What To Read In Your Mutual Fund Offer Document

Don’t invest blindly. Read the Mutual Fund (MF) offer document carefully before you invest.

As published in Telegraph on 24th August, 2016

Risk factors

Never invest without understanding the risk. This portion of the document, thus, becomes one of the most important. This will also tell you what news to look out for that affects your investments.

Fees & expenses

You pay the Fund Managers a certain amount as fees. This is usually a percentage of the value of the Fund’s investments. Before you invest, compare these Fees for all schemes. Also, the Fund may charge you an amount when you redeem the MF units. This is called Exit load. It is important to know this beforehand.

Investment objective

Do you want the Mutual Fund to create wealth through high returns or safeguard your money? Your investment objective needs to match the Fund’s goals. Otherwise, you could end up taking more risk than you can afford or get lower returns than you need.

Asset allocation

Not all MF Schemes invest in the same way. Some invest only in Equities while others may invest only in Bonds and Government Securities. Some other MFs may invest in a mixture of both. This affects the Scheme’s risk and return potential. Check this to ensure the MF Scheme suits your needs.

Benchmark

How do you measure MF returns? By comparing it with a Benchmark like BSE Sensex or Government Bond yields. Knowing your MF’s benchmark can give you an idea about the tentative returns.

Restrictions

Depending on what the MF Scheme is, there may be restrictions on the Fund Manager. For example, a Debt Fund may be restricted from investing more than 10% of its assets in Equity or Equity Derivatives. This section, thus, gives you an idea of the Scheme’s risk and return generating potential.

Scheme management

While investing in a Mutual Fund, you are entrusting your money in the hands of the Fund Managers. So don’t forget to read about the Fund Managers and their past track record. This is to ensure your investments are in the right hands.

Past performance

The past does not guarantee future returns. But it can certainly give an idea about what to expect. This is why it is imperative that you check the Fund’s past performance over the last 5–10 years. More importantly, look at the performance during the times when the market was down. A quality Fund usually outperforms the Benchmark even during poort times.

Dividend distributions

Did you know you have the option to reinvest your dividends or choose to get it credited to your bank account? You can find details of these options in Dividend Distribution section. Reinvesting often helps increase returns.

Disclosures

Every Mutual Fund House has to give details about the Scheme’s investments, values and other details on a frequent basis. The Disclosure chapter of the document gives you details about when these information are released.

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