Jun 15, 2017 4 min read

What are SID SAI KIM in Mutual Fund Investments?

A simplified explanation of ‘Scheme Related Documents’ in mutual fund plans.
Very often we hear a statement in mutual fund advertisements which says “Mutual fund investments are subject to market risk, read all scheme related documents carefully”. Due to this many people feel that mutual funds are risky enough and if they will invest in them they will lose their money. Let us take a tour to understand what are these ‘Scheme Related Documents’ also known as Offer Documents (ODs), and how to read them.

Every mutual fund has three important documents which are prepared by respective AMCs to provide information about a particular scheme. The approval of these documents is given by the Securities and Exchange Board of India (SEBI). These documents include Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM). All these documents are provided with the details which an investor ought to know before investing in a mutual fund scheme. Let’s understand these terms individually to get better understanding.

Scheme Information Document (SID)

It provides the basic information about a particular scheme, which the investor should know before investing. But, at times it can overwhelm the investor who is reading the bulk information that it carries. So, here are some important points which are specifically mentioned in the SID of a scheme:

  • The fundamental attributes like Investment Objective, Policies and Asset Allocation Pattern
  • Past Performance, Benchmark, Plans & Options
  • Fund Management Team Details
  • Expense Ratio, Loads, Fees and Liquidity details
  • Risk Factors And Risk Mitigation Mechanism
  • Tax Implication and Limits on Investments & Redemption Details It must be noticed that the SID must be read in conjunction with the SAI and not in isolation.

Statement of Additional Information (SAI)

 It is a kind of mutual fund’s prospectus which contains additional information about the fund and disclosure of its operations. Basically, this document carries information about any changes made in the scheme’s operations and other related areas. The information provided in the document is not so important for the investors because the abbreviated form of all this information is already mentioned in SID. Furthermore, details about the AMC, constitution of the mutual fund & other related authorities, general and legal information, financial & legal issues are also provided in it, due to which it is also called Part B of fund’s registration documents. The regulatory bodies require that the AMCs must provide a copy of its part B prospectus to the investors free of charge upon request.

Key Information Memorandum (KIM)

It is a concise version of SID. As the name suggests, KIM contains the key information about the scheme which is necessary for an investor to know. It comes attached along with the application form of the scheme. In short it is said that KIM is a summary of SID & SAI.

Read the following important aspects in ‘Scheme Related Documents’ to make an informed decision in mutual funds:

  1. Investment Objective: The investment objectives and plans of the scheme are provided in the mainstay of the ODs. The objectives of the scheme along with the way of achieving that are described here which the investor should be aware of. Before investing in any scheme, investor must match his/her own financial goals with that of the scheme given in the documents.
  2. Past Performance: Before making commitment to something, it is better to analyse its history. Same is in the case of mutual fund investment. To be on the safe side, it is needed to view the past performance, total AUM, and the inception date of the fund.
  3. Risk Factors and Risk Mitigation Mechanism: Not all the investors are same, they differ in investment style, size of investment, exposure and risk profile. Upon all, risk is an important factor which the investor wishes to reduce to the minimum level. The ‘Offer Documents’ specify the market risks contained by a particular scheme and the process to be followed to reduce the same. Do not get worried by so much of risks shown in the documents, mutual fund companies are specified by law to highlight every type of financial risk to you. You may be exposed to them if investments are made in that particular scheme.
  4. Fees, Loads and Taxes: Exit loads are the charges which are deducted from the withdrawn amount at the time of redemption and entry load is the fee charged at the time of investment. There are other expenses as well which include Transaction Charges, Securities Transaction Tax (STT), etc. All these expenditures are combined to be known as Total Expense. The expense ratio is the annual fee that all mutual funds charge from their shareholders. Different funds vary in their expense charges as they are different in asset size an carry varying expenditures due to which they have inconstant NAV.
  5. Investment and Redemption Criteria: This is one more important point one must read in the documents. Every scheme has a different investment limit which describes the minimum and the maximum amount which can be invested in them. You must read the details carefully to set your investment plan in an effective manner. On the other part, liquidity is a major factor which most of the investors want in their investments. Moreover, there are certain charges on the redemption of the money before the maturity of a predetermined period, which should be known to the investor.

Therefore, it can be said that an investor should know the where about of the fund which is available in the form of ‘Scheme Related Documents’. They are provided for the purpose of gaining detailed knowledge about the fund and related terms & policies. The ‘Scheme Related Documents, i.e., SID, SAI & KIM of any particular mutual fund are available on the website of SEBI and particular AMC.

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