Explained: Steps to read a mutual fund factsheet
If you currently invest in mutual funds, you may be aware that the AMC sends you a fact sheet each month. This article will assist you in understanding how to read it. So, keep an eye out!
Basic Fund Information
A fund's fundamental information contains its investment purpose, category (equity, debt, hybrid, etc.), sub-category (Large-Cap, Mid-Cap, short duration, gilt, aggressive hybrid, etc.), net asset value (NAV) as of date, and an expense ratio of direct and regular plans.
It also includes information on the fund's assets under management (AUM), its benchmark (Nifty 50, Sensex, S& P BSE 100, and so on) that it follows, the minimum amount of SIP and lump sum investment, and the exit load. The factsheet also includes a 'riskometer' to help you understand the amount of risk associated with investing in a fund.
This reflects the scheme's risk level, which can range from low to high, and typically assists investors in matching it with their risk tolerance and making proper investment judgments.
Fund Manager
A fund's factsheet will also include information about the fund manager's qualifications, experience, and the performance of previous funds managed by him if any. This allows an investor to determine who is in charge of their money and how adept they are at managing them.
Asset Allocation
A mutual fund is a well-thought-out product. It is a portfolio of diversified stocks or bonds, or possibly a portfolio of several asset types. Portfolio composition informs investors about where and in what percentage a mutual fund invests in those asset classes. This factsheet component serves as one of the most significant analytical tools.
Performance
A factsheet shows the trailing historical performance for various time periods. Following that, this is evaluated with the benchmark and additional benchmark. This portion of the factsheet assists investors in comparing scheme returns to their benchmark, SIP returns, and general market returns.
Key Ratios
Standard deviation, beta, Sharpe ratio, R-squared, total expense ratio (TER), and portfolio turnover ratio are also provided in a factsheet. Investors can use these ratios to assess the scheme's risk and risk-adjusted performance. They can also determine whether the fund engages in frequent stock buying and selling or follows a buy and hold strategy.
Portfolio Holdings
To further investigate the fund, determine whether or not the portfolio is sufficiently diversified. The asset allocation and sector allocation used by the fund are also represented graphically. Sector allocations and portfolio holdings provide a breakdown of how your money is allocated by the fund house. Understanding how your money will be used when you invest in a fund is critical. Furthermore, studying this area is critical since the portfolio will determine how the fund performs in the future.