6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code

The Key Information Memorandum

The Key Information Memorandum (KIM) is an abridged version of the SID. Its defining rule is procedural and absolute:

The application form must be accompanied by the KIM. An application form issued without it does not meet the requirement.

The KIM summarises the material a prospective investor needs before subscribing:

• Investment objective and asset allocation pattern
• Risk profile and the risk-o-meter
• Plans and options available
• Applicable NAV and cut-off timing
• Minimum application, additional purchase and redemption amounts
• Load structure
• Expense ratio and recurring expenses
• Benchmark index
• Fund manager and, where available, past performance
• Tax treatment in summary
• Investor grievance contact details
• Where to obtain the full SID and SAI

The KIM must be updated at least once a year, and any addendum issued after the last update must accompany it, so that the document in an investor's hands reflects current terms.

The Risk-o-Meter

Every scheme discloses its risk level on a standardised six-point scale:

Three features carry examination weight:

• The risk-o-meter is based on the actual portfolio the scheme holds, not on its category label. A scheme's reading can change as its holdings change.
• It must be evaluated and disclosed monthly, published on the AMC website and on AMFI's site within ten days of the month's end.
• Changes must be communicated to unitholders, and the number of changes during a year is disclosed annually.

The practical value is that a debt scheme drifting into lower-rated paper will show a rising risk-o-meter reading before that risk shows up in returns, which makes it an early-warning indicator rather than a static label.

The Advertisement Code

SEBI prescribes how schemes may be advertised, because performance advertising is where investor expectations are most easily distorted.

The standard warning

Every advertisement must carry the statutory caution, given prominence and read out in audio-visual media at a comprehensible pace:

"Mutual Fund investments are subject to market risks, read all scheme related documents carefully."

Presenting performance

• Performance must be shown in the prescribed format and for the prescribed periods — commonly one, three and five years and since inception — with the benchmark shown alongside for the same periods.
• Schemes in existence for less than one year may not advertise returns in the standard annualised manner, since a short record is not meaningful.
• Point-to-point returns must be stated on a standard investment amount as prescribed.
• Performance of a specific period chosen because it flatters the scheme is prohibited; selectivity of periods is the classic abuse the code targets.
• Past performance must be accompanied by the caution that it may or may not be sustained in future.

Prohibited content

• Guarantees of return or capital protection where the scheme carries none
• Misleading or exaggerated claims about safety, returns or ranking
• Comparisons that are not on a like-for-like basis
• Rankings and awards cited without the source, the criteria and the period
• Celebrity endorsement of a specific scheme, as distinct from industry-level awareness campaigns

Digital and social media

The code applies regardless of medium. Posts, videos, messaging-app forwards and website content promoting a scheme are advertisements. A distributor circulating self-made performance charts on social media is publishing an advertisement — and one that is very unlikely to comply with the format, benchmark and caution requirements.

SEBI's 2026 framework also moved advertisement supervision towards digital-first monitoring, discontinuing physical submission of advertisements to SEBI in favour of automated online monitoring, and permitting website and electronic communication in place of newspaper advertisement in specified cases.

What a Distributor Must Actually Do

• Hand over the KIM with every application form, with current addenda attached.
• Point the investor to the risk-o-meter and explain that it reflects the current portfolio.
• Use only AMC-approved material. Self-created performance material is the most common conduct breach among distributors, and it is easily evidenced from a screenshot.
• Never state or imply a guaranteed return.

The Benchmark Risk-o-Meter

A feature investors and distributors frequently miss: the scheme's risk-o-meter must be disclosed alongside the risk-o-meter of its benchmark. Both appear in the KIM, the SID and the monthly disclosure.

The pairing is diagnostic. Where a scheme's reading sits above its benchmark's, the manager is running more risk than the mandate's reference portfolio — a legitimate choice, but one the investor should be told about. Where it sits below, the scheme is more defensively positioned than its benchmark and may lag in a strong rally for reasons that have nothing to do with stock selection. Reading the two together answers a question that neither reading answers alone.

The Document Update Cycle

The addendum is the piece that goes wrong in practice. A load structure, a minimum investment amount or a fund manager can change by addendum, and a distributor working from a printed KIM issued eight months earlier is handing the investor stale terms. Checking the AMC's addendum page before submitting an application takes a minute and prevents a category of complaint that is entirely avoidable.

New Fund Offers

Advertising restrictions are tightest for a new fund offer, because there is no performance record at all. An NFO advertisement may not present any return figure for the scheme, may not imply that a lower NAV makes units cheaper, and must carry the standard warning and the risk-o-meter in the same way as any other communication.