Addendum

Scheme documents are updated on a timetable — the SID and KIM every half-year, the SAI every year. Things change in between: a new exit load, a new fund manager, a change in a fundamental attribute. The document on the shelf is then out of date.

The addendum fills that gap. The workbook: 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.

Because it is part of the documents, an investor is bound by it exactly as by the SID itself — the principle of caveat emptor applies.

Chapter 5.1.5 prescribes two procedures for open-ended and interval schemes.

(a) A change in fundamental attributes (Regulation 18(15A)):

1. An addendum to the existing SID is issued and displayed on the AMC website immediately.
2. The SID is revised and updated immediately after the exit option ends — not less than 30 days from the notice date.
3. A public notice is given in one English daily with nationwide circulation and in a newspaper in the language of the region where the mutual fund's head office is.

Chapter 10 adds the investor's side: written communication to each unit-holder, details on the AMC website, and an option to exit at the prevailing NAV without any exit load.

(b) Any other change:

1. The AMC issues an addendum and displays it on its website immediately.
2. The addendum is circulated to all distributors, brokers and Investor Service Centres, to be attached to all KIMs and SIDs already in stock until they are updated.
3. The latest applicable addendum is part of the KIM and SID — for example, the one carrying the latest load structure is attached to every KIM and SID in stock.
4. Account statements continue to include the applicable load structure.

AMFI's code for intermediaries requires distributors to give investors the full and latest information, including addenda.

An equity scheme's KIM, printed in April, shows an exit load of 1 percent if redeemed within 12 months. In July the AMC changes it to 1 percent within 18 months for new investments. Details are illustrative.

The AMC puts the addendum on its website the same day and circulates it to distributors and ISCs, who staple it to every KIM and SID in stock. The KIM itself is not reprinted until its half-yearly update.

In August, Lakshmi invests Rs 2,50,000 through a distributor in Nagpur, receiving the April KIM with the July addendum attached. Fourteen months later she redeems at a value of Rs 2,90,000 and is surprised by the load:

Exit load = 1% × 2,90,000 = Rs 2,900

She points to the KIM, which says 12 months. The AMC points to the addendum. The addendum wins: it is part of the scheme related documents, it accompanied the KIM, and under caveat emptor she is presumed to have read it. Her account statement will also show the load structure that applies.

Had the change been to a fundamental attribute, existing investors like her would additionally have had at least 30 days to exit at NAV without any exit load.

Chapter 5.1.4 (Addendum) defines it in two sentences, and 5.1.5 (Updation of Scheme Documents) gives the procedures — expect a true/false that the addendum is part of the scheme related documents and must accompany the KIM, and the 30-day exit option and two-newspaper public notice for fundamental attribute changes. Chapter 10 links it to the unit-holder's right to exit without load, and to the AMFI code for intermediaries.

• An addendum is part of the scheme related documents — not a separate advisory the investor can ignore.
• It must accompany the KIM, and the latest applicable one is part of both the KIM and the SID.
• Fundamental attribute changes need more than an addendum: an exit option of not less than 30 days, a public notice in an English national daily and a regional-language paper, and exit without load.
• The SID is revised after the exit period ends, not on the date of the addendum.
• Account statements must still show the applicable load structure.