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Guide to Mutual Funds

Offer Document

What is Offer Document

Previously we have learned how AMC prepares an offer document for floating NFO in the market. Now let us discuss the concept of an Offer Document and its importance.  The offer document is the most important document related to a mutual fund, where all the information related to the mutual fund is published by the Asset Management Company. As the name suggests, it is the offer that the AMC makes to the public. 

An offer document consists of two parts:

1. Scheme Information Document (SID):  The SID consists of all the information regarding the scheme such as investment objective, investment approach, the risks involved, asset allocation, fund manager, benchmark index, fees and expenses, dividends, inter-scheme transfers, associate transactions, redemption and repurchase, valuation of the assets of the scheme, tax treatment, etc.

2. Statement of Additional Information (SAI): SAI consists of all the statutory information about the mutual fund house. 

Both these documents are submitted to SEBI as per a prescribed format. Additionally, the mutual fund can add any disclosure it feels will be important to the investor. 

Things to Check in Mutual Funds Offer Document: 

For a layman, an offer document can be confusing and lengthy. Here are the important things that you must check in the offer document before investing. 

Date of issue of the document: To ensure that you have received the latest offer document.

Investment objective: Different funds have different goals such as regular income, long term capital appreciation, investing for the short term. It is advisable to check what the fund aims to achieve.

Investment policies: All fund managers follow a certain strategy to achieve the investment objective. It is advisable to check the strategy to ensure that it meets your financial goals. 

Minimum investment: The minimum amount may vary depending on fund type and fund house. It is advisable to check this at the beginning itself. 

Risks involved: All mutual funds carry a certain level of risk. All the risks involved (interest rate risk, default risk, credit risk, etc.) are detailed in the offer document. This is the most crucial segment which every investor should look at. Invest in the mutual fund, only if the risk profile of the fund matches your risk appetite. 

Fees and expenses: Fees and expenses paid by you affect the profitability of your portfolio directly. Check the different types of fees and expenses published in the offer document. 

Historical performance data: The offer document will contain all the historical data regarding the fund – historic NAV, returns, dividends, etc. These data are published as per standard formulas established by SEBI. You should always check these data before making an investment decision. However, keep in mind the common disclaimer - "past performance is not an indication of future performance". 

Key personnel managing the fund: Another important factor to check. Your returns are heavily impacted by the decision taken by the fund management team, especially the fund manager. Check the background of the team, see the fund manager’s previous records before deciding whether you want to invest or not. 

Tax implications: Last but not the least, the tax implications of the fund will be detailed in the offer document. You should take a look at this to avoid any surprise tax payments in the future.

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Units 13/33