“Mutual fund investment is subjected to market risk, Please read all the scheme related documents carefully” - You must have heard or read this phase in every mutual fund advertisement whether the advertisement is giving in a newspaper or on television. But one should not ignore this phase of reading the offer document because the most important step while investing your money in a mutual fund scheme. The offer document not only provide you A-Z information about the scheme but will also help you to decide whether an individual should invest in a particular scheme or not.
One must know that a mutual fund offer document is made up of number of document such as Scheme Information Document(SID), Statement of Additional Information(SAI), Key Information Memorandum(KIM).
Here are some of the important aspects that an investor should go through while reading the offer document.
1) Past Performance: Going through the past performance of the scheme is one of the most important aspect while reading a offer document. It is necessary that one should not only see the past performance of the scheme but also compare it with similar funds in the market as well as against the industry benchmark. However one should not use the past performance of the fund to judge it future.
2) Risk factor: The offer document also specifies all the risk that the fund will be exposed to. It is necessary that the investor should understand the amount risk that they will be exposed to while they invest in the fund. The bearing capacity of each individual is different and it is advisable that an individual should invest in the scheme only if his feels that he/she would be able to face the risk.
3) Investment objective: While going through the investment objective of the fund investors can get a fair idea of the strategies that the fund manager will use to achieve the said objectives. Match these objectives with your own expectations about income or long-term capital appreciation as well as your risk appetite.
4) Fees, Loads and Taxes: Read the ODs to learn about the minimum investments, charges applicable and services available to you. Some of the common charges applicable are Entry and Exit Loads, Transaction Charges, Security Transaction Tax (STT), various charges for managing the fund - together called the Total Expense Ratio (TER). It is important to know that all mutual funds do not have the same type of charges and that all these charges are regulated by the Securities and Exchange Board of India (SEBI).
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