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Saturday, December 26, 2015

Mutual Fund KIM – How to read?

 

Know your Mutual Fund

The key information memorandum (KIM) is a must read for any Mutual Fund investor.

When the common man thinks of investing in a Mutual Fund, the first and probably the easiest step for him would be to ask around his friends for advice. It is then that the investment often turns out to be a mistake – primarily because he did not take the pains to know what scheme he is investing in. Two documents that will give details of the scheme are the Scheme Information Document (SID) and the Statement of Additional Information (SAI). For the lay-investor, a summary of these two documents is made available in the Key Information Memorandum (KIM), given along with the application form of the fund.

Every investor is advised to read the KIM before investing. The key facts that the investor should look for in this document include – Scheme information, comparison benchmark, past performance of the fund, Charges to the investors and more. We explain these briefly:

  • The Scheme Information gives the investor an idea of which sectors or industries the fund will be investing in. This data helps in finding the allocation made to equity, debt, gold thereby giving an idea of how much risk the fund is taking in its investment.
  • It is important to know on which index the fund will be benchmarked on – The Sensex or the Nifty, the performance of the scheme will be measured against this index. The comparison benchmark in the KIM gives this information.
  • Options and Plans available to an investor are of two types – Dividend option where the investor can choose between reinvesting or cashing out the dividend payouts; or the Growth option which is a long term investment with no payouts. If neither are chosen, there is a default option for the investor, apart from special options like the dividend sweep nor trigger facilities.
  • The fund's performance for the past year, three  years and more are compared against the benchmark  index. Investors can look at this to be the progress card of the scheme.
  • An investor must understand that there are charges made by fund managers to cover some expenses – this is termed as load. A load is charged at the time of the exit/withdrawal from the fund or when the investor switches between schemes – all this is explained in the Charges Structure of the KIM
  • Apart from the charge structure, each mutual fund also has an expense ratio – the proportion of recurring expenses that a fund charges to its schemes – every year. The recurring expenses include fund management fee, administrative costs, marketing and distribution costs. The regulatory authority, SEBI has however capped the expense ratio.
  • Common information: Details of risks associated with equity, fixed income instruments and derivatives are clearly given. Scheme-specific risks are also mentioned.
  • The Net Asset Value (NAV) rules are explained with transaction timings for investors.

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5. Religare Tax Plan

6. Franklin India TaxShield

7. DSP BlackRock Tax Saver Fund

8. Birla Sun Life Tax Relief 96

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10. HDFC TaxSaver

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