NISM-Series-V-A: Mutual Fund Distributors · Scheme Related Information

Fundamental Attributes of a Mutual Fund Scheme and Changes to Them

Updated 11 October 2026 · Fact-checked

Fundamental attributes are the core features of a scheme: its type, investment objective and pattern, terms of issue (including fees and expenses), and any safety net or guarantee. Under SEBI rules, you cannot change them unless trustees approve, unitholders get written notice, and an exit option at the prevailing NAV without exit load is offered.

Understand Fundamental Attributes and Changes to Schemes

A mutual fund scheme is a promise. When you buy units, you rely on what the offer document says about what the scheme will invest in and how it will behave. Fundamental attributes are the parts of that promise that the AMC cannot change casually.

Under the SEBI (Mutual Funds) Regulations, the fundamental attributes of a scheme are:

Type of scheme (for example open-ended equity scheme or close-ended debt scheme).
Investment objective and investment pattern (the pattern shows the broad asset allocation and the main investment approach).
Terms of issue: liquidity provisions such as listing, repurchase and redemption, and the aggregate fees and expenses charged to the scheme.
Any safety net or guarantee provided.

Fees and expenses are part of the terms of issue. They are not a separate head.

Why are they protected? An investor who chose a large-cap equity fund should not wake up to find it holds small-cap or debt securities. A change would alter the risk the investor accepted. So the rules give the investor a choice: accept the change or leave.

If the AMC wants to change a fundamental attribute, the trustees must approve it. A written communication about the proposed change must be sent to all unitholders. The notice must also be published in a newspaper, in English, and in a vernacular newspaper circulating at the place of the head office of the mutual fund. An exit option must be offered. It lets unitholders redeem at the prevailing NAV without any exit load. The exit option must stay open for at least 30 days, and the change takes effect only after that period has elapsed.

The same idea of investor choice applies to other major events. Winding up of a scheme happens on the expiry of the scheme's term, a trustee decision that the interests of unitholders require it, a resolution passed by 75% of unitholders, or a SEBI direction. On winding up, the trustee gives notice to SEBI and publishes it in two daily newspapers, one in English and one in a vernacular language. Dealings stop, and assets are sold and the proceeds distributed to unitholders after meeting liabilities.

Key formulas to remember

Fundamental attributes (heads): Type of scheme + Investment objective and pattern + Terms of issue (liquidity, aggregate fees and expenses) + Safety net or guarantee; Learn the heads. Terms of issue covers liquidity (listing, repurchase, redemption) and the aggregate fees and expenses charged to the scheme.
Conditions to change a fundamental attribute: Trustee approval + Written notice to unitholders + Exit option at prevailing NAV without exit load; All conditions must be met together. Notice is also published in newspapers.
Exit option price: Exit price = prevailing NAV (no exit load); The exit option is an exit at NAV. Do not confuse it with an exit load charged during normal redemption.
Winding up of a scheme: Trigger event → notice to SEBI and two daily newspapers → stop dealings → sell assets → pay unitholders; Remember the order. Liabilities are met before unitholders are paid.

How to solve Fundamental Attributes and Changes to Schemes questions

Use this method for any question on fundamental attributes, changes, exit option or winding up.

1Read the question and decide the topic: what counts as a fundamental attribute, how to change it, or winding up.
2If asked what is fundamental, test each option against the list: type of scheme, investment objective and pattern, terms of issue (including fees and expenses), and safety net or guarantee.
3Eliminate options that are routine matters, such as appointing a new fund manager or changing the registrar's address. These are not fundamental.
4If asked about a change, check all conditions: trustee approval, written notice to unitholders, newspaper publication and an exit option.
5For exit option, check the price: prevailing NAV with no exit load.
6For winding up, identify the trigger and the notice requirement, and remember that unitholders are paid after liabilities.
7Choose the option that matches the rule exactly. Beware options with 'only' or 'any' that add or drop a condition.

Quickest way: Three-check shortcut

When to use it: Use when a one-mark question asks what must happen if a scheme changes its features.

Ask: does the change touch the scheme's core promise (type, objective and pattern, terms of issue including fees, safety net or guarantee)? If yes, it is fundamental.
Then recall the pair: notice plus exit option.
Pick the option with exit at NAV and no exit load. Reject options that charge load or skip notice.

Common mistakes in Fundamental Attributes and Changes to Schemes

Thinking an exit load applies when unitholders use the exit option after a fundamental change.
Students link the word 'exit' with 'exit load'.
Fix: Remember that the exit option is at prevailing NAV with no exit load.
Treating every change in the scheme as a fundamental attribute change.
Students overgeneralise from the idea that all changes need notice.
Fix: Only changes to type of scheme, investment objective and pattern, terms of issue (including fees and expenses) and any safety net or guarantee are fundamental. Routine administrative changes are not.
Believing that the AMC alone can change a fundamental attribute.
Students think the AMC runs the scheme and so decides.
Fix: Trustees must approve, and unitholders must be informed and given the exit option.
Forgetting that notice must reach unitholders in writing as well as be published in newspapers.
Students remember only one channel.
Fix: Recall both: written communication to each unitholder and newspaper publication.
Mixing up the triggers of winding up with those of a fundamental change.
Both involve notice and unitholder rights, so the rules blur.
Fix: Keep two separate sets: change means notice plus exit option; winding up means trigger event, notice to SEBI, stop dealings, sell and distribute.

Worked examples

Example 1

An AMC wants to change the investment objective of an open-ended equity scheme from large-cap focus to small-cap focus. Which statement is correct? (A) No approval is needed as it is a minor change. (B) The change needs trustee approval, written notice to unitholders and an exit option at prevailing NAV without exit load. (C) Unitholders can exit only by paying the exit load. (D) The AMC can change it after informing SEBI alone.

Show the solution

Identify the change: investment objective and pattern shift from large-cap to small-cap. This is a fundamental attribute.
Recall the conditions for such a change: trustee approval, written notice to unitholders and an exit option.
Check the exit price: prevailing NAV, no exit load. So option C is wrong.
Option A is wrong because the change is fundamental, not minor. Option D is wrong because informing SEBI alone is not enough.
Option B matches every condition.

Answer: (B)

Example 2

Which one of the following is NOT a fundamental attribute of a mutual fund scheme? (A) Type of the scheme (B) Investment pattern (C) Fees and expenses charged to the scheme (D) Name of the scheme's registrar and transfer agent

Show the solution

List the fundamental attributes: type of scheme, investment objective and pattern, terms of issue (including aggregate fees and expenses), and any safety net or guarantee.
Test A: type of scheme is fundamental.
Test B: investment pattern is fundamental.
Test C: fees and expenses charged to the scheme form part of the terms of issue, so they are fundamental.
Test D: the choice of registrar is an administrative matter, not part of the scheme's core promise.

Answer: (D)

Exam tips

Memorise the fundamental attributes and test each option against them. Most questions are either 'which is fundamental' or 'which is not'.
Link every change in a fundamental attribute to the pair: written notice plus exit option at NAV without load.
Watch for options that say the exit option carries an exit load. These are traps.
Keep winding up separate: know that triggers include the expiry of the term, a trustee decision, a resolution passed by 75% of unitholders and a SEBI direction.
Read the whole option. A statement may list correct conditions but leave one out, which makes it wrong.

Practice questions from Scheme Related Information

Fundamental Attributes and Changes to Schemes: frequently asked questions

What are the fundamental attributes of a mutual fund scheme?

They are the core features of a scheme: type of scheme, investment objective and investment pattern, terms of issue (such as liquidity provisions and aggregate fees and expenses), and any safety net or guarantee. They define what the investor signed up for. They cannot be changed without following SEBI's conditions.

What is the exit option when a scheme changes a fundamental attribute?

It lets unitholders who do not accept the change redeem their units at the prevailing NAV without paying any exit load. The window runs for a minimum period set by SEBI. Unitholders who do nothing stay invested under the new terms.

Can an AMC change a fundamental attribute on its own?

No. The trustees must approve it, and unitholders must get written notice and the exit option. Newspaper publication is also required.

What is winding up of a mutual fund scheme?

It is the closing of a scheme, followed by the sale of its assets and the payment of proceeds to unitholders after liabilities are met. It can be triggered by the expiry of the scheme's term, a trustee decision that unitholders' interests require it, a resolution passed by 75% of unitholders, or a SEBI direction. Notice goes to SEBI and is published in two daily newspapers, one in English and one in a vernacular language.