Scheme Related Information — the documents you are presumed to have read

"Read all scheme related documents carefully"

Every mutual fund advertisement ends with that line. Almost nobody does it. But the law assumes you did.

That assumption has a name — caveat emptor, let the buyer beware. When an investor signs the application form, they have legally accepted the terms of the offer. It is a contractual arrangement. So an investor cannot claim later that they were unaware of a fact disclosed in the scheme documents.

This chapter is about which documents those are, and it is 10% of the paper — joint-heaviest with Chapter 4.

The three mandatory documents

A detail that gets tested: legally, the SAI is part of the SID, even though in practice they are printed as two separate documents.

SEBI vets — it does not approve

This is the single most commonly misunderstood point in the chapter.

SEBI does not approve or disapprove scheme documents. It gives its observations, which the mutual fund must incorporate. So the documents in the market are "vetted" by SEBI, not approved by SEBI.

The SID cover page says so in as many words: "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."

If an option ever says SEBI "approved" a scheme, it is wrong.

Both documents are prepared in the format prescribed by SEBI, and the contents must flow in the same sequence as the prescribed format. A fund may add anything further it considers material for the investor. Because investors are not experts in finance or law, the documents must be in simple, clear, concise and easy-to-understand language.

Where to find them: draft SID and SAI are public documents on SEBI's website. The final documents, after SEBI's observations are incorporated, must be hosted on AMFI's website, and every fund provides them for download on its own site.

What is in the SID

The cover page carries the scheme name and type (open-ended / close-ended / interval, and equity / debt / liquid / hybrid), the face value of units, NFO dates (opening, closing, re-opening), date of the SID, and the names and contact details of the mutual fund, AMC and trustee company. The Risk-o-meter and the suitability statement are on the front page.

The body runs in this order: Table of Contents → Highlights → Introduction (standard and scheme-specific risk factors, minimum number of investors, special considerations, definitions, Due Diligence Certificate issued by the AMC) → Information about the Scheme (name and type, investment objectives and policies, asset allocation pattern, where the scheme will invest, investment strategy, fundamental attributes, benchmark, managers, investment restrictions, performance track record) → Units and Offer → Fees & Expenses → Rights of Unit-holders → General Unit-holder Information → Penalties, Litigation etc.

How long does a SID last? It remains effective until a 'material change' occurs; thereafter the change is filed with SEBI and either communicated to investors or publicly notified by newspaper advertisement.

Fundamental attributes — the three headings

This is examinable in its own right. Fundamental attributes cover exactly three things:

(i) Type of scheme — open-ended / close-ended / interval, and sectoral / equity / balanced / income / index / other

(ii) Investment objective — the main objective (growth, income, or both), and the tentative portfolio break-up across equity, debt, money market and other permitted securities, with minimum and maximum asset allocation, while retaining the option to alter allocation for a short period on defensive considerations

(iii) Terms of issue — liquidity provisions (listing, repurchase, redemption), aggregate fees and expenses charged to the scheme, and any safety net or guarantee provided

Change any of these and unitholders get the exit rights from Chapter 4: written communication to each unitholder, details displayed on the AMC website, and an exit at prevailing NAV with no exit load.

What is in the SAI

Because one SAI covers the whole fund house, it holds everything that is not scheme-specific:

• Constituents of the mutual fund — sponsors, AMC, trustee company, and the service providers (custodian, RTA, statutory auditor, fund accountant if outsourced, collecting bankers), with their experience, condensed financial information for schemes launched in the last 3 financial years, key personnel, and rights and obligations
• How to apply — who can invest, what goes in the form, where to submit, modes of payment, restrictions on third-party payments, mandatory PAN, bank details and KYC compliance, cut-off times, rules for minors, NRIs and PIOs, and demat holding
• Rights of unit-holders
• Investment valuation norms — standardised by SEBI
• Tax, legal and general information — nominations, transfer and transmission, minors, pledge/lien
• Investor grievance procedure

Investors have a right to ask for a printed copy of the SAI, and can access every fund's SAI through AMFI's website.

What is in the KIM

Circulating the full SID and SAI with every application form would be impossibly bulky and expensive. So the KIM — a summary of the SID and SAI — must mandatorily accompany every application form.

It carries: names of the AMC, mutual fund, trustee, fund manager and scheme; issue opening, closing and re-opening dates; investment objective; asset allocation pattern; risk profile; plans and options; benchmark; dividend policy; performance of scheme and benchmark over 1, 3, 5 years and since inception; expenses; and how to register grievances.

Addendum — the patch between updates

Documents cannot be reprinted every time something small changes. Interim changes are issued through an addendum, which is part of the scheme related documents and must accompany the KIM.

Updation timelines — learn this table

When fundamental attributes change: an addendum is issued and displayed on the AMC website immediately; the SID is revised immediately after the exit option period ends (not less than 30 days from the notice date); and a public notice appears in one English daily with nationwide circulation and one newspaper in the language of the region where the fund's head office is.

For other changes: an addendum is issued and displayed immediately, circulated to all distributors, brokers and ISCs so it can be attached to existing stocks of KIM and SID, and the latest addendum becomes part of the KIM and SID.

Keeping track after you invest

Current value of investments = unit balance × current NAV. Simple, but it means you need the NAV regularly.

Daily NAV disclosure. Each scheme's NAV must be disclosed at the end of each business day, on the AMC's website and on AMFI's website.

• Open-ended schemes — calculated for all business days and released to the Press
• Liquid and Overnight funds — NAVs declared on Sundays and holidays too, reflecting that day's accrual
• Close-ended schemes — NAV calculated at least once a week

The Liquid/Overnight exception makes sense once you see why: those funds earn interest every calendar day, so a Saturday NAV that ignored the weekend's accrual would be wrong.

Total Expense Ratio. AMCs must disclose the TER daily, scheme-wise and date-wise, under a separate head "Total Expense Ratio of Mutual Fund Schemes", on their own website and AMFI's — in a downloadable spreadsheet and machine-readable format. IDF schemes are excepted.

Any item of expenditure accounting for more than 10% of total expenditure must be disclosed in the accounts or notes.

A change in BER must be notified to investors by email or SMS at least three working days before it takes effect, and updated on the website at least three working days prior.

And the direct plan rule: the Base Expense Ratio of a direct plan must be lower, excluding distribution expenses and commission, and no commission may be paid from direct plans.

Portfolio disclosure timelines:

Disclosure goes on the AMC's website and AMFI's, in a user-friendly downloadable spreadsheet format, and yield of the instrument must also be disclosed. Unitholders with registered email addresses are sent the monthly and half-yearly portfolio statements within 10 days.

Financial results — unaudited half-yearly results hosted on the website within one month of each half-year ending 31 March and 30 September, with written communication to unitholders that they are available.

Annual report — hosted on the AMC's and AMFI's websites and emailed to registered investors no later than four months from the close of the financial year. Investors without registered email may ask for a physical copy of the report or abridged summary. An advertisement about it must be published in all-India editions of at least two daily newspapers, one English and one Hindi.

The Risk-o-meter

A pictorial depiction of risk to the principal invested, with six levels:

It is evaluated monthly. Any change in risk level must be communicated by notice cum addendum and email or SMS to unitholders. The risk-o-meter must also be shown for the benchmark when scheme performance is disclosed against it.

For commodities, the risk score is assigned from annualised volatility, computed quarterly using 15 years of benchmark index prices:

The workbook adds an honest caveat: the risk-o-meter is only a first step. Schemes within the same category can take quite different risks, so it should not be the only factor in a decision.

Risk-Band for SIFs. Because SIFs are riskier than mutual fund schemes, they use a Risk-Band with five levels instead — level 1 lowest to level 5 highest. Assigned at NFO, evaluated monthly, disclosed within 10 days of each month-end, and the risk level as at 31 March must be disclosed each year along with the number of times it changed over the year.

Note the deliberate contrast: six levels for mutual funds, five for SIFs — different scales so nobody confuses the two.

The scheme dashboard

Every AMC must publish a scheme performance dashboard on its website and keep it updated, showing performance across holding periods. It is also on AMFI's website, and usually downloadable, carrying: scheme name, classification and category, type, investment objective, fund manager, benchmark, exit load and lock-in, plans and options, minimum investment, month-end AUM, TER, inception date, month-end portfolio and performance.

The factsheet — popular, and not statutory

The monthly Fund Factsheet is the document distributors, rating agencies, analysts and media actually use. And here is the exam point:

That said, because it is a marketing and information document, SEBI's disclosure regulations do apply to it.

A factsheet typically carries: inception date, AUM, current NAV, benchmark, a pictorial depiction of the fund's style, performance against benchmark across periods, SIP returns, and portfolio allocation by sector and security — though some fund houses disclose only the top 10 holdings rather than the full portfolio.

For equity schemes: security-wise and sector-wise allocation, PE ratio, Beta, standard deviation and Sharpe ratio. For debt schemes: credit rating profile, average maturity and duration.

Some disclose derivatives exposure — and note the rule stated there: mutual funds can take derivative exposure for hedging, but cannot take open derivative positions.

The four statutory documents are SID, SAI, KIM and the addendum. The factsheet is not one of them.