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How to Read the Mutual Fund Offer Documents?

07 Aug 2019 Nutan Gupta

It is very difficult to not notice the words of caution after every mutual fund commercial - “Mutual Fund investments are subject to market risks. Please read the offer documents carefully before investing.” How many of us actually read the offer documents? 5 investors in every 100 investors might be going through the documents. Rest 95 either do not know how to read the offer documents or do not consider it important enough to go through the documents.

Here are some important aspects you should consider while reading offer documents:

Investment Objective

This is one of the most important things to look at in an offer document. It gives a fair idea about the thought process of the fund manager and the strategies that he will use in order to achieve the fund’s objectives. An individual can compare these objectives with his own expectations as per his risk appetite.

Past Performance

The past performance of the fund can be looked at to know if the fund has given consistent returns or not. Investors can also look at the launch date if the fund, its total assets under management and compare it with other funds in the similar space. However, this cannot be used to predict future returns, as one cannot determine future returns on the basis of past performance.

Fund Managers

Fund manager is an experienced professional who has an expertise is managing funds. The offer document clearly states who the fund manager to a particular fund is. This gives the investor an insight about the investment style of the fund manager.

Loads and Taxes

The offer document also states all the charges applicable like the entry and exit load, transaction charges and other charges applicable for managing a fund. All mutual funds do not have same charges as the charges vary according to the type of mutual fund.

Expense Ratio

Expense ratio is the ratio which is charged by AMCs to manage an investors’ money. It is charged in percentage terms. Different funds have different expense ratios. However, SEBI has restricted the limit for expense ratios that a fund can charge. Equity funds can charge a maximum of 2.5% and debt funds can charge a maximum of 2.25%.

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How to Read the Mutual Fund Offer Documents?

07 Aug 2019 Nutan Gupta

It is very difficult to not notice the words of caution after every mutual fund commercial - “Mutual Fund investments are subject to market risks. Please read the offer documents carefully before investing.” How many of us actually read the offer documents? 5 investors in every 100 investors might be going through the documents. Rest 95 either do not know how to read the offer documents or do not consider it important enough to go through the documents.

Here are some important aspects you should consider while reading offer documents:

Investment Objective

This is one of the most important things to look at in an offer document. It gives a fair idea about the thought process of the fund manager and the strategies that he will use in order to achieve the fund’s objectives. An individual can compare these objectives with his own expectations as per his risk appetite.

Past Performance

The past performance of the fund can be looked at to know if the fund has given consistent returns or not. Investors can also look at the launch date if the fund, its total assets under management and compare it with other funds in the similar space. However, this cannot be used to predict future returns, as one cannot determine future returns on the basis of past performance.

Fund Managers

Fund manager is an experienced professional who has an expertise is managing funds. The offer document clearly states who the fund manager to a particular fund is. This gives the investor an insight about the investment style of the fund manager.

Loads and Taxes

The offer document also states all the charges applicable like the entry and exit load, transaction charges and other charges applicable for managing a fund. All mutual funds do not have same charges as the charges vary according to the type of mutual fund.

Expense Ratio

Expense ratio is the ratio which is charged by AMCs to manage an investors’ money. It is charged in percentage terms. Different funds have different expense ratios. However, SEBI has restricted the limit for expense ratios that a fund can charge. Equity funds can charge a maximum of 2.5% and debt funds can charge a maximum of 2.25%.