All you need to know about a mutual fund factsheet

Much like the detailed reports provided by fitness apps that meticulously outline your physical activities, sleep patterns, and overall wellness, a mutual fund factsheet serves as a financial report for mutual fund schemes. Just as your fitness report empowers you to assess your fitness level and adjust your health regimen, a mutual fund factsheet furnishes a thorough analysis of the mutual fund scheme. This document helps you understand the viability and suitability of a particular scheme. Let’s find out more.

What is a mutual fund factsheet?

A mutual fund factsheet is an essential document that presents crucial details such as the fund's investment objective, benchmark, Assets Under Management (AUM), and fund managers. It also outlines the minimum investment amount, expense ratios, and the Net Asset Value (NAV) of each plan.

Additionally, this document includes the performance and risk parameters of the mutual fund. It also includes details like the standard deviation, Sharpe ratio, beta, etc. In the case of equity funds, the factsheet contains the portfolio turnover, and in the case of debt funds, the sheet discloses the duration, average maturity, and portfolio yield of the scheme.

This is just a brief explanation of what the sheet contains. Let’s examine each of its components in detail.

Main components of a mutual fund factsheet

• Basic fund information:

  This section provides a snapshot of the fund's key attributes. It outlines the fund's primary goals and purpose and classifies it into sub-categories, for example, large, small, mid, multi-cap, etc., in the case of equity funds. This section also mentions details of available plans, such as direct, growth, or dividend and highlights the AUM managed by the scheme. Additionally, the section offers information on the NAV of each plan. You can also see the market index against which the fund's performance is measured in this section. Furthermore, this part indicates the smallest investment amounts required for lump-sum and Systematic Investment Plan (SIP) modes.
  Lastly, you can see the risk-o-meter that categorizes the fund's risk level, ranging from low to very high. You can also find a product label highlighting the investment's suitability for investors.

• Portfolio composition:

  This section highlights the mutual fund’s basket of securities. It breaks down the assets, such as cash, debt securities, and equity investments and helps you understand where and how the fund's money is invested. It also shows the scheme’s concentration across different businesses and industries.

• Performance analysis:

  The performance analysis section on the factsheet helps you gauge the fund's historical performance. The section furnishes data for different time periods, including since inception, 15, 10, five, three years, and one year. This information provides a comprehensive view of the fund's performance against benchmarks.

Key ratios involved in a mutual fund factsheet

Here are some key ratios and their significance:

• Total expense ratio:

  The expense ratio covers the cost of managing and administering the mutual fund scheme. A low expense ratio can be favorable for maximizing returns.

• Portfolio turnover ratio:

  The portfolio turnover ratio reflects the rate at which a fund's assets are bought and sold by the fund manager. This ratio is directly proportional to the expense ratio. A higher turnover ratio may increase transaction costs and impact the fund's expenses.

• Standard Deviation (SD):

  SD is a crucial risk indicator and reflects the level of uncertainty and variability in a mutual fund's returns. A higher SD implies greater risk associated with the scheme. The SD serves as a valuable tool for comparing the risk profiles of different mutual funds.

• Beta:

  Beta measures a fund's volatility in relation to its benchmark. A beta of 1 suggests the fund moves in sync with the benchmark. A beta less than 1 indicates lower volatility, while a beta greater than 1 denotes higher volatility compared to the benchmark.

• Sharpe ratio:

  The Sharpe ratio evaluates a fund's risk-adjusted return and helps you assess the efficiency of a fund in generating returns relative to its risk exposure. A higher Sharpe ratio indicates a more favorable risk-adjusted return.

Importance of mutual fund factsheet

The mutual fund factsheet serves as a comprehensive guide. It offers you a one-stop reference for essential details, including risk assessment, fund manager expertise, asset allocation, and performance comparisons against the underlying benchmark. The factsheet also helps you compare different schemes and empowers you to make sound judgements.

Conclusion

Knowing the scheme inside out offers you better confidence and helps you select a scheme aptly aligned with your needs. Make sure to read the mutual fund factsheet to ensure you thoroughly understand the scheme you are investing in.  

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