In the context of mutual fund investments, what does the legal doctrine of 'caveat emptor' (let the buyer beware) imply regarding the Scheme Information Document (SID) and Statement of Additional Information (SAI)?

[ A ]The AMC is legally bound to reimburse all market losses if the investor claims they did not read the offer documents.

[ B ]The SEBI Chairman personally guarantees the accuracy of every stock selection made by the fund manager.

[ C ]The investor is legally presumed to have read and understood all disclosures in the SID and SAI before investing, and cannot later claim ignorance of disclosed terms.[ CORRECT ]

[ D ]The distributor assumes 100% legal liability for any market volatility experienced by the scheme.

Takeaway

Option C is correct: The investor is legally presumed to have read and understood all disclosures in the SID and SAI before investing, and cannot later claim ignorance of disclosed terms.

Derivation

The legal doctrine of caveat emptor ('let the buyer beware') governs mutual fund investments. An investor who submits an application form is legally presumed to have read, understood, and accepted the terms, risks, and asset allocation disclosed in the SID and SAI. Consequently, an investor cannot claim ignorance of any fact transparently disclosed in the offer documents. This question tests the legal foundation of offer documents. The common mistake is believing AMCs or distributors are liable for disclosed market risks.

Why the others fail

A — The AMC is legally bound to reimburse all market losses if the investor claims they did not read the offer documents.

AMCs are not liable for market losses when risks and investment policies are transparently disclosed in the approved offer documents.

B — The SEBI Chairman personally guarantees the accuracy of every stock selection made by the fund manager.

SEBI does not approve, recommend, or guarantee the accuracy of scheme documents, but merely vets them for regulatory compliance.

D — The distributor assumes 100% legal liability for any market volatility experienced by the scheme.

Distributors provide distribution services and suitability analysis but do not assume legal liability for broader market volatility.