- 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.
- Decision to launch a scheme is based on the inputs of CIO and CMO of the Mutual Fund.
- Draft Offer Document needs to be approved by Trustees and Board of Directors of AMC and then it is filed with SEBI. If SEBI gives suggestions, they are included in the Offer Document. If SEBI gives no suggestion within 21 working days, Offer document can be issued.
- The dates relevant for an NFO are Opening date, Closing date and reopening date.
- The maximum period for which NFO other than ELSS can remain open is 15 days
- Offer Document is a legal document prescribed by SEBI.
- 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 provides fundamental attributes of the Scheme like
- type of Scheme i.e. Open ended/Closed ended or Interval and whether Equity/Debt/Hybrid or any other
- Investment objective i.e. whether Growth or Value or both
- Investment Pattern i.e. the proportion of investment in Equity/Debt/Money market or others in the portfolio of the scheme.
- Terms of the Issue like Liquidity, Repurchase and Redemption Terms, Fees & Expenses of Scheme and any Guarantee provided by the scheme.
- Investor can refer to the offer document of a scheme on a later date to understand scheme’s investment objectives and other particulars to also check if the objectives are being met by the scheme.
- If a detail has been disclosed in an offer document then investor cannot claim later that he was not aware of the detail. When an investor invests in a scheme, he is presumed to have read its offer document.
- The two parts of Offer Document are SID and SAI. The format of SID and SAI is prescribed by SEBI.
- SID stands for Scheme Information Document and provides details about a scheme.
- SAI stands for Statement of Additional Information and provides 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.
- SEBI does not approve the Offer Document, but it does vet the document by offering its observations which need to be included in the Offer Document.
- The cover page of SID has the information of Scheme name, Scheme structure i.e. open ended/close ended/interval and proposed asset allocation and nature of scheme portfolio whether equity/Debt/Hybrid.
- Other details in SID are Face Value of units, NFO dates (opening, closing, re-opening), date of SID, Name of Mutual Fund and Name and contact information of AMC and Trustee.
- Structure of the contents of SID are detailed below:
- Table of Contents
- Risk Factors
- 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
- SID mentions proposed asset allocation and mix and nature of investment in which money of the scheme will be deployed but it does not mention specific securities in which the funds will be invested.
- Draft SID, a public document, is hosted on SEBI’s website for 21 days. Final SID is hosted on AMFI’s website 2 days before NFO opens. Mutual funds’ website host SID of all of its schemes.
- SEBI has made a system of labelling mutual fund schemes to help investor to evaluate them. These labels are Nature of Scheme which will tell the investor whether the product will – “create wealth” or “provide regular income” and 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 is a pictorial representation of risk. There are five levels of risk representing 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|
- that investors should consult their financial advisors if they are not sure whether the product is suitable.
- Product Label should be placed on the front page of – Initial Offering Application Form, Key Information Memorandum (KIM), Scheme Information Document (SID)
- Product Label should also be placed on the Common Application Form –along with information about scheme and on the Scheme advertisement.
- Product Labels should be prominently visible and should be placed near the scheme name.
- SID is required to be updated
- 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.
- SAI contains information about
- Sponsors, AMC and Trustee Company
- 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 and Tax, Legal &General Information
- SAI is to be regularly updated by the end of 3 months from the end of a financial year.
- For any material changes, SAI has to be updated on ongoing basis and uploaded to Mutual Fund’s and AMFI’s website.
- Key Information Memorandum (KIM) is a summary of SID and SAI and is attached to every application form.
- KIM contains key points of Offer Document as it is basically a summary of SID and SAI i.e.
- 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 and Dividend policy
- Scheme Performance and Benchmark Performance – over last 1 year, 3 years, 5 years and since inception
- Loads, expenses and Contact information of Registrar for Investor Grievances
- 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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