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Guide To Mutual Fund Fact Sheet

Here is a list of mutual fund facts you need to know about before investing. Read this article to get a download of the mutual fund fact sheet.

If you have invested in mutual fund investments, you must have heard about the fund fact sheet and utilized it for your good. For new investors, it's another novel terminology but an important one. In fact, a mutual fund fact sheet is one of the first things you should get your hands into before starting with mutual fund investments. 

What is a fund fact sheet? 

A fund fact sheet is a document made available by respective fund houses that contains all the information related to a fund scheme. It's the most reliable guide for investors to know and analyze a mutual fund scheme from a broader perspective.

How to read a fund fact sheet? 

A fund fact sheet comes with a plethora of information that one needs to consider before investing. Some of the aspects you can analyze to make your investment decision are: 

  • Investment objective: It gives you exact information about the scheme's objective and how it intends to generate returns for the investors. Considering this aspect, you can determine if the fund scheme matches your financial goals or not. For example, if you invest in large-cap mutual funds, the returns are kind of stable and would ensure consistent growth over the long term. In the case of multi-cap funds, the return potential is high, but the risk is also high. 
  • Portfolio composition: With this, you can get information on where (securities) and how much percentage of the assets under management are utilized for investment. If it's an equity fund, you would know your portfolio constituents related to sector and stocks. For debt sectors, the prime indicator will be credit ratings mentioned in the fund fact sheet. 
  • Fund performance: Mutual funds are all about performance. The better they perform, the more return you will be able to generate. No one wants to invest in a bad or underperforming fund. The fund fact sheet provides information on the scheme's performance against its own benchmark and also market indexes such as Nifty or Sensex for equity funds. By comparing the fund's performance with the benchmark, investors can judge how a particular category has performed and evaluate the fund's performance at different periods.

Fund manager's information & expertise: The fund fact sheet also outlines the information about the fund manager for the investors. It includes details such as the fund manager's name, qualifications, experience, and management duration in the particular scheme and other fund schemes. Investors can go through such information and evaluate a fund's performance. An experienced and skilled fund manager is likely to drive better returns for your investments.

Other fund facts 

The fund fact sheets also present a lot of other valuable and interesting information related to the fund's performance, such as 

  • Standard deviation (SD) and Beta: It's a measure that determines how much returns from a mutual fund portfolio are far from expected returns based on the fund's historical performance. A lower SD is better. On the other hand, Beta denotes the fund's volatility in comparison to the benchmark. Lower Beta ensures lower risk. 
  • Sharpe Ratio: It's a ratio of a fund's performance against the risk taken. A higher share ratio indicates better risk-adjusted returns and vice versa. It's the best benchmark for you to compare two mutual fund schemes. 
  • Total Expense Ratio (TER): It's a cost associated with fund management, fees, advertising, and other administrative-related fees. The lower the TER, the better for the investors. But, it's not the sole criteria, as funds with higher TER tend to offer higher returns.
  • Portfolio Turnover Ratio: It's basically the percentage of securities replaced in a mutual fund scheme by a fund manager over a year. A lower portfolio turnover ratio means the fund manager follows a buy and hold strategy to long the results, which is a good thing when considering mutual funds. A high portfolio turnover ratio indicates aggressive trading, which attracts higher operating costs and increases TER for investors. So the lower the portfolio turnover ratio, the better. 
  • Exit Load: It is a charge investors pay when they redeem their fund units. However, not all fund houses charge this amount. 
  • Riskometer: SEBI mandates fund house self-assessment to avoid the possibility of mis-selling of financial products. Riskomemter is one of the ways for fund houses to make investors aware of the risks involved in the fund scheme. If the riskometer needle is pointed very high, the fund is risky. However, they can still invest in risky funds if they have a long-term investment plan. The longer you stay invested in funds, the less risk you will incur. 

Scheme-wise fund fact sheets 

Along with the information mentioned above, fund fact sheets provide information specific to schemes. Here are some aspects that a mutual fund fact sheet covers for equity and debt-related schemes. 

Equity-related fund schemes: Some of the important aspects mentioned in equity schemes are: 

  • Stock Allocation: It indicates the stocks (along with their percentage) the scheme has invested in. To analyze the fund's performance, you can check the top 5-10 stocks mentioned in the fact sheet. Funds that consider investing in 5-10 stocks and spread their significant investment around them get more affected by the stock's performance. 
  • Company and sector allocation: A fund scheme should invest in different companies across various sectors to utilize the full potential of portfolio diversification. Doing so helps minimize risk, as when one invested sector is affected by market fluctuations, the other is there to balance the portfolio. Funds focussing on one sector are more affected by industry factors and are riskier. 

Debt-related fund schemes: Some of the important aspects of debt fund schemes are:

  • Average maturity period: Average maturity is a measure to determine the sensitivity of a debt fund. Debt funds with higher maturity are more affected by interest rate changes when compared to lower average maturity. If you hold the units for more than the fund's average maturity, you may not get better results. Consider your investment duration in line with the average maturity of the scheme.
  • Credit ratings: The securities of debt funds come with different credit ratings like AAA and AA that go to D. The rating indicates the risk associated with the funds. A high AAA ensures the highest degree of safety and low credit risk, whereas a D shows the highest risk. A fund with better credit ratings performs well in the long run. 

Why should one read a fund fact sheet?

It's important to become well acquainted with the know-how of the investment, especially for first-time investors, as a lack of authentic information may put them in a state of jeopardy. Financial advisors may do their bit in offering you advice and tips related to investment. But at the end of the day, it's your investment, so you must take time and ensure to gain explicit knowledge about mutual fund schemes in various aspects like how they work, their terminologies, how they have performed over the years, the risk factors involved, etc. Based on such information, you can realize how your investment will work once you invest in these funds. The mutual fund fact sheet comes in handy for the investors to make well-informed decisions about their mutual fund investment. 

Fund fact sheets cover various aspects of a fund such as investment objective, benchmark, info & performance about AMC & fund managers, minimum investment amount required for the investment, exit load, NAV of various plans, etc. You may also be able to gauge the performance of the funds through performance and risk parameters mentioned in the document, such as standard deviation (to measure volatility), expense ratio, portfolio turnover, etc. It also shows holdings under the portfolio and the fund's historic performance against its benchmark. In short, a fund fact sheet has everything an investor needs to analyze and make decisions for investments. 

Where can I Download fund fact sheets?

Mutual fund fact sheets are readily available on the fund house's official website. You can download and read all the details related to the fund scheme at once. You can also request the AMC and get the fund fact sheet mailed. Suppose you want to invest in an Axis mutual fund. For this, you will visit their Axis fund house website and download the updated version. The facts sheets are published monthly with updated information if there is a change in investment object, management fee, etc. Make sure you download the updated fact sheet to remove any possibilities of your investments getting impacted by incorrect and outdated data. 

Conclusion

If you want to keep yourself in the top game of your investments, a fund fact sheet is the best resource for you to go for. However, analyzing all aspects and translating them effectively into investment while keeping financial goals, risk appetite, and investment horizon intact is a task on its own. If you think evaluation and effective investment planning is not your thing, you can reach Glide Invest and get your worries solved by investing in hand-picked, high-performing funds without much research and hassles. 

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