Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Scheme Information Document (SID) of Mutual Fund

The SID needs to be updated regularly:

>>      For schemes launched in the first half of a financial year (say, May 2021), the SID is to be updated within 3 months from the end of the financial year, i.e. by June 2021.

>>      For the schemes launched in the second half of a financial year (say, October 2021), SID is to be updated within 3 months of the end of the subsequent financial year, i.e. by June 2022.

Scheme Information Documents-SID-Mutual Fund
Scheme Information Documents-SID-Mutual Fund

Thereafter, the SID is to be updated every year. A soft copy of updated SID has to be filed with SEBI in pdf format along with a printed copy of the same.

In case of change in fundamental attributes, the SID has to be revised and updated immediately after completion of the exit option duration for investors. For other changes:

>>           The AMC is required to issue an addendum and display it on its website.

>>      The addendum has to be circulated to all the distributors / brokers / investor service centres (ISC) so that it can be attached to copies of SID already in stock, till the SID is updated.

>>      In case any information in SID is amended more than once, the latest applicable addendum shall be a part of SID.

For example, in case of changes in load structure the addendum carrying the latest applicable load structure has to be attached to all KIM and SID already in stock till these are updated.

The account statements issued to investors too will have to indicate the applicable load structure.

>>      A public notice has to be given in respect of such changes in one English daily newspaper having nationwide circulation as well as in a newspaper published in the language of region where the head office of the mutual fund is situated.

>>           A copy of the change has to be filed with SEBI within 7 days of the change.

Some of the key contents of the SID are given below :

Key Content of SID (Scheme Information Document):

1.     Cover Page of SID

>>        This includes basic information such as name of the Scheme, type of Scheme (equity, balanced, income, debt, liquid, ETF, etc.; open-end I closed-end / interval), name of the AMC, classes of units offered for sale, price of the units, opening date, closing date and scheme re-opening date (if applicable).

>>        Names of mutual fund, AMC and trustee company, along with address and website details.

>>        Name of the scheme cannot be deceptive or misleading, and has to be consistent with investment policy. For instance, we cannot call a scheme that will invest 20% in debt as a debt scheme or income scheme.

>>        If the scheme is an assured returns scheme, then the name of the guarantor is to be disclosed.

A few specific disclosures are required to the effect that:

–        The scheme particulars have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended till date, and filed with SEBI, along with Due Diligence Certificate from the AMC. The units being offered for public subscription have not been approved or recommended by the Securities and Exchange Board of India nor has Securities and Exchange Board of India certified the accuracy or adequacy of the Scheme Information Document.

–        The Scheme Information Document sets out concisely the information about the scheme that a prospective investor ought to know before investing. Investors should also ascertain about any further changes to the Scheme Information Document after the date of this document from the mutual fund / investor service centres / website I distributors or brokers before investing in the scheme.

–        The investors are advised to refer to the Statement of Additional Information (SAI) for details of the mutual fund, tax and legal issues and general information on the website of the mutual fund.

–        SAI is incorporated by reference (is legally a part of the Scheme Information Document). For a free copy of the current SAI, please contact your nearest Investor Service Centre or log on to the mutual fund website.

See also  Investment Styles of Mutual Fund

–        The Scheme Information Document should be read in conjunction with the SAI and not in isolation.

– This Scheme Information Document is dated ______ .

>>        This would be followed by the Table of Contents and the Highlights / Summary.

>>        The Highlights / Summary section should include the following:

– Investment objective.

– Liquidity.

– Benchmark

– Transparency / NAV Disclosure.

– Loads.

– Minimum Application Amount.

2.     Requirement of minimum Investors in the Scheme

The Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme/Plan(s). Consequences of breach of this condition

3.  Definitions

The language and terminology used in the Offer Document has to be as provided in the Regulations. Any new term, if used, needs to be clearly defined.

4.  Risk Factors

Some risk factors may be peculiar to mutual funds in general, while some may be specific to the investment policies and objectives of the scheme. These need to be disclosed “in legible fonts”.

Standard Risk Factors

>>        Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.

>>        As the price / value / interest rates of the securities in which the scheme invests fluctuates, the value of your investment in the scheme may go up or down (Mutual funds may also provide factors affecting capital market in general and not limited to the aforesaid).

>>        Past performance of the sponsor / AMC / mutual fund does not guarantee future performance of the scheme.

>>        The name of the scheme does not in any manner indicate either the quality of the scheme or its future prospects and returns.

>>        The sponsor is not responsible or liable for any loss resulting from the operation of the scheme beyond the initial contribution of _____ made by it towards setting up the fund.

>>        The present scheme is the first scheme being launched under its management. (Applicable, if the AMC has no previous experience in managing a Mutual Fund).

The present scheme is not a guaranteed or assured return scheme (applicable to all schemes except assured return schemes)

Scheme Specific Risk Factors

>>        Arising from the investment objective, the investment strategy and the asset allocation of the scheme, e.g. risks arising out of investing in equity, debt, foreign securities, derivatives, securitised debt, short-selling and securities lending, as may be applicable to the scheme

>>        Arising from non-diversification, if any.

>>        Arising out of closed-end schemes, namely infrequent trading, discount to NAV, etc.

>>        In the case of assured returns schemes, the net worth and liquidity position of the guarantor and the source of the guarantee has to be disclosed. If the return is assured only for a specific period, then a statement to the effect that there is no guarantee that such return may be generated for the remaining duration of the scheme.

5.     Due Diligence by AMC

The due diligence certificate is to be signed by the compliance officer, chief executive officer, managing director, whole time director, or executive director of the Asset Management Company and is to be incorporated in the Scheme Information Document.

The due diligence certificate incorporates a confirmation that:

>>        The draft Scheme Information Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time.

>>        All legal requirements connected with the launch of the scheme as also the guidelines, instructions, etc. issued by the government and any other competent authority in this behalf, have been duly complied with.

>>        he disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well-informed decision regarding investment in the proposed scheme.

>>        The intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and such registration is valid, as on date.

6.     Information about the Scheme

>>        Type of scheme, i.e. open / close / interval, equity / debt / income / liquid / balanced / ETF, etc.

>>        What is the investment objective of the scheme?

Scheme’s investment objective and policies (including the types of securities in which it will invest) is to be clearly and concisely stated

>>        How will the scheme allocate its assets?

This includes asset allocation table giving the broad classification of assets and indicative exposure level in percentage terms specifying the risk profile.

See also  Legal Structure of Mutual Funds in India

If the scheme’s name implies that it will invest primarily in a particular type of security, or in a certain industry or industries, the scheme shall have an investment policy which requires that, under normal circumstances, at least 65 per cent of the value of its total assets be invested in the indicated type of security or industry.

The asset allocation should be consistent with the investment objective of the scheme:

Percentage of investment in foreign securities, derivatives, stock lending, securitized debt, etc. is to be indicated:

>>        Where will the scheme invest?

Brief narration on the types of instruments in which the scheme will invest and the concerned regulations and limits applicable.

Brief narration on the various derivative products specifying (i) the instruments to be used and (ii) the applicable limits:

>>        What are the investment strategies?

Information about investment approach and risk control should be included in simple terms.

In case the scheme proposes to invest in derivatives, disclosures on the various strategies to be adopted by the fund manager are to be made.

In case of assured return schemes, the Scheme Information Document needs to disclose:

>>        How many schemes have assured returns, their number and corpus size.

>>        The justification as to how the net worth and liquidity position of the guarantor would be adequate to meet the shortfall in these schemes.

>>        Details of the schemes which did not pay assured returns in the past and how the shortfall was met.

>>        SEBI has proposed that the mutual fund disclose the floors and ceilings within a range of 5% of the intended allocation (in %) against each sub asset class /credit rating. It may be disclosed that x-y % would be in AAA rated bank CD as per the sample matrix below:

Credit Rating   ->         AAA AA A BBB

Instruments:

CDs

CPs

NCDs

Securitized debt

Any Other

Portfolio turnover policy, particularly for equity-oriented schemes, has to be disclosed.

In discussing its investment strategies, the scheme shall briefly discuss the probable effect of such strategies on the rate of the total portfolio turnover of the scheme, if such effects are significant; and also other consequences which will result from the higher portfolio turnover rate, e.g. higher brokerage and transaction cost.

>>        Fundamental Attributes

Types of Schemes

Investment Objectives:

Main objective

Investment pattern

Terms of the issue:

Provision for liquidity (Listing, Re-purchase, Redemption)

Aggregate fees and expenses

Any safety net or guarantee.

>>        How will the scheme benchmark its performance?

The name and the justification (specific to the scheme objective) for the use of benchmark index with which the performance of the scheme can be compared with.

>>        Who manages the schemes?

Name, age, qualification and experience of the fund manager to the scheme to be disclosed. The experience of the fund manager should include last 10 years experience and also the name of any other schemes under his I her management.

>>        What are the investment restrictions?

All the investment restrictions as contained in the Seventh Schedule to SEBI (Mutual Funds) Regulations, 1996 and applicable to the scheme should be incorporated.

Further, in case the fund follows any internal norms t’is-à-vis limiting exposure to a particular scrip or sector, etc. apart from the aforementioned investment restrictions, the same need to be disclosed.

In case of equity schemes only equity related investment restrictions need to be disclosed, though the scheme would be investing a portion of the assets in bonds for liquidity or for other purposes.

In the case of a fixed income / debt schemes, only the investment restriction applicable to bonds is to be disclosed.

In the case of balanced schemes, all investment restrictions are to be disclosed:

>>        How has the scheme performed?

[On case of a new scheme, this is not applicable. Hence give the statement-”This scheme is a new scheme and does not have any performance track record”]

Or

[ ln case of a scheme in existence, the return figures shall be given for that scheme only. For a scheme which is in existence for more than 1 year. the returns given will be Compounded Annualized Returns and for scheme which is in existence for less than 1 year. the returns would be absolute returns since inception. Absolute returns for each financial year for the last 5 years shall be represented by means of a bar diagram as per the adjacent format.]

Compounded Annualized Returns Scheme Returns % Benchmark Return %
Return for the last 1 year    
Return for the last 3 year    
Return for the last 5 year    
Returns since inception    

7.     Units and Otter

>>        New Fund Offer (NFO).

Opening date, Closing Date, Offering Price, Minimum Application Amount, Minimum Target Amount, Maximum Amount to be raised (if any), Plans / Options offered, Dividend policy, Allotment procedure, Refund procedure, Who can invest, Where to submit applications, How to apply, Listing, Special facilities (e.g., SIP, SWP, STP), Restrictions on Transfer

>>        Ongoing Offer.

Re-opening date, How sale and re-purchase price will be determined, Cut-off timing, Where applications are to be submitted, Minimum amount for transactions, Minimum balance to be maintained, Consequences of non- maintenance of minimum balance, Special facilities, Procedures regarding account statement, dividend, redemption and consequences of delay

>>        Periodic disclosures.

NAV

Half-Yearly Portfolio Disclosure

Half-Yearly Results Annual Report

Associate Transactions

Taxation (implications for resident investors and the mutual fund)

Investor Services (Name, address and telephone number and e-mail of the contact person / grievances officer who would take care of investor queries and complaints)

>>        Computation of NAV.

Brief policies of the mutual fund with regard computation of NAV of the scheme in accordance with SEBI (Mutual Funds) Regulations, 1996. Rounding off policy for NAV as per the applicable guidelines. Policy on computation of NAV in case of investment in foreign securities.

8.     Fees and Expenses

Initial Issue Expenses

For the scheme proposed to be issued, the nature of the issue expenses to be incurred, such as advertising expenses, commission to agents or brokers, registrar’s expenses, printing and marketing expenses and postage and miscellaneous expenses need to be described. The source for meeting these expenses may be disclosed.

Annual Scheme Recurring Expenses (as a per cent of Average Net Assets)

Expenses chargeable to the scheme need to be quantified. This would include investment management and advisory fee, trustee fee, custodian fee, registrar and transfer agent fee, marketing and selling expenses, brokerage and transaction cost on distribution of units, audit fee, investor communications cost, investor servicing cost, fund transfer cost, insurance premium, winding up costs for termination, cost of statutory advertisement, etc. Some of these expenses can be clubbed together.

If there is more than one plan, then the expense is to be given separately for each plan.

The mutual fund has to update the current expense ratios on the website within three working days, mentioning the effective date of the change.

The maximum limit for annual scheme running expense as per SEBI regulations too are to be disclosed.

Load Structure

Details of Exit Load, CDSC

9.     Rights of Unit Holders

Refer to SAI.

10.  Penalties, Pending Litigation or Proceedings, Findings of Inspections or Investigations

for which action may have been taken or is in the process of being taken by any regulatory authority

This section contains the details of penalties, pending litigation, and action taken by SEBI and other regulatory and Govt. Agencies.

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