Mutual Funds: SEBI Simplifies Format of Offer Documents

Markets regulator, the Securities and Exchange Board of India (SEBI), has revamped the format used by Asset Management Companies (AMCs) or fund houses for filing offer documents of mutual fund schemes. This updated format for the offer documents will come into effect from April 1, 2024.

This initiative has been undertaken with the aim of streamlining the dissemination of relevant information to investors, easing the preparation of the Scheme Information Document (SID), and facilitating its timely updation by mutual funds.

Significant changes have been introduced in the ‘summary of the scheme’ section in which the AMC is required to highlight the name of the benchmark of the scheme and provide justification, specific to the scheme objective, for the use of the benchmark index with which the performance of the scheme can be compared with. 

Also, this section will require highlighting the second-tier benchmark, in case that’s applicable. Typically, a second-tier benchmark highlights the investment style or strategy that the fund manager adopts within the category.

In addition, the ‘summary of the scheme’ section will provide a web link in which the Total Expense Ratio (TER) for the past six months, along with the scheme factsheet, will be made available.

The AMCs are also required to provide portfolio holdings of schemes, that is, top 10 holdings by issuer and fund allocation towards various sectors, through a functional web link where the data would be suitably hosted.

The aggregate investment in the scheme that the fund managers would be required to be stated in scheme documents. The AMCs will also have to give details related to how the scheme is different from existing schemes of the mutual fund.

Also, the AMCs would be required to provide a reference list of existing schemes and a functional website link that contains a detailed comparative table.

Offer documents, which include the Key Information Memorandum (KIM), SID, and Statement of Additional Information (SAI), provide fundamental attributes of a mutual fund scheme that is investment objective and policies, fees, and liquidity provisions. 

Additionally, such documents also provide information to investors related to fund management team details, various risk factors in the scheme and risk mitigation mechanisms.

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