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

NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

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

Key Takeaways Explain This Topic AI

The Key Information Memorandum is an abridged summary of the SID and must accompany every application form.

The KIM must be updated at least once a year and carry current addenda.

The risk-o-meter uses six levels from Low to Very High and is disclosed monthly.

Advertisements must carry the standard warning that mutual fund investments are subject to market risks.

Performance in advertisements must follow SEBI's prescribed format and periods, and may not be selectively presented.

Last updated: August 2026

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:

Level Label
1 Low
2 Low to Moderate
3 Moderate
4 Moderately High
5 High
6 Very High

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

Document Update requirement
SID Kept current; updated within the prescribed period after the financial year end, or on any material change
SAI Updated at least annually
KIM Updated at least annually, and reissued with the application form
Addendum Issued for any change between updates, and must accompany the KIM and SID until they are next revised

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.