If you recall any mutual fund advertisement, the last bit contains an advisory, which is read rather quickly. This advisory requests mutual fund investors to "read all scheme-related documents carefully before investing".
These ads talk about three critical documents. What are they? The first one is the Key Information Memorandum, or KIM. The second is the Scheme Information Documents or SID, and the third is called the Statement of Additional Information or SAI.
In this blog, we’ll discuss the Key Information Memorandum or KIM and the Scheme Information Documents or SID.
A Scheme Information Document details key information about a scheme – exit and entry loads, minimum subscription amounts, fund managers and track record, scheme objectives, and so on.
KIM carries critical information about a particular mutual fund scheme. Think of this document as a shrunken version of the SID. Where SIDs can be a hundred pages long, KIMs offer concise information in a couple of pages for quick perusal. You’ll find KIMs attached with any mutual fund scheme’s application form.
KIM sets forth certain information about particular mutual fund offerings, which any potential investor ought to know before investing, but what exactly is this information?
The contents of Key Information Memorandum Include:
Investment Objective
KIM carries the investment goal of a mutual fund scheme, which, at its minimum, should be to provide returns close to the total returns of the securities in the underlying index. Remember, this is the aim and is not guaranteed.
Investment Strategy
The contents of key Information Memorandum include a particular scheme’s investment strategy – whether it is passive or aggressive. It also discusses their indexing approach. Doing this removes active management risks.
Asset Allocation Pattern
KIM transparently informs the investor about the different asset classes the concerned mutual fund scheme invests in. These can be a mix of government securities, certificates of deposit, treasury bills, and everything else.
Risk Profile
Read any short note on Key Information Memorandum; you'll find it always contains a scheme's risk profile. Depending on the nature of your mutual fund scheme, your KIM may highlight the risks associated with investing in fixed-income securities and/or derivatives.
It will also talk about other risk factors like market trading risk, tracking error risk, sectoral risk, risks associated with a segregated portfolio, and much more. Additionally, KIM will highlight the scheme’s measures for risk control as well.
Applicable NAV
Other contents of Key Information Memorandum include the subscription price, minimum application amount, redemption method and repurchase.
Seller’s Details
The KIM will carry the name of the fund manager as well as the name of the fund house. Your fund manager is an individual who decides what goes in a particular scheme.
Scheme’s Performance Portfolio
This document will inform the investor of the tenure of a particular scheme, its performance, along with sector allocation and portfolio turnover. It will also carry the website link where investors can download the latest portfolio holdings.
Scheme Expenses
All short notes on the Key Information Memorandum include the one-time as well as recurring expenses of the scheme. This will help investors figure out how much it costs to operate a mutual fund scheme to the fund house.
Unit Holder’s Information
Lastly, a KIM will carry the investor's complete information, including their personal details and their purchase history. In addition to these bits of information, the KIM will also include contact details for investor grievances.
All information memorandums are issued to the public along with a mutual fund scheme’s shelf prospectus. They are valid for one year. So, if you’re wondering what is the validity period of the information memorandum, remember it's one year from the date of first issue of securities, not from the time you subscribe to a mutual fund.
Now that you know the information memorandum meaning, it’s time to briefly glance at the document from which it is carved. We’re talking about the Scheme Information Document or SID. Consider this document as your mutual fund scheme bible.
Entirely going through this document is challenging and can take several days. After all, it can run into hundreds of pages. This is why you must refer to KIM properly and skim through SID unless you have the time.
Here is a snapshot of what a Scheme Information Documents consists of:
| 1 | Introduction to the scheme | An SID begins by highlighting any risks with regard to a particular mutual fund scheme. These are mostly standardised and are a more detailed version of the risk terminologies mentioned in the KIM. |
| 2 | A summary of the scheme | This section is a sum total of all the pointers mentioned below. Many investors who only have enough time to glance through the SID ensure they read the summary as it provides them with the scheme details in a snapshot. |
| 3 | Information about scheme | This section offers comprehensive information on: - Investment and asset allocation strategy - Fund category – whether it is debt, equity or mixed - The performance of the fund and its top 10 holdings - Complete information on the fund manager, their experience and other mutual fund schemes they manage. |
| 4 | Units, NAV and offer details | Here you can figure out the ways in which you can access the scheme. Expect the following information from this section: - Investment eligibility for a fund - Minimum subscription amount - Entry and exit load - SIP, SWP, STP details, if applicable - NAV disclosure - Options to switch in the future, if necessary - Taxation details And much more. |
| 5 | Scheme fees and other expenses | Through this section, you get a detailed breakup of all charges applicable. Some of these include trustee fees, audit fees, expense ratios, etc. |
| 6 | Penalties | This section offers a comprehensive view of any penalties applicable with respect to premature withdrawal or other violations. |
| 7 | Rights of investors | This section is self-explanatory. It informs the investors of their rights concerning their investment in a particular mutual fund scheme. |
Investors who ask about the validity period of information memorandum also ask the same question regarding SID. SIDs remain valid until the scheme is active. Although, the fund house might update its terms and conditions, not alter them, and inform the investors of the same.
Now that you understand the information memorandum meaning and what the SID contains, it’s time to build your mutual fund portfolio.
Not sure how to begin? Start by researching top-notch mutual fund schemes on the Tata Capital Moneyfy website or app. All you need to do is create an account and start investing in mutual funds or any other type of financial instrument you find fits the bill.
To know more, visit our website today!
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02 November 2022
6 mins read
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