Unit 4 · 6% of the paper
Offer Document
The three documents a scheme is sold on — SID, SAI and KIM — what each one carries, and why they were split up in the first place. Six per cent of the paper and almost entirely definitional.
In short
- SID is about one scheme: objective, asset allocation, risks, loads, terms.
- SAI is about the fund: sponsor, trustees, AMC, service providers — common to every scheme.
- KIM is the short form of the SID and must accompany the application form.
- The split exists so fund-level information is not reprinted in every scheme's document.
- These are disclosure documents. Nothing in them is a recommendation or a promise of return.
A mutual fund scheme is sold on the strength of what it discloses, and the offer document is that disclosure. This unit is worth six per cent and is one of the most mechanical in the syllabus: three documents, three jobs, and questions that mostly ask which is which.
What does the Scheme Information Document contain?
The SID is about one scheme. It sets out what the scheme is trying to do and how, which is everything an investor needs to judge whether it fits them.
- The investment objective, in the fund's own words.
- The asset allocation pattern — how much may go into each kind of security.
- Where the scheme will and will not invest.
- The risk factors, both the ones common to all schemes and the ones specific to this one.
- Loads and expenses, and how units are bought and redeemed.
- Who manages it, and how performance will be benchmarked.
What is in the Statement of Additional Information?
The SAI carries the information that is the same for every scheme the fund runs: details of the sponsor, the trustees and the AMC, the service providers, the fund's constitution, condensed financial information and the general legal and tax position.
The reason for the split is practical. A fund may run forty schemes, and the identity of its sponsor does not change between them. Putting that material in one document, referenced by every SID, keeps each SID about its own scheme rather than about the organisation behind it.
What is the Key Information Memorandum for?
The KIM is an abridged version of the SID, and it must accompany the application form. Its purpose is that an investor about to sign something has the essentials in front of them rather than a document they would have to send for.
Being abridged, it is not a substitute for the SID — it is the entry point to it. An examination question will sometimes offer the KIM as the document that carries full risk factors or the complete asset allocation; it does not.
How do these documents stay current?
They are not written once. A scheme's documents are updated so that what an investor reads reflects the scheme as it now is, and a material change has to be communicated rather than quietly absorbed. The principle to hold on to is that disclosure is continuing rather than a one-off event at launch.
What the examination tends to ask here
Six per cent, so roughly six questions, and they are nearly all of the form 'which document contains X'. Fix the three-way split — SID for the scheme, SAI for the fund, KIM as the short form attached to the form — and most of this unit answers itself.