Mutual Funds are one of the popular investment choices of many investors. Mutual fund investment  related ads/commercials declare a statement that “Mutual Funds are subject to market risk. Please read the offer document carefully”. Ever questioned what a ‘offer document’ is or why it’s crucial when investing in mutual funds?

For the launch of a New Fund Offer (NFO), Asset Management Company  (AMCs) submit offer documents to SEBI for approval of the scheme. These documents consist of – Scheme Information Document (SID), a Statement of Additional Information (SAI), and a Key Information Memorandum (KIM). 

Mutual Fund offer document contains details of the scheme offered by the Asset Management Company (AMC) to the public. This will provide the details of the scheme, which will assist the investor in making a decision on whether to purchase the fund or not after reading the offer document. These offer documents are prepared in the format prescribed by the Securities and Exchange Board of India (SEBI) in simple terms that can be understood by anyone without prior knowledge of the terms.

When making an informed investment decision, mutual fund offer documents that are available for free upon request and are posted on the mutual fund websites, letting you assess the reliability of an AMC and the scheme.

The market regulator, the Securities Exchange Board of India (SEBI), on April 25, 2023, issued a circular regarding the ‘Modifications in the Requirement of Filing Offer Documents by Mutual Funds.’

However, now the following modification has been stated in the aforementioned SEBI Circular:

• As part of the go green initiative, it has been decided that AMCs shall file all final offer documents (final SID and final KIM) only digitally by emailing the same to a dedicated email id. viz: imdsidfiling@sebi.gov.in , and there would be no requirement to file physical copies of the same with SEBI.
• Having said that, based on the consultation with the Association of Mutual Funds in India (AMFI), such submission of all final SID and KIM in the digital form shall be made at least 2 working days prior to the launch of the new fund offer.

In addition to this, SEBI states, “To safeguard the interests of investors in securities market, it has been decided that all new fund offers shall remain open for subscription for a minimum period of three working days.”

This provision by SEBI primarily appears to be for debt-oriented NFOs, where in the case of FMPs, the subscription period can be as low as one day. NFOs with a subscription period of one-day are rare and may only be open to a certain group of investors; as a result, different retail investors may not be eligible to participate. Thus, this is a welcoming change and in the best interest of investors.

Moreover, when the NFOs remain open for a longer period, it increases investors’ participation, whereas a one-day subscription period makes it challenging to attract investors. During a New Fund Offer, investors have the opportunity to purchase units of the scheme at their face value, which is Rs 10 per unit. However, this offer is available only for a limited time period. After this period, interested investors will only be able to purchase a security at the current NAV. Since NFOs are restricted to a confined time frame, units are allotted to investors in the order of their application.

This circular aims to protect the interests of investors in securities, promote development and regulate the securities market. The provisions of this circular shall be applicable with effect from May 01, 2023.

All other provisions mentioned in the aforesaid circular shall remain unchanged.