about the
mutual fund or AMC, that is offering the scheme.

It stands to reason that a single SAI is relevant for all the schemes offered by a mutual fund.
In practice, SID and SAI are two separate documents, though the legal technicality is that SAI

93
is part of the SID.

Both documents are prepared in the format prescribed by SEBI and submitted to SEBI. The
contents need to flow in the same sequence as in the prescribed format. The mutual fund is
permitted to add any other disclosure, which it feels, is ‘material’ for the investor.

Since investors are not sophisticated experts of finance or law, the documents are prepared
in simple language, and in a clear, concise and easy to understand style.

While SEBI does not approve or disapprove the Scheme Related Documents, it gives its
observations. The mutual fund needs to incorporate these observations in these documents.
Thus, the Documents in the market are “vetted” by SEBI, and not approved by SEBI.

Draft SID and SAI are public documents, available for viewing on SEBI’s website
([Link] The final documents (after
incorporating SEBI’s observations) have to be hosted on AMFI’s website ([Link])
as prescribed by SEBI. Every mutual fund, on its website, provides for download of these
documents for all its current schemes.

Objective of the scheme related documents

SID and SAI together are the primary source of information for any investor—existing as well
as prospective. These are the operating documents that describe the product.

Since the investor is required to make an informed investment decision, these documents
serve the purpose of providing the required information in an easy-to-understand language.

The units of the scheme are offered to the investor through the scheme related documents.
By signing the application form and making a payment, the investor is accepting the offer,
and by issuing units against such an acceptance, the mutual fund then completes the contract.
Thus, the scheme related documents contain information that forms the basis of the
contractual relationship between the investor and the fund.

5.1.1 Scheme Information Document

The Scheme Information Document (SID) sets forth the information about the scheme that a
prospective investor ought to know before investing. An SID remains effective until a 'material
change' (other than a change in fundamental attributes and within the purview of the SID)
occurs and thereafter changes are filed with SEBI and communicated to the investors or
publicly notified by advertisements in the newspapers, subject to the applicable Regulations.

Contents of Scheme Information Document (SID)

It is essential to read and understand the SID. SID format is prescribed by SEBI. Refer to this
appendix or download SID from the website of any mutual fund or SEBI and go through the
sections discussed below for a better understanding of how this document can be used to

94
understand the features of a mutual fund scheme.

The cover page has the name of the scheme followed by its type viz—Open-ended/Close-
ended/Interval (the scheme structure), Equity/Debt/Liquid/Hybrid etc. (the expected nature
of scheme portfolio). It also mentions the face value of the Units being offered, relevant NFO
dates (opening, closing, re-opening), date of SID, name of the mutual fund, and name and
contact information of the AMC and trustee company. The cover page has the following
standard clauses, which every investor ought to note “The particulars of the Scheme have
been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds)
Regulations 1996, as amended till date, and filed with SEBI, along with a Due Diligence
Certificate from the AMC. The units being offered for public subscription have not been
approved or recommended by SEBI nor has SEBI certified the accuracy or adequacy of the
Scheme Information Document”.

The Scheme Information Document is structured in the following manner:

• Table of Contents
• Highlights
• Introduction
o Risk Factors
▪ Standard
▪ Scheme-specific
o Provisions regarding the minimum number of investors in the scheme
o Any other special considerations
o Definitions
o Due Diligence Certificate (issued by the AMC)
• Information about the scheme
o Name and type of the scheme
o Investment Objectives and Policies
o Asset Allocation Pattern
o Where will the scheme invest?
o Investment Strategy
o Fundamental Attributes
o Benchmark
o Managers of the Scheme
o Investment Restrictions
o Performance track record of the scheme
• Units and Offer
• Fees & Expenses
• Rights of Unit-holders
• General Unit-holder information
• Penalties, Litigation etc.

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The content of SID is discussed below in detail. The following discussion looks at how the SID
can be used for making an informed investment decision. The suitability of a mutual fund to
an investor depends upon the features of the scheme and matching it to the needs of the
investor from the investment. The principal questions that an investor needs to find answers
for and the sections of the SID where they can be found are described below.

Eligible investors

The segment on New Fund Offer (NFO) and Ongoing Offer Details of the Scheme Information
Document (SID) provides a list of categories of investors eligible to invest in the scheme. The
section also lists the persons who are not eligible to invest in the scheme.

Scheme suitability

The suitability of the scheme depends upon multiple factors such as the financial need of the
investor from the investment, the risk and return preferences, the investment horizon and
other individual preferences. The details of the scheme that has to be matched with the
investor’s preferences are found in the following sections.
The Risk-o-meter and Statement of the suitability of the scheme are available on the front
page of the SID36.

(a) The risks in the scheme are listed in the segment on Risk of the SID which includes
standard or general risk factors that affect all mutual fund schemes. These include risks
that arise from the nature of mutual fund investments such as the possibility of volatility
in the value of the units of the scheme. As the value of the underlying securities in the
portfolio changes, there is no guarantee or assured returns in the scheme. The sponsors
are not responsible or liable for any loss arising out of the operations of the scheme
beyond the contribution made by each sponsor towards setting up the scheme. The past
performances are only indicative and do not guarantee the future performance of the
schemes. Even specific risk factors to the mutual fund scheme are listed in this section.
The specific risk factors are the risks that arise out of the type of investment the schemes
will make. Investments in fixed income securities may have credit risks, interest rate and
price risks, liquidity risks, pre-payment risks, reinvestment risks. Equity and equity-related
securities are prone to risks of price volatility, unlisted securities have high liquidity risk,

36Candidates
are also advised to read: [Link]
scheme-benchmark-and-portfolio-details-to-the-investors_52262.html
As per SEBI, the AMCs are required to disclose the risk-o-meter of the scheme wherever the performance of the scheme is
disclosed and also disclose the risk-o-meter of the scheme and benchmark wherever the performance of the scheme vis-à-
vis that of the benchmark is disclosed in all disclosures including promotional material or that stipulated by SEBI. The
portfolio disclosure concerning ‘Go Green Initiative in Mutual Funds’ also need to incorporate the scheme risk-o-meter,
name of benchmark and risk-o-meter of benchmark.
[Link]
schemes-of-mutual-funds_88230.html

96
 listed securities may also be subject to liquidity risk from lower trading volumes.
Investment in foreign securities, securitized instruments, derivatives and others will also
have risks that are specific to those types of investments. The strategies adopted by the
scheme’s fund managers will also affect the risk in the scheme. The risk mitigation
strategies adopted by the fund management to control and manage the risksassociated with
investing in specific types of securities are described in the SID.

(b) The Type of Scheme describes the nature of the scheme briefly. It categorizes the scheme
as open-ended or close-ended/interval/balanced/income/equity or debt/liquid/ETF
oriented. The information is available in the segment on ‘Information about the Scheme’
in the SID.

(c) The segment on ‘Information about the Scheme ‘of the SID also describes the Investment
Objective of the scheme that helps investors match their objective to that of the scheme.
Schemes may also define a primary objective and a secondary objective. This description
helps investors determine whether the scheme is suitable for their needs. The Investment
objective is also available in the segment on Highlights/Summary of the Scheme at the
beginning of the Scheme Information Document.

(d) The segment on ‘Information about the Scheme’ of the SID describes the Asset Allocation
of the scheme, which is the proportion of the net assetsof the scheme that will be invested
in different asset classes such as equity, debt and others. Apart from the asset allocation,
the level of risk in each of these asset classes is provided to help investors assess the level
of risk in the scheme as also to understand thenature of returns of the scheme.

(e) The scheme information document also describes the types of instruments that the
scheme is likely to invest in. SID also gives details of the regulatory restrictions on the
investments that the scheme will make.

(f) The Investment Strategy that will be followed by the scheme is covered under SID. This
section informs investors about the philosophy adopted to identify securities to be
included in the portfolio, rebalancing the portfolio and approach to selling investments
held. All these factors will affect the risk and suitability of the scheme to the investor. The
investment management structure created in the Asset Management Company to make
investment decisions is also detailed in the SID.

All these elements of the scheme help an investor decide on the suitability of the scheme.

Buying units of the scheme from mutual fund

The Type of Scheme will determine when the investor can invest in the scheme. If it is an
open-ended scheme, then the investor can buy units of the scheme during the New Fund
Offer (NFO) period and in the continuing investment period as defined in the Scheme

97
Information Document at the applicable NAV. In case of a closed-ended scheme, the investor
can buy units of the scheme from the mutual fund only during the NFO. In case of Interval
schemes the investors can buy units directly from the mutual fund at the time of the NFO and
during the Specified Transaction Periods at the applicable NAV.

This information is available on the cover page of the Scheme Information Document (SID).
The description of the scheme as open-ended/close-ended/interval, along with a line on
when the units will be offered by the mutual fund gives the information that the investor
requires. SID also covers the details of the Units and Offer and provides information about
when the investor can invest in the scheme.

Applying for Units of a mutual fund scheme

The information available in the Statement of Additional Information (SAI) and the Scheme
Information Document (SID) have to be read together to get all the information on how to
apply for the units of a scheme.

SAI provides information on who can invest, information to be provided in the application
form, points atwhich the application can be submitted, the modes of payments for purchases
made and thedetails to be provided for each option available for payments and restricted
modes such as third party payments along with exceptions, the mandatory information to be
provided suchas Permanent Account Number (PAN), bank account details and compliance
with Know YourCustomer (KYC) norms and exceptions to the rules (if any), the cut-off time
for submission of applications, facilities and modes available for transacting in the units,
regulations specific forany special category of investors such as minors, NRI and PIO investors,
the facilities availableto investors such as holding investments in demat form, and any other
information that a prospective investor may require.

Transactions: purchase and repurchase prices

The information available in the SID for NFOs and Ongoing Offer covers information on the
price at which investors can purchase and redeem units. This price will depend upon the
applicable NAV for the transaction, which in turn will depend upon the cut-off time prescribed
for the particular type of scheme and thetransaction value.

Load Structures

The segment on load structures of the SID describes the impact of loads on the redemption
price of units.

Investment limits: maximum and minimum amount an investor can invest

There is a segment on Highlights/Summary of the scheme available at the beginning of the

SID. The information available in the SID for NFOs and Ongoing Offer provides details of the

98
minimum amount of purchase that has to be made and the minimum balance that has to be
maintained in the folio. The minimum amount for which redemption requests have to be
made is also mentioned.

Plans and options available under the scheme37

The segment on Highlights/Summary of the scheme available at the beginning of the SID and
the information available in the SID for NFOs and Ongoing Offer provides details of the
different plans, Regular and Direct, for makingthe investment. Each plan offers options such
as Pay-out of Income Distribution cum capital withdrawal plan and growth, dividend re-
investment and dividend sweep, the details of which are also provided.

Modes of transaction

The segment on ‘How to Apply’ of the SAI provides information on the various ways in which
the investor can transact with the mutual fund. This includes transacting directly with the
mutual fund either physically or via Internet, through channel distributors, electronic mode,
stock exchanges and others. The information is also available in the SID.

Liquidity and Redemption in a scheme

The segment on Highlights/Summary of the scheme available at the beginning of the SID
provides a summary of the Liquidity in the investment in the scheme. SID provides also details
of the price for redemption, the cut-offtime for submitting the requests and how the request
can be made and the modes by whichthe payments will be made for different categories of
investors.

Fees, expenses, transaction charges

SID details the different categories of expenses, fees and loads that affect the returns to the
investors in the scheme. The fees are charged to the scheme and the NAV reflects the
adjustment. The loads are paid by each investor out of their investment value at the time of
exit. The examples provided in this section make it easier for the investor to understand the
impact. Information on the transaction charges that the investor directly pays is mentioned in
the segment on Highlights/Summary of the scheme available at the beginning of the SID.

Special products and facilities

SID discusses special products and facilities available to the investors in the scheme such as
systematic investment plans, systematic transfer plans, triggers, switch options, Transfer of

37
There are additional changes to the dividend details for mutual funds. This is effective from 1 April 2021 and
mutual funds have to rename their dividend plans. The nomenclature for dividend plans has been changed. The
dividend pay-out plan is renamed as pay-out of income distribution cum capital withdrawal, dividend re-
investment plan is renamed as reinvestment of income distribution cum capital withdrawal option followed by
renaming of dividend transfer plan to transfer of income distribution cum capital withdrawal plan.

99
Income Distribution cum capital withdrawal plans and such.

Sources of information

SID provides details of the periodic information that the mutual fund will provide to the
investor on the investments held in their folio through an account statement or other
communication. Apart from account specific information, SID also details the periodic
disclosures that the investorcan access on the current value of the units, performance of the
scheme and portfolio of thescheme. The performance of the scheme and that of its benchmark
is also provided in SID.

Calculation of the scheme’s Net Asset Value (NAV) per unit

SID provides the details of the computation of theNAV.

Tax implications

SID also gives the prevalent tax laws applicable to investingin mutual funds in brief.

Fundamental Attributes

SID discusses fundamental attributes (core aspects of the scheme) as explained in Box 5.1.

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Box 5.1 Fundamental Attributes

Within the SID, there is an important section on fundamental attributes of a scheme with
following parameters:

(i) Type of a scheme

o Open ended/Close ended/Interval scheme
o Sectoral Fund/Equity Fund/Balance Fund/Income Fund/Index Fund/Any
other type of Fund

(ii) Investment Objective

o Main Objective - Growth/Income/Both.
o The tentative portfolio break-up of Equity, Debt, Money Market
Instruments, other permitted securities and such other securities as may be
permitted by the Board from time to time with minimum and maximum
asset allocation, while retaining the option to alter the asset allocation for
a short term period on defensive considerations.

(iii) Terms of Issue

o Liquidity provisions such as listing, repurchase, redemption.
o Aggregate fees and expenses charged to the scheme.
o Any safety net or guarantee provided.

According to 18(15A) of SEBI (Mutual Funds) Regulations, 1996, the Trustees are required to
ensure that no change in the fundamental attributes of the Scheme(s) or the trust or fee
and expenses payable or any other change which would modify the scheme shall be carried
out unless:

• A written communication about the proposed change is sent to each Unit-

holder and an advertisement is given in one English daily newspaper having
nationwide circulation as well as in a newspaper published in the language
of the region where the Head Office of the mutual fund is situated; and

• The Unitholders are given an option for a period of 30 days to exit at the
prevailing Net Asset Value without any exit load.

In addition, conditions specified under Regulation 18 (15A) for bringing change in the
fundamental attributes of any scheme, it has been decided that trustees shall take
commentsof the Board before bringing such change.

101
5.1.2 Statement of Additional Information

Statement of Additional Information (SAI), has statutory information about the mutual fund
or AMC, that is offering the scheme. Therefore, a single SAI is relevant for all the schemes
offered by a mutual fund.

Content of Statement of Additional Information

Every mutual fund, on its website, provides for download of its SAI. However, investors have
a right to ask for a printed copy of the SAI. Through the AMFI website ([Link]),
investors can access the SAI of all the mutual funds.
Refer to SAI from the website of any mutual fund and go throughthe sections discussed below
for a better understanding of how these documents can be used to understand the features of
a mutual fund scheme.

Content of SAI Description of Content

Constituents of the mutual fund SAI gives complete details of the constituents of the
mutual fund--Sponsors, AMC and Trustee Company, of
service providers {Custodian, Registrar & Transfer
Agent, Statutory Auditor, Fund Accountant (if
outsourced) and Collecting Bankers}.

This includes their experience, condensed financial

information (for schemes launched in last 3 financial
years), key personnel, rights and obligations and other
information the investor may require to evaluate the
investment.

How to Apply SAI provides guidance on how toapply.

Rights of Unit-holders SAI details the rights to beneficial ownership of the

assetsof the scheme, timelines for servicing investor
applications and acknowledgements, right to receive
information and disclosures and to exercise the option
to exit in the event of changes in the scheme, and
other rights of investors.

102
 Content of SAI Description of Content

Investment Valuation Norms SAI provides the details of the regulatory specifications
on how different securities in the portfolio will be
valued. The rules for valuation arestandardized by the
regulator, SEBI.
Tax, Legal & General Information SAI provides information on legal aspects of the
investment that deal with nominations, transfer and
transmission of units, investment by minors,
pledge/lien on units and others. Also, this section
provides details regarding taxation and other general
information.
Investor Grievance SAI provides detailsof how the investor can register a
grievance.

5.1.3 Key Information Memorandum

While an investor is expected to read all the scheme related documents, circulation of the
same along with the application forms is too difficult and costly, especially if the printed forms
are to be distributed. In order to ensure the investor gets access to sufficient information in
spite of such a constraint, a Key Information Memorandum (KIM) is mandatorily circulated
along with the application form.

KIM is essentially a summary of the SID and SAI. It contains the key points of these documents
that are essential for the investor to know to make a decision on the suitability of the
investment for their needs. It is more easily and widely distributed in the market. As per SEBI
regulations, every application form is to be accompanied by the KIM.

Some of the key items contained in the KIM are as follows:

• Name of the AMC, mutual fund, Trustee, Fund Manager and scheme
• Dates of Issue Opening, Issue Closing and Re-opening for Sale and Re-purchase
• Investment Objective
• Asset allocation pattern of the scheme
• The risk profile of the scheme i.e., a snapshot of the risk to the principal invested, the
suitable investment horizon for investment and the type of securities that the scheme
will invest in.
• Plans and Options
• Benchmark Index
• Dividend Policy
• Performance of scheme and benchmark over last 1 year, 3 years, 5 years and since
inception.
103
 • Expenses of the scheme
• Information regarding registration of investor grievances

5.1.4 Addendum

While the SID, SAI and KIM need to be updated periodically, the interim changes are updated
through the issuance of such addendum. The addendum is considered to be a part of the
scheme related documents and must accompany the KIM.

5.1.5 Updation of Scheme Documents—Regulatory provisions

Updation of SID38

For the open ended and interval schemes, the SID shall be updated within next six months
from the end of the 1st half or 2nd half of the financial year in which schemes were launched,
based on the relevant data and information as at the end of previous month. Subsequently,
SID shall be updated within one month from the end of the half-year, based on the relevant
data and information as at the end of September and March respectively.

The procedure to be followed in case of changes to the open ended and interval scheme shall
be as under:

a. In case of change in fundamental attributes in terms of Regulation 18 (15A)

i. An addendum to the existing SID shall be issued and displayed on AMC website
immediately.
ii. SID shall be revised and updated immediately after completion of duration of the exit
option (not less than 30 days from the notice date).
iii. A public notice shall be given in respect of such changes in one English dailynewspaper
having nationwide circulation as well as in a newspaper published in the language of
region where the Head Office of the Mutual Fund is situated.

b. In case of other changes:

i. The AMC shall be required to issue an addendum and display the same on its website
immediately.
ii. The addendum shall be circulated to all the distributors/brokers/Investor Service
Centre (ISC) so that the same can be attached to all KIM and SID already in stock till it
is updated.
iii. Latest applicable addendum shall be a part of KIM and SID. (E.g. in case of changes in
load structure the addendum carrying the latest applicable load structure shall be

38 For more details, refer to [Link] funds_49393.html and

[Link]
information-memorandum-kim-_50020.html.
104
 attached to all KIM and SID already in stock till it is updated).
iv. Further, the account statements shall continue to include applicable load structure.

Updation of SAI

• Regular update has to be done by the end of 3 months of every financial year. Material
changes have to be updated on an ongoing basis and uploaded on the websites of the
mutual fund and AMFI.

Updation of KIM

• KIM shall be updated at least once in half-year, within one month from the end of the
respective half-year, based on the relevant data and information as at the end of
September and March and shall be filed with SEBI forthwith through electronic mode
only.

5.1.6 Other Mandatory information/disclosure

While the scheme information documents provide mandatory information that help a
prospective investor to make informed investment decision, the existing investors in a mutual
fund scheme also need to track the progress of their investments.

There are two key disclosures that an investor should receive for that purpose, viz., the
current value of one’s investments, and information about where the scheme has invested.

The current value of investments is a function of the number of units in an investor’s account
and the NAV per unit. In order to get the current value of the investments, one has to multiply
the number of units with the NAV.

Current value of investments = Unit balance in the investor’s account X current NAV

This means that an investor should be able to regularly know the NAV. The unit balance can
be seen from the latest account statement that one would have got. Chapter 9 has a detailed
discussion on when and how an investor gets the account statement.

Disclosure of Daily NAV

Each scheme’s NAV is required to be disclosed at the end of each business day. The same is
published on the website of the AMC. The Mutual Fund declares the Net Asset Value of the
scheme on every business day on AMFI’s website [Link] (as per the time limit
for uploading NAV defined in the applicable guidelines) and also on their website.39

In case of open-ended schemes, the NAV is calculated for all business days and released to

39Inorder to enable consideration of all trades during a day for valuation, it has been decided to extend the present timeline
up to 11.00 p.m. for uploading the NAVs of all schemes (except of fund of fund) on the website of AMFI and respective AMCs.
(Vide SEBI Circular dated September 24, 2019).
105
the Press. In Liquid and Overnight Funds, NAVs are declared on Sundays / holidays as well,
which reflects the accrual for that day. In case of closed-ended schemes, the NAV is calculated
at least once a week.

SEBI has revised the time limit for the disclosure of NAV of Mutual Fund Schemes investing
overseas.40

With the availability of historical NAV, an investor should also be able to calculate how a
scheme has performed over whatever period one wants to check for.

Disclosure of Total Expense Ratio

One of the important factors that impact the scheme’s NAV is the Total Expense Ratio (TER),
charged to the scheme. Though the same is very tightly regulated through SEBI regulations,
the investor should know about the scheme expense ratio. SEBI has mandated that the Asset
Management Companies (AMCs) should prominently disclose on a daily basis, the Total
expense ratio (scheme-wise, date-wise) of all schemes under a separate head – “Total
Expense Ratio of Mutual Fund Schemes” on their website. The same must also be published
on the AMFI website. The AMCs are also required to send the update to the investors through
email whenever there is a change in the expense ratio. The format of disclosure of TER of
mutual fund schemes is exhibited below in Table 5.1.41
Table 5.1 Total Expense Ratio (TER) for Mutual Fund Scheme
Name of Scheme: XYZ
Date Regular Plan Direct Plan
(DD/MM Base Additional Additional GST Total Base Additional Additional GST Total
/YYYY) TER expense as expense as (%) TER TER expense as expense as (%) TER
(%) per Regulation per Regulation (%) (%) per per (%)
52(6A) (b) 52(6A) (c) Regulation Regulation 5
(%) of Mutual (%) of Mutual 52 (6A) 2(6A) (c)
Funds Funds (b) (%) of
(%) of Mutual
Mutual Funds
Funds
01/03/20
19
02/03/20
19
03/03/20
19
…
…

40Candidates are advised to read the circular: [Link]

disclosure-of-nav-of-mutual-fund-schemes-investing-overseas_69519.html
41[Link] and

[Link]
funds_40766.html
106
Any change in the base TER (i.e., TER excluding additional expenses provided in Regulation
52(6A) (b), 52(6A) (c) of SEBI (Mutual Funds) Regulations, 1996 and Goods and Services Taxon
investment and advisory fees) in comparison to the previous base TER charged to any
scheme/plan has to be communicated to investors of the scheme/plan through notice via
email or SMS at least 3 working days prior to effecting such change. Further, the notice of
change in base TER should be updated on the AMC website at least 3 working days prior to
effecting such change. A decrease in TER should be immediately communicated to investors
of the scheme through email or SMS and uploaded on the website.

Scheme-wise dashboard on mutual fund website

Each AMC is also required to publish a scheme performance dashboard on the website, and
update it on a regular basis. The dashboard highlights how various schemes of the mutual
fund have performed over various holding periods. The scheme performance data is also
available on the AMFI website.42

Most AMCs allow this dashboard to be downloaded in a tabular form. This contains the
following information about the schemes of the mutual fund:
• Scheme name
• Scheme classification and category: For example, Equity multi-cap scheme; or Solution-
oriented scheme–retirement fund
• Type of scheme: Open-ended or close-ended
• The investment objective of the scheme
• Name of the fund manager
• Benchmark index (including additional benchmark, if any)
• Exit load43 and lock-in period (if any)
• Plans and options: For example, direct and regular plans; Income Distribution cum capital
withdrawal and growth options, etc.
• Minimum investment amount
• Month-end AUM
• TER
• Scheme inception date
• Month-end portfolio
• Scheme performance

Such a dashboard allows an investor to make an easy comparison of schemes across the
mutual fund.

Risk-o-meter

To enable investors to make an informed decision regarding their investments, a pictorial

42[Link]

43It
is clarified that the provision of Regulation 49(3) of MF Regulations applies on all open-ended mutual fund schemes
wherever exit load is applicable.
107
representation of the risk to the principal invested in a mutual fund product is depicted using
a ‘Riskometer’. The pictometer will categorize the risk in the scheme at one of six levels of
risk, as shown in the picture below:

The above risk-o-meter indicates that investors should understand that their principal will be
at moderate risk. There is also a written statement of the risk to the principal below the ‘Risk-
o-meter’44

Risk-o-meter shall have the following six levels of risk for mutual fund schemes with the given
color scheme
• Low risk – Irish Green [#08A04B]
• Low to Moderate risk – Chartreuse [#7FFF00]
• Moderate risk – Neon Yellow [#FFFF33]
• Moderately High risk – Caramel [#C68E17
• High risk – Dark Orange [#FF8C00]
• Very High risk – Red [#F70D1A]

The mutual fund has to calculate the risk value of each scheme based on the parameters that
have been provided. Every scheme needs to check the parameters and then determine its risk
for the investor. This has to be depicted on the risk-o-meter. If there is any change in the risk
level then this has to be conveyed through a Notice cum addendum and email or SMS to the
unitholders. The risk-o-meter has to be evaluated on a monthly basis. The format for the said
disclosure shall be as under:

44[Link]

meter_47796.html
[Link] are-subscribed-by-
the-investor-a-risk-o-meter-of-the-scheme-and-the-benchmark-along-with-the- performance-disclosure-of-the-scheme-vis-
a-vis-bench-_50344.html and [Link]
benchmark-and-portfolio-details-to-the-investors_52262.html
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Mutual Fund/AMCs shall also disclose risk-o-meter of the scheme and benchmark while
disclosing the performance of scheme vis-à-vis benchmark.

Additionally, for the evaluation of risk value of commodities in which mutual funds are
permitted to invest, SEBI has directed that investments in such schemes must be assigned a
risk score corresponding to the annualized volatility of the price of the said commodity. The
annualized volatility will be computed quarterly based on past 15 years’ prices of benchmark
index of the said commodity. The risk score for the commodity will be in terms of the following
table45:

Annualized volatility Risk value on risk

<10% 3 (Moderate)
10-15% 4 (Moderately High)
15-20% 5 (High)
>20% 6 (Very High)

While the risk-o-meter is an attempt to simplifying the presentation of levels of risk, it may
be referred as the first step in the analysis of scheme categories, however, it should not be
the only factor for taking an investment decision. The same may apply to the discussion on
risk profiles of various schemes that preceded the discussion on risk-o-meter. Each category
would have some risks that are common to the category, and various schemes may take
different risks, even within the same category. An investor would be advised to do careful
research oneself. In case one is unable to do so, one must consider taking help of a mutual
fund distributor or a registered investment adviser.46

Portfolio disclosure

45 [Link] _57913.html
46Investors should consult their financial advisers if they are not clear about the suitability of the product. A line to this effect was
part of the circular on product labelling issued in 2013. [SEBI circular no. CIR/IMD/DF/5/2013 dated March 18,2013].
109
This is a list of securities where the corpus of the scheme is currently invested. The market
value of these investments is also stated in portfolio disclosures. Mutual Funds/ AMCs shall
disclose portfolio (along with ISIN) as on the last day of the month / half-year for all their
schemes on their respective website and on the website of AMFI within 10 days from the
close of each month/ half-year respectively in a user-friendly and downloadable spreadsheet
format. For debt schemes, such disclosure shall be done on fortnightly basis within 5 days
of every fortnight. In addition to the current portfolio disclosure, yield of the instrument shall
also be disclosed.

In case of unit holders whose e-mail addresses are registered, the Mutual Funds/ AMCs shall
send via email both the monthly and half-yearly statement of scheme portfolio within 10 days
from the close of each month/ half-year respectively. 47

Financial results

The mutual fund shall before the expiry of one month from the close of each half year, (Mar
st th)
31 and Sep 30 shall display the unaudited financial results on the AMC website, the
advertisement in this reference will be published by the fund in at least one English daily
newspaper having nationwide circulation and, in a newspaper, having wide circulation
published in the language of the region where the head office of the fund is situated.

Annual reports and related disclosures

Annual report or abridged summary is required to be hosted on AMCs website and on the
website of AMFI. This is sent by email to the investors who have registered their email id with
the fund, no later than four months from the date of closure of the relevant financial year i.e.,
March 31 each year. Investors’ who have not registered their email-id have an option of
receiving a physical copy of the Annual report or an Abridged summary thereof. The
advertisement in this reference is required to be published by the mutual fund in all India
editions of at least two daily newspapers, one each in English and Hindi.

Disclosure pertaining to change in control of the AMC

While seeking the approval of SEBI for change in the control of the AMC, the mutual fund
handing over the control to another person, should file the draft letter / email to be sent to
the unitholders along with draft advertisement to be published in the newspaper.48

5.2 Non-Mandatory Disclosures

Fund Factsheet

One of the most popular documents from the mutual fund is the monthly Fund Factsheet. This
document is extensively used by investors, fund distributors, fund rating agencies, research

47[Link]
48Candidates are advised to read: [Link]
period-for-change-in-control-of-amc_75221.html
110
analysts, media and others to access information about the various schemes of the mutual
fund. While it is not a regulatory requirement to publish the monthly fact sheet, it is a market
practice followed by all the fund houses, on a voluntary basis. Since fund factsheet is a
marketing and information document, various SEBI regulations pertaining to information
disclosure are applicable to it.

The fund factsheet contains the basic information of each scheme such as the inception date,
corpus size (AUM), current NAV, benchmark and a pictorial depiction of the fund’s style of
managing the fund. The fund’s performance relative to the benchmark is provided for the
different periods along with the benchmark returns, as required by SEBI’s regulations. The
factsheet also provides the SIP returns in the scheme, portfolio allocation to different sectors
and securities. However, some fund houses do not disclose the entire portfolio but only the
top 10 holdings.

In the factsheet, security wise as well as sector wise allocation is provided for equity schemes.
Some factsheets also disclose the derivatives exposure taken by the mutual fund schemes. In
the debt funds, the factsheet discloses the rating profile of the various securities, and a
snapshot of exposure of the scheme to various rating baskets.

Portfolio features such as the price-earnings ratio (PE), Beta and other risk measures such as
standard deviation and Sharpe ratio (in case of equity funds), credit rating profile, average
maturity and duration (in case of debt funds) are also available in the factsheet. The factsheet
also provides investment details such as the minimum investment amount, the plans and
options available in the scheme, the loads and expenses and systematic transaction facilities
available in the fund.

111
Chapter 5: Sample Questions

1. “Please read the scheme related documents carefully” – which documents does this line
refer to?
a. Scheme Information Document and audited balance sheet of the Asset
Management Company
b. Trust deed and Key Information Memorandum
c. Statement of Additional Information and fund fact sheet
d. Scheme Information Document and Statement of Additional Information

2. Which of the following statements is ‘TRUE’ with respect to the Scheme Information
Document (SID) and Statement of Additional Information (SAI)?
a. These two documents are prepared in the format prescribed by Association of
Mutual Funds in India as part of AMFI’s Code of Conduct
b. These two documents are prepared in the format prescribed by Association of
Mutual Funds in India as part of AMFI’s Best Practices Circular
c. These two documents are prepared in the format prescribed by Securities and
Exchange Board of India
d. Each Asset Management Company is free to prepare these documents in the
format they desire

3. How often should the Key Information Memorandum (KIM) be updated?

a. At least once a month
b. At least once every six months
c. At least once a year
d. It need not be updated after it is issued once

4. The NAV of scheme is disclosed on the website of ______?

a. RBI
b. AMC
c. Both a and b
d. Neither a nor b

5. Which among the following is not a statutory document?

a. Fund factsheet
b. Statement of Additional Information
c. Scheme Information Document
d. Key Information Memorandum

112