Scheme Information Document (SID) provides investors with much of the information that you need to know about a scheme. You would have read disclaimers in mutual funds, telling you to read the SID before investing. But a SID can overwhelm you, going by the information overload that it carries. So, here’s what we would recommend that you look for in a SID, to know about a fund.
What to look for?
The initial section of a SID gives the highlights and the summary regarding the scheme and the subsequent section goes on to explain the components of the summary in detail.
The first page consists of the name of the fund and the nature of the scheme, whether the fund is open ended or closed ended. It also gives the NFO dates, from when the fund is going to be/was open for subscription and the closing NFO date along with when the fund will be open for subscription and redemption after the NFO.
Indicative Asset allocation: One of the first thing to look out for is the indicative asset allocation section which gives the investment strategy of the fund. This describes the asset classes and the percentage range within which the fund manager will be investing in each asset class. The investment in an asset class by the fund manager cannot exceed the boundaries stated in the SID. The exceptional circumstances under which the fund may breach such boundaries will also be stated. You will notice that the asset classes and their boundary rangevaries across various types of fund. For example, a large cap equity fund may have the boundaries defined for equity between 75% to 100% and cash and cash related to be between 0% and 25%. The fund manager needs to adhere to these limits under most of the circumstances. When a situation like the crash of 2008 arises, and the fund manager feels the need to raise the cash levels beyond the 25% prescribed here, he will have to seek the permission of SEBI. Similarly a balanced fund may have the limits for equity investment to be between 40% and 75% with debt making up the rest of the fund.
Likewise a debt fundwill have limits set for the range within which the fund manager can invest in various debt papers and money market instruments depending on the type of debt fund.
Do look out for the assets the fund will invest in and their maximum and minimum limits in the case ofasset allocation funds, equity savings and arbitrage funds.
Once you get a general idea regarding the basic asset allocation, further reading of the SID will help you understand how the fund defines stock categories, such as large, mid and small-cap stocks. for equity funds, and the averagematurity and credit quality for debt funds.
Fund manager:Theinitial segment of the SID lists the fund manager and its co-fund manager if any, while in the later section one can look for detailed information regarding his past experience, his/her qualification and the list of other funds he manages/co manages.
Tax implication:Tax implications on realised profits and dividends is the other important detail to look for in a SID. Irrespective of the type of fund, the tax implications on both realised profits, dividends payouts, and applicability of Securities transaction tax (STT) are explained in detail.Expense ratio:Expense ratio is another component that is explained in detail as well. This can be looked at under the head “fees, expenses and load structure”. A clear break up of all the expenses that constitute the expense ratio will be listed here. This will give a very clear picture of what will be the expenses that are charged to the fund.And at what levels of assets under management, the extent up to which the expense ratio can be charged.It is noteworthy that such a charge is before the NAV is declared. The NAV is net of all such expenses.
Minimum investment and redemption limit:Look for the minimum investment and additional investment values for lump sum along with the minimum amount for SIPs to know how much you can invest. Also look out for the dates during the month when the SIPs can be set up. In online platforms like FundsIndia, though, you can set up anyday SIP and also top it up with a step-up facility.
SID also states the general risks affecting the equity and debt markets. Risks that may arise due to the use of derivatives and overseas securities in the fund would also be stated. Apart from these the SID also contains details regarding the fixed income, equity and derivatives market in India.
SID is a very detailed document an investor can use to learn about a scheme, about mutual funds, their risks and how they are managed.