Where is your mutual fund house investing your money? What is the track record of your fund manager’s performance? Which sectors and stocks were added or removed after you invested in the fund? If you are seeking answers to these questions while deliberating an investment or analyzing an existing one, the mutual fund factsheet is the document holding the answers.

A mutual fund factsheet is a crucial document comprising facts, disclosures, figures, and terminologies regarding the fund house, scheme, and fund manager. Asset Management Companies (AMCs) publish the factsheet detailing monthly information for each active scheme. You can access the document on mutual fund research websites or on your AMC’s website.

Here’s a guide to decoding various aspects of a mutual fund factsheet.

About scheme

The factsheet’s top section usually offers information about the investment objective, plan, options, net asset value (NAV), managed assets, capital appreciation, and minimum investment amount. It also informs you about the fund manager’s strategy and if they will invest in small, mid, or large-cap assets. Besides, this section will also give you an understanding of the risks involved in the fund.

Fund manager

Since the fund manager is responsible for managing the fund’s corpus and performance, their expertise in handling portfolios is decisive for your investment. That’s why the factsheet elaborates the fund manager’s experience and qualifications and provides you with an overview of their track record.

Industry allocation and sector-related information

Mutual fund schemes, by nature, are invested across stocks and sectors for effective diversification. If the fund allocation is concentrated in a few sectors, the fund is considered volatile and riskier. It does, however, offer a higher potential for returns. The factsheet depicts sectoral allocation via weightages.

To further understand your fund’s performance in detail, investigate the sector allocation. Here, cyclical sectors such as automobiles, cement, banks, capital goods, etc., are often deemed risky but promise good returns in the bull market, especially in the early and mid-stages. Likewise, defensive sectors, such as FMCG, healthcare, pharmaceuticals, etc., outperform at the peak of bull and bear markets.

Additional Read: Mutual Fund Trends to keep an eye on in 2021

Portfolio and stockholdings

The factsheet has a section that informs you about the portfolio allocation, giving you an idea of how and where the fund manager is investing your money. It depicts the fund’s latest reported statement of securities/investments. It may be displayed as rupee value or a percentage of net assets.

The mutual fund factsheet also displays the scheme’s stock holding details. By examining the company concentration, you can understand if your investment is at risk. Typically, if the concentration of investment of the five largest stockholdings is under 30% and the weight of the ten largest stockholdings is under 50% of the portfolio value, the concentration risk is in an acceptable range. You can add the weights of the top five to ten companies to calculate the company concentration.

NAV and returns

NAV depicts the market value of securities held by your mutual fund scheme. The factsheet displays the NAVs and returns on various scheme options. It helps investors understand their annualized returns and the wealth created by the scheme.

AUM and expense ratio

Assets under management (AUM) represents the total market value of assets managed by the fund scheme at any given time. While funds with lower AUM tend to have higher total expense ratios (TERs), and investors look for low expense ratios schemes which  can promise above-average returns.

Additional Read: Understanding Mutual Fund Terminologies

Performance analysis

The mutual fund factsheet depicts the past performance of the scheme over multiple periods. This is presented through comparison within Systematic Investment Plan (SIP) returns, scheme returns, returns against the benchmark, and the market’s overall returns. 

Although the historical performance cannot entirely predict the scheme’s future performance, you can get some idea of how the investment may perform. Besides, you can check the scheme’s performance against the benchmark returns to monitor consistency.

Turnover ratio

It denotes the fund’s trading activity and illustrates the percentage of portfolios that has changed in a given period. A higher turnover indicates aggressive trading, which translates into higher purchases or sales of assets from the fund manager, resulting in high transaction fees and lower returns. However, it is also believed that fund managers that whip their portfolios harder seek to actively leverage market opportunities.

Summing up

Fund managers are primarily responsible for diversifying your investment and monitoring the scheme’s performance. Armed with a factsheet, you get an edge to make an informed choice as an investor.

When looking for a trusted wealth management partner to fulfil your investment goals, turn to Tata Capital Wealth. We help you identify the right investment opportunities through research-driven market insights. Get in touch today to build your wealth and realize your financial vision!

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