Every time you come across a mutual fund endorsement or television ad, the fastest spoken and smallest font-sized line is “Read the offer document carefully before investing”. As much as the fund houses want us not to go through it, we totally ignore what is being camouflaged under the high-temp, small-font trick.

Yet, it is the most important thing to do while you put your money at stake. Investing in mutual funds requires the investor to know some jargons of the industry and the investing etiquette but most importantly it requires the investors to understand what exactly the scheme is.

Being an aware investor is more critical than being a seasoned investor. It is good to trust your fund manager with your money but blind faith is not the thing to do. Not that the manager has some ill intentions towards your money but for your own good, you should know what the mutual fund company has to offer you. If having in-depth knowledge is not your cup of tea, the least you can do for yourself is go through the offer document carefully.

What is an investment offer document?

An offer document is the most crucial paper while making an investment, especially in mutual funds. no mutual fund distributor or AMC can pursue the investment regime with an investor without disclosing the scheme details through an offer document. It is then the duty of the investor to read to carefully and understand the terms and conditions.

The offer document is quite a lengthy and detailed paper which is why investor tends to superficially go through it. This may result in ignoring the important information it holds.

For your convenience, we have prepared a list of the most important things you must check out before signing the document;


  1. Investment Objective

This is the prior-most thing you need to look out for in an offer document. Investment objective gives an idea about the scope of the fund and what strategy the company is going to adopt while using your money. This will also let you know the nature of stocks under this scheme- debt funds, equity funds, balanced funds, etc. also it will give an idea regarding the span of investments which is different for large-cap, small-cap, mid-cap and multi-cap funds.

Other important information that it will reflect is regarding the diversification level, investments in foreign funds, etc.


  1. Fund type

The next thing is to find out is the type of fund it is. There may be two types- open-ended or close-ended funds.

In case the fund is close-ended, check for the lock-in period, repurchase terms, liquidity option, etc.


  1. Fee and costs

There are a lot of hidden costs associated with mutual funds in the form of loads- entry load and exit load. You must compare these costs with other similar funds in the same category and select the one with the best offer.


  1. Investment strategy

This category comprises of various factors like minimum investment required, purchasing method, redeeming policy, reinvestment policy, liquidity and conversion time, etc.


  1. Team

Last but very crucial to your fund’s performance is the team managing it. All offer documents contain the name of the fund manager and their team which manages the fund. You can always track the performance of your fund manager in order to have an idea of their investment style and performance over the years.

You can find most of this information under the KIM section which is Key Information Memorandum of the offer document. If you do not have time to read the full offer document, do not miss out on the KIM section. Being informed will help you make a better investment decision.

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