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How to Read the Offer Document and KIM

You must have seen countless advertisements for mutual funds with the disclaimer “Mutual fund investments are subject to market risks, read all scheme-related documents carefully.” The offer document and KIM (Key Information Memorandum) are two of these critical documents.
Nov 2022
3 mins read
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Here, we explore the nuances of these documents, to decode their contents and understand how they can help you make an informed decision:

What is an offer document?
It is a critical document filed with SEBI (Securities Exchange Board of India). After approval from the trustees, when a fund house intends to launch a new scheme, it has to mandatorily release the offer document, covering every minute detail about the fund. The offer document has two parts: Scheme Information Document (SID) and Statement of Additional Information (SAI). It covers details regarding proposed investment strategy, risk factors, market view etc.

While reading the entire offer document can be quite tedious, reading key portions will provide enough information to help you make the necessary investment decisions, especially for seasoned investors. The KIM can give you a basic overview of the fund and help you gain a fundamental understanding of it.

What is KIM?
KIM is a summary of details contained in the SID and SAI. It has the necessary information which an investor should know before investing in the fund, such as the details of the mutual fund scheme, fund managers, plans and options of the scheme, risk factors, pending litigation, fund performance against benchmark etc.

Why should you read these documents?
With the growing popularity of mutual funds, it is increasingly important for investors to understand the risk-return profile of these funds before they invest. Many retail investors are new to the subject and focus only on returns, neglecting other important factors of the fund like investment pattern, risk factors etc., They end up investing in funds that are not conducive to their risk profile. During a downtrend, these funds could perform poorly and pull down the corpus of their investment.

Which parts of these documents should you read?
These documents have a lot of information, laced with terms that are tough to comprehend for new investors. While many publicly available websites provide a high-level comparison about well-established funds, for a new fund offer (NFO), it is better to source your information from the most authentic source, i.e. the offer document and KIM.

Read the KIM and then turn to the offer document. Even if you do not read the entire offer document, make sure you at least read these sections:

  1. Investment Objective:
    The basic intent of the fund and the very purpose for its launch is mentioned here. The investment objective provides clarity on any doubts that you may have regarding the scheme. It also provides information that will help you decide if the objective of the fund aligns well with your investment objectives in the long run.

  2. Asset Allocation:
    This gives a sense of the asset mix that the fund intends to hold under normal market conditions. This section will provide the maximum and the minimum asset allocation that can be made under this scheme in various asset classes. Although the mandate will mention the category of the fund, you can decide whether the fund is an equity-oriented, debt-oriented or balanced fund.

  3. Investment Strategy:
    This section will provide insight on the investment strategy that the fund house proposes to employ whilst choosing the securities to invest in. For a seasoned investor, this would be the most important aspect to read through, as it indicates the protocol and processes the fund house follows to mitigate risk and optimise returns in the long run.

  4. Benchmark Index:
    This is the index against which the performance and structure of the mutual fund are compared. It is another tool to help investors evaluate the fund and make an informed decision.

  5. Risk Factors:
    Various types of risks can affect the performance of the fund. It is important to understand and evaluate these risk factors and ascertain whether they are within your appetite, and invest accordingly.

  6. Fund Manager:
    The fund manager handling the scheme will have a significant role in its success or failure. You should carefully review their qualifications, track record and experience to help gauge their performance.

  7. Past Performance:
    The SID of an existing scheme will provide past performance details. While these are no guarantee of future success, they can provide some indication of the fund’s potential.

  8. Fees and Expenses:
    The details regarding AMC fee, entry/exit load, fund management charges, switching charges etc. are mentioned herein. You may want to review these charges to ensure they are transparent and reasonable. Try to pick a scheme with a lower expense ratio.

  9. Investment Options:
    Most mutual fund schemes have two investment options – Growth and Income Distribution cum Capital Withdrawal Option (IDCW). The IDCW option can be further divided into payout and reinvestment options. The modes of investing are SIP (Systematic Investment Plan) and STP (Systematic Transfer Plan). Read the sections clarifying the scheme version and available investment options.

KIM is the condensed version of the offer document with all the essential information from the offer document. This is a good place to start gathering information from. For further information, you could then look at the offer document. Reading these documents will help you make more informed investment decisions as an investor and put your wealth creation journey on track. 

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PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
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MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC) on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance* (or such earlier date as referenced herein) and is subject to change without notice. The AMC has no obligation to update any or all of such information; nor does the AMC make any express or implied warranties or representations as to its completeness or accuracy. There can be no assurance that any forecast made herein will be actually realized. These materials do not take into account individual investor's objectives, needs or circumstances or the suitability of any securities, financial instruments or investment strategies described herein for particular investor. Hence, each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard. The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein. The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.
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