Eight things a mutual fund factsheet will tell you
Every mutual fund house publishes its fund factsheet every month. This fund factsheet contains details of all the schemes that the fund house manages.
It’s not very hard to comprehend a fund factsheet, but it may be difficult for you to interpret the key aspects of this document. It would help if you considered these things before investing in an equity mutual fund or a debt mutual fund.
Here are some of the different things that you need to consider while reading a fund factsheet to make better-informed decisions:
Investment Objective: The fund fact sheet outlines the mutual fund scheme’s investment objective, as well as the scheme’s basic investment principles. Knowing the mutual fund scheme’s investment purpose is crucial because such investments must also match the investors’ investment objectives.
In the case of equity funds, the fund’s investment objective would be wealth creation. On the other hand, capital preservation and regular income can be the investment objectives of debt-oriented funds.
Fund Manager: The fund manager is the pilot of a mutual fund scheme, handling the fund scheme’s investing decisions. As a result, knowing the fund manager’s qualifications and expertise in the industry can help you feel more confident about the scheme’s future. You may also be interested in looking at the performance of other mutual fund schemes handled by the same fund manager, which you can find in the factsheet.
Basic fund details: The fund factsheet also comprises basic details such as the fund’s inception date, NAV (Net Asset Value), Assets Under Management (AUM) as of the month’s end, and even the average monthly AUM. It also mentions exit load, minimum investment amount and the ideal investment horizon.
Fundâ€™s Portfolio: The fund’s factsheet can definitely help you understand the fund’s portfolio.
Through the fund fact sheet, you can get a sense of the mutual fund scheme’s portfolio composition since the names of companies/ securities with large portfolio shares are published, along with their percentage share.
You can also find the sector allocation as a percentage of the overall fund and compare with the sectoral allocation of the benchmark.
The disclosed portfolio can help you determine if the fund is heavily concentrated on a particular company or a sector.
Scheme Performance: Although the past performance doesn’t impact future performance, knowing the fund’s past performance can help us have an idea of how the fund performed against its peers.
The fund factsheet has to provide one-, three-, and five-year period returns and also the returns from the scheme’s inception date. In addition, the benchmark index’s performance is provided with the scheme performance to allow investors to compare the fundâ€™s performance with its benchmark.
Total Expense Ratio (TER): The TER is the annual expenses a fund manager charges its investor to manage and operate the fund. It is a percentage of the total assets managed by the fund. It includes the fund manager fee, operational costs and marketing expenses.
The TER of regular plans is higher than direct plans as it also comprises the distributor’s commission.
Ratios: The fact sheet also includes key ratios for the mutual fund scheme, which you may use to evaluate the fund’s performance. Sharpe Ratio, Standard Deviation, Beta, Portfolio Turnover Ratio, Dividend Yield, and other metrics are typically disclosed for equity funds. In the case of debt funds, duration, average maturity, Yield to Maturity (YTM), and other ratios are reported.
Riskometer: All the mutual fund schemes need to have a riskometer. As per the new guidelines, the riskometer has six categories: low, moderately low, moderate, moderately high, high and very high.
The risk connected with the scheme is portrayed using the riskometer. With a graphic representation, investors can better understand the risk involved with investing in a particular mutual fund scheme.
Reading a fund factsheet is a lot like visiting the doctor. You need to assess your condition accurately, gather information, and decide on the best course of action. That is what reading a fund factsheet will do for you. It will allow you to determine if it’s an investment you want to make. Rather than just by going with their name, go through their details and weigh it up against your current financial portfolio or future plans.