Every now and then, we come across a line in advertisements related to mutual funds: “Mutual fund investments are subject to market risk. Please read all scheme-related documents carefully before investing.” These ‘scheme-related documents’ are essentially the Scheme Information Document (SID), KIM (Key Information Memorandum) and SAI (Statement of Additional Information). These are present in the offer document, which is made available when a fund house launches any new scheme. So, investors are advised to look at these documents before investing in an MF scheme. However, post launch, every MF scheme goes through changes and updates. Here, we will discuss these changes and updates, and how investors can keep track of them.
Changes in fundamental attributes
Every MF scheme has three core elements: type of scheme (whether it’s open-ended or close-ended and the category it falls into), investment objective (growth or income) and terms of issuance. As per SEBI, any tweaks to these elements are considered change of fundamental attributes. Let’s look at a few examples of such changes. Post the introduction of the flexi-cap MF category, many fund houses such as HDFC, Axis, ABSL and Kotak AMC announced re-categorisation of their multi-cap schemes to flexi-cap ones to have flexibility in terms of large-cap, mid-cap and small-cap allocation. Also consider Edelweiss MF converting its close-ended equity scheme Maiden Opportunities Fund into an open-ended one or take the merger of two UTI schemes — UTI Balanced Fund and UTI Infrastructure Advantage Fund–Series–I.
Investors are given a 30-day period to decide whether they wish to exit the MF scheme at NAV (Net Asset Value) without any exit load as fundamental attributes stand altered. To notify investors, fund houses send written communication regarding the proposed changes, issues advertisement in an English daily with nationwide circulation, and in a newspaper published in the language of the region where the head office of the fund house is located. Many a time, investors may get notified through e-mails too. After the time-frame given to existing investors to exit the scheme, the SID is updated immediately, which can be found on the AMC’s web site.
Other scheme-related changes
Whenever the material changes other than that of fundamental attributes take place for a particular scheme, an addendum is attached to SID and KIM (concise form of SID); one can find the addenda separately on the fund house’s web site. Here, too, the advertisement is published in newspapers as is done for changes in fundamental attributes. These changes could be change in benchmark index or even change in load structure. For instance, looking at Motilal Oswal fund house’s web site, we can see addenda to SID and KIM for a host of scheme-related changes — change of fund manager, change in cut-off timing for NAV applicability and even when there is a change in statement. Moreover, addenda are attached to SID when additional facilities are introduced such as SIP Pause facility or Flexi SIP of schemes, wherever applicable.
In certain cases, if an AMC wants to notify investors regarding general aspects such as declaration of dividend, hosting of annual reports, half-yearly financials, half-yearly portfolio, and change in base TER (Total Expense Ratio), among others, notices issued by AMC can be found on the AMC’s web site.
Fund-house level changes
Statutory changes happening at the fund-house level are updated in SAI. One can see addendum to the changes in key personnel at the AMC level, attached to SAI. For instance, if you check for Parag Parikh fund house, you can find they have recently appointed Bhagirat Merchant as an Independent Director and Rukun Tarachandani as additional fund manager for some of its equity schemes. Further, it has the addendum attached to it describing the change in designation of some of its employees. Also, it contains addenda regarding addition of branch offices, which can also be found in SID. However, as this document involves information of statutory level and information about legal and operational affairs, investors need not look at it for their investment decision.
What should an investor do?
One needs to understand that merely investing in any MF scheme doesn’t mean that his/her job as an investor gets over. The investor should keep track of all the changes and updates taking place in the schemes they invested in to make informed investing decisions. Hence it is preferred that an investor takes a look at KIM, as it is the concise version of SID. However, one should not act impulsively after getting notified of the changes. For instance, in case of changes in fundamental attributes of a scheme, the investor might be tempted to sell the MF units as it won’t attract exit load, but he should keep in mind that it could attract capital gains tax. Hence, unless your investment in an MF scheme becomes irrelevant to your financial goals, you should not jump and act upon changes.