Mutual Funds: How to read scheme related documents carefully

Life is a risky proposition. You might abide by each and every precaution, but you cannot escape the risks. At the same time, you cannot succeed if you don’t take the risks head on. A wise person will be capable of analyzing the situation and taking a calculated risk. The same is true for mutual funds.

Every person is aware of the cult statement; Mutual Funds are subjected to market risks, please read….. If you are planning to invest in mutual funds, you will understand the importance of this warning. As it’s about your money, you should be aware of all the policies, risks, returns, etc. For understanding all this, you need to go through the never-ending scheme offer documents.

Well, for a beginner, it might get extremely complicated or confusing. For that matter, we have tried to highlight the important details of the offer documents. You can also rely on fund managers or financial advisors for the understanding of the documents. But it is always better to be aware of the terminologies and the fundamental concept of the documents. Read on to know more about the scheme related documents.

Investment Objectives

Every entity has their objectives and goals. The same is true with the mutual funds. The offer documents clearly list the objective of the mutual funds. And it’s not just about the listing the objectives. This is just the beginning.

They mention the complete strategy for achieving predetermined milestones. This way, you can analyze if your objectives resonate with the mutual fund’s objectives.

Moreover, you will be aware of the complete portfolio of the company. You will get know about the fund manager’s strategies, and so on.




Past Performance Records

Although past performance records are not the indicators of future performance, you should be aware of the past performance records. Why? This is because you get an idea about the mutual fund’s willingness to achieve its goals.

You will get to know about the date of inception of the mutual fund, total assets under management, and other past performance indicators. The mutual funds with a consistently positive performance record are in a stronger position to perform better.

You should compare the past performance of different mutual funds before finalizing the one for investment purpose.

Identifying Risk Factors

It is an obvious fact that risks are involved with the mutual funds. However, the level of risks varies with the different type of money market instruments. For example, equities are riskier than debt instruments.

It is the duty of the mutual fund to disclose all the risks associated with the mutual fund investments. The investor should be aware of all types of risks.

As an investor, you have the right to know the risks so that you can plan your investments accordingly.

Fees and Taxation

Every mutual fund has their own criterion of charging fees, loads, and taxes. Read the offer documents to know about the fees such as entry and exit loads, the expense ratio, transaction charges, security transaction tax, and others.

The charges are not managed by SEBI and hence, you need to be aware of the charges of all the mutual fund prospects.


Fund Managers

Fund managers are responsible for handling your investments. If you know their style of working, their experience in the financial market, and so on; you will be in a better position to finalize your investment. The offer documents disclose this information as well.

Once you go through the documents carefully, you can analyze whether you are ready for an investment in mutual funds. If you feel that you are ready, you can know more about the investments here.