The Scheme Information Document — Six Sections That Matter

The scheme information document sets out the terms of the scheme: its objective, what it may invest in and within what limits, what it charges, how to transact, and the risks it carries. It is updated periodically rather than monthly.

The monthly fact sheet is a different document doing a different job. It shows what the scheme currently holds and how it has performed, as our page on the fact sheet describes.

The distinction matters. The fact sheet tells you where the scheme is today. The SID tells you where it is permitted to go, which is the question that decides whether a surprise later is a breach or something you agreed to without reading.

If you read only one page, read this one. It is a table giving the minimum and maximum share of the portfolio that may sit in each type of asset.

This is where you discover that a scheme you thought of as an equity holding may hold a substantial share in debt, or that a scheme described as conservative is permitted to hold considerably more equity than its current portfolio suggests.

The current fact sheet shows one point inside those ranges. The table shows the whole space the manager may move within, and a scheme sitting at one end today can legitimately be at the other end next year without telling you anything beyond the monthly disclosure.

Two short sections that repay a careful reading, particularly for the qualifications.

Almost every objective ends with words to the effect that there is no assurance the objective will be achieved. That is not boilerplate to skip; it is the honest statement that everything before it is an intention.

The strategy section is where a scheme describes how it selects holdings. For a scheme with a distinctive approach, this is where you find out whether the description you were given matches what the document commits to, and our page on value and contra funds gives an example of a style where that check matters.

The document states the maximum expense ratio permitted, the exit load structure with the period it applies for, and the minimum amounts for an initial investment and for subsequent ones.

The exit load is the one worth checking before rather than after. Our page on the expense ratio covers the ongoing charge, and the load matters most for anybody who may need to redeem within the stated window.

Note that the SID states a permitted maximum for charges. What the scheme actually charges today appears on the fact sheet, and the two are not the same number.

Every SID contains a long list of general risk factors that apply to all mutual funds. Those are worth reading once in your life and skipping thereafter.

What is worth reading every time is the section on risks specific to that scheme. That is where a scheme discloses that it may hold instruments with limited liquidity, or take exposure through derivatives, or invest a share overseas, or concentrate in a segment.

Those specific paragraphs frequently explain behaviour that surprises investors years later, and our page on risk and volatility covers why a risk that is disclosed and invisible is still a risk.

For a scheme that follows an index rather than a manager, this document does more work than usual, because the rule is the whole product.

It states which index the scheme tracks, and it is worth reading the name carefully. Two schemes can sound similar and follow indices built on different rules, which our page on factor and smart beta funds covers.

It also states how the scheme handles the gap between itself and the index, and what it is permitted to do when tracking becomes difficult. That matters because the only meaningful measure of a passive scheme is how closely it followed what it was meant to follow.

Where a scheme is passive in method but active in intent, this is the section that tells you what the intent actually is, rather than what the brochure says it is.

The key information memorandum is the short version, a few pages summarising the objective, the asset allocation, the costs and the load. For most investors it covers what is needed, and it is far more likely to actually be read.

We would go to the full document in three situations: when a scheme has an unusual or complicated approach, when you are committing a large amount, and when something in the marketing sounds more certain than a mutual fund can be.

Both documents are free on the fund house website and both are updated over time, so the version you read three years ago may no longer be current. If you want help reading one against what you actually need, get in touch, and how to choose a mutual fund sets out where documents sit in the decision.