What to look in a funds scheme information document

The scheme information document (SID) of the fund gives you a whole lot of information about the fund, however, four things you need to know and check about a fund before you decide to buy its unit.

Investment Objective: The investment objective of the mutual fund is the purpose for which it exists. Different funds have different objectives. Some funds may be investing to create capital appreciation, while other seeks to provide regular income. If you’re investing for a young child’s education, you will go with former fund, however, if you are retired and looking for a monthly dividend check, you’ll want the latter.

Strategy: The SID also describes the types of stocks or fixed income securities or mix of both in which the fund plans to invest. Equity dedicated funds will speak out the kinds of companies they look for, such as small, fast-growing firms or big and bluechip, well-established corporations. In case of debt funds, they specify what sorts of bonds they generally hold, such as Treasury or corporate bonds.

Be attentive, though. It’s not unusual to find that they give a laundry list in the prospectus of all the possible things they could invest in. These SIDs are written very broadly, so they don’t always give you a specific idea of how the fund typically invests. Hence, you should go through the portfolio to understand if it is investing as per the SID and whether it suits you.

Risks:  This is one of the most important parts of the SID. Every investment has risks associated with it and a SID must explain these risks. Investment decisions are usually based on an investor’s risk appetite. To help investors be aware of the risks associated with  mutual fund investments, SEBI has made it mandatory for all fund houses to display a riskometer depicting the five levels of risk effective July 1, 2015. Therefore, you should check this before investing in the fund as it will help you to determine if the fund suits your risk profile

Management:  The performance of the fund very much depends upon the quality of the people that are managing your fund. The Management section provides details about the persons who will be investing your money. SID gives detail of the persons who are managing your money. Be sure to check past record of the fund manager with other funds and his style and past success.

Investing in funds requires serious efforts and reading SID is one of them. It is always better to glance through the above points in SID as it will help you to align the expectation about the fund and its performance.