Key Information Memorandum

An investor is expected to read the Scheme Information Document and the Statement of Additional Information before investing. In practice, printing and circulating both with every application form would be, in the workbook's own words, too difficult and costly.

The Key Information Memorandum is SEBI's answer. It is a summary of the SID and the SAI containing the key points an investor needs in order to decide whether the scheme suits them — short enough to be distributed widely, and mandatorily circulated along with the application form. Every application form must be accompanied by a KIM.

It is a summary, not a substitute. The legal contract is still the SID and the SAI.

Chapter 5.1.3 lists what a KIM must contain, and the list is examinable line by line:

• 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 — risk to the principal, suitable investment horizon, and the type of securities the scheme will invest in
• Plans and options
• Benchmark index
• The IDCW plan
• Performance of the scheme and the benchmark over the last 1 year, 3 years, 5 years and since inception
• Expenses of the scheme
• Information on registering investor grievances

Between updates, changes are made through an addendum, which is part of the scheme related documents and must accompany the KIM. The KIM shall be updated at least once in half-year, within one month from the end of the half-year.

Sanjay is handed an application form for a flexi-cap scheme at a branch in Coimbatore. Stapled to it is a four-page KIM, and it is enough to answer every question he actually has.

He wants to invest Rs 3,00,000. The KIM tells him the scheme's benchmark, its asset allocation (a minimum of 65 percent in equity and equity-related instruments for a flexi-cap fund), and its expense figure — say 1.72 percent, which on his Rs 3,00,000 is about Rs 5,160 a year deducted through the NAV.

The performance block is what decides him. It shows the scheme against its benchmark over 1, 3 and 5 years and since inception — not a cherry-picked window. If the scheme returned 14.8 percent over 5 years against a benchmark of 15.9 percent, the KIM has told him, in the document the regulator forced into his hand, that he would have done better in the index.

An addendum clipped to the form notes a change in the fund manager with effect from 1 April. That too is part of the document, and Sanjay is deemed to have read it.

Chapter 5 (Scheme Related Information) is built around three documents, and the KIM is the one with the crispest testable facts: that it is a summary of the SID and SAI, that every application form must be accompanied by it, and the contents list above. Expect a question asking which document accompanies the application form, and one on the half-yearly updation within one month of the half-year end. Chapter 5 also frames the whole area with caveat emptor — an investor is presumed to have read the scheme related documents and cannot later claim ignorance of a disclosed fact.

• The KIM is a summary, not the offer document. The SID and SAI remain the documents that form the contract; the SAI is technically part of the SID.
• It accompanies the application form — that is the mandate. Being available on a website is not what the regulation requires.
• An addendum must accompany the KIM, so a change notified by addendum binds the investor even though the KIM itself still shows the old position.
• Performance is shown over 1, 3, 5 years and since inception — four windows, not three.
• SEBI vets scheme documents; it does not approve them. It issues observations that the fund must incorporate.