4.1 Offer Document – NFO, SID, SAI
4.1.1 New Fund Offer (NFO)
- Units of a new mutual fund scheme are offered to public for the first time through New Fund Offer (NFO). The offer is made through a legal document called Offer Document.
- How is a New Fund Offer launched?
Steps taken to launch NFO –
- AMC decides new scheme should be launched based on inputs by CIO (Chief Investment Officer) and CMO (Chief Marketing Officer). CIO decides investment objectives that would benefit investors. CMO decides there is interest in market for such investment objective.
- Offer Document – AMC prepares a draft Offer Document that needs to be approved by Trustees and Board of Directors of AMC. Trustees give an undertaking that the scheme is new and not a minor modification of existing scheme.
- Filing with SEBI – Offer document is filed with SEBI. If SEBI has suggestions, they are included in the Offer Document. If SEBI gives no suggestion within 21 working days, Offer document can be issued.
- Market condition – Based on market conditions, AMC decides suitable time table to launch scheme.
- Advertising – AMC advertises about scheme to make investors aware. Advertisement should comply with SEBI’s code.
- Events – AMC holds events for intermediaries and press to make them aware about scheme’s features, benefits, etc.
- Forms distributed – Offer Document and Application Forms are distributed to market intermediaries and in market such that investors can apply.
- NFO Open Date – Date from which investors can invest in NFO.
- NFO Close Date – Last date till which investors can invest in NFO.
- Scheme Reopening Date – The date from which investors can offer their units for repurchase or buy new units of the scheme. Close ended scheme has no reopening date as its units are bought and sold at stock exchange.
4.1.2. Role of Offer DocumentsInvestors can know the details of the scheme in which they are planning to invest through Offer Document. This can be during NFO or post NFO during the continuous period of the scheme. SEBI requires that all the information needed for informed decision making should be available on the Offer Document like – Nature of the scheme, Investment objective, Investment strategy, Terms of Offer, Liquidity, etc. Offer Document is a legal document prescribed by SEBI. Offer Document provides information on fundamental attributes of the scheme like – Type of a Scheme –
- Is the scheme open ended or close ended or interval?
- Is the scheme equity or debt or hybrid or any other type?
- Investment Objective – Is the investment objective of the scheme growth or value or both?
- Investment Pattern – what proportion of portfolio will be invested in debt, equity, money market? (There may be a clause which gives the fund a right to change this proportion in the future)
- Liquidity provisions like liquidity, repurchase, redemption
- Fees and expenses of the schemes
- Guarantee, if any, provided by the scheme
- SID – Scheme Information Document – Details about a scheme
- SAI – Statement of Additional Information – Information about the Mutual Fund and AMC that is offering the scheme. Single SAI is relevant for all the schemes. SID and SAI are two separate documents though legal technicality is that SAI is part of SID.
4.1.3. Contents of SIDThe cover page of SID has following information –
- Scheme name
- Scheme structure i.e. open ended or close ended or interval
- Expected nature of scheme portfolio – equity or debt or liquid or hybrid
- Face Value of units
- NFO dates (opening, closing, re-opening)
- Date of SID
- Name of Mutual Fund
- Name and contact information of AMC and Trustee
- Table of Contents
- Risk Factors
? Scheme Specific
- Provisions on Minimum Number of Investors in the scheme
- Other special consideration
- Due Diligence Certificate
- Information about scheme
- Units and Offer
- Fee & Expenses
- Rights of Unit Holders
- Penalties, Litigation, etc.
- Nature of Scheme – This will tell the investor whether the product will – “create wealth” or “provide regular income”. Investment Objective and Kind of Product – Investment objective like (long term capital growth) and kind of product in which investment will be made (equity & equity related investments, debt, money market instruments)
- Riskometer – A pictorial representation of risk. There are five levels of risk. They represent risk to the principal invested by the investor.
|Level of Risk||Examples|
|Low||Liquid Fund/ Overnight Fund|
|Moderately Low||Fixed Maturity Plan/ Capital Protection Oriented Scheme|
|Moderate||Income Fund/ Conservative Monthly Income Plan|
|Moderately High||Index Fund/ Exchange Traded Fund/ Equity Dividend Yield Fund|
- On the front page of – Initial Offering Application Form, Key Information Memorandum (KIM), Scheme Information Document (SID).
- Common Application Form – along with information about scheme.
4.1.4 Update of SIDRegular update of SID –
- Scheme launched in first 6 months of Financial Year – First update within 3 months of the end of financial year. E.g. if a scheme was launched in April, 2018, SID should be updated by 30th June, 2019.
- Scheme launched in the second 6 months of Financial Year – First update within 3 months of the end of next financial year. E.g. If a scheme was launched in January, 2019, SID should be updated by 30th June, 2020.
- After that SID should be updated on a yearly basis.
- If there is a change in a fundamental attribute of a scheme, then the SID should be updated immediately after the lapse of the time given to existing investors to exit the scheme.
- In case of any other change –
– Change should be printed on an addendum and distributed along with SID until SID is updated.
– If one change is superseded by another change, addendum is not required for previous change, only the latest position needs to be updated.
– Advertisement – The change should be advertised in an English newspaper having national circulation and a local language newspaper of the region where head office of mutual fund is located.
– Change should be mentioned on the website of the fund.
4.1.5. What information is contained in SAI?
- Information about Sponsors, AMC, Trustee Company (contact information, shareholding pattern, responsibilities, name of directors, contact information, profiles of key personnel)
- Contact information of service providers (Custodian, Registrar & Transfer Agent, Statutory Auditor, Fund Accountant, Collecting Bankers)
- Condensed Financial Information (schemes launched in last 3 financial years)
- How to apply
- Rights of unit holders
- Investment Valuation Norms
- Tax, Legal & General Information
4.1.6. Update of SAIRegular update of SAI – by the end of 3 months from the end of a financial year.
4.2 Key Information Memorandum
4.2.1 Role of KIM
- KIM is a summary of SID and SAI.
- Every application form is accompanied by KIM.
- KIM is more widely available than SID and SAI because it accompanies each application form.
- An investor can use information in KIM to decide how suitable the mutual fund scheme is for his investment needs.
4.2.2 Contents of KIM
- AMC Name, Mutual Fund Name, Trustee, Fund Manager, Scheme Name
- NFO Opening Date, NFO Closing Date, NFO Re-Opening Date
- Scheme Plans, Scheme Options
- Risk Profile of Scheme
- Price at which units are being issued and the minimum number of units or investment amount at the time of initial purchase, additional purchase and re-purchase
- Scheme’s Benchmark
- Dividend Policy
- Scheme Performance and Benchmark Performance – over last 1 year, 3 years, 5 years and since inception
- Loads and expenses
- Contact information of Registrar for Investor Grievances
4.2.3 Update of KIM
- KIM should be updated once a year.
- If there is a change in fundamental attributes of a scheme, KIM should be revised like SID.
- If there is any other change, then that can be disclosed through addenda attached to KIM.
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