All mutual funds
are required to disclose, in their offer documents, the Risk Factors that are faced by the fund and therefore by the investors. Risk factors may be standard or scheme specific. Standard risk factors are market driven
and common to all schemes.
While a regular investor will be conversant with standard risk factors, their disclosure is of particular relevance to the novice investor. Scheme specific risk factors have a direct bearing on the investor’s choice
and therefore need to be carefully evaluated by the investor. Disclosure of risk factors must include the following:
Scheme specific risk factors: Arising from the scheme’s investment objective/strategy and proposed asset allocation.
Standard risk factors:
·Investments are subject to market risks such as absence of liquidity in markets or fluctuations in market prices beyond the control of the managers, resulting in investment objectives of the scheme not being achieved.
NAV can move up or down on the basis of capital market movements.
·Past performance of the sponsor/AMC/mutual fund is not indicative of the future performance of the scheme. Name of the scheme does not indicate its quality or prospects.
Risks associated with the use of derivative instruments, if the fund plans to use such instruments as permitted by SEBI.
Arising from non diversification, if any:
· Specific risk factors associated with investing in closed end schemes. For assured returns schemes, if assurance is up to the maturity of the scheme, it must be stated that this is on the basis of guarantee given by the sponsors/trustees/AMC. If assurance is for a specific period, it must be stated that there is no guarantee for sustaining the assured return for the remaining duration of the scheme.
If the AMC has no previous experience in managing a fund, a disclosure to that effect must be made.
Extension to: How to Make money by Investing in a Mutual Fund?
Labels: Mutual Funds