5 points to know about mutual fund fact sheet analysis

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While investing in a mutual fund it’s important to analyze different ratios and parameters of the fund. Many a time investors neglect this step and blindly invest in the highest performing funds, which can be fatal to the financial health of the investor. 

The fact sheet is a document in which a mutual fund company provides all information about a particular scheme. Information covered in this report includes the expense ratio, holdings, sector allocation, quantitative indicators, and fund manager name and experience.

In this article, we will be discussing in-depth every part of the fact sheet in detail.

1. Why to analysis a fact sheet of mutual fund

Before investing in any financial product an investor should always check the various parameters and ratios whether they meet his investment objective. 

Investing in any fund can cost him, over the long term, as some funds may be volatile and an investor is having a lesser appetite to face volatility which can force him to sell at the wrong time.

Mutual fund fact sheet anaylsis

2. Key information

This part of the fact sheet covers key information, which is discussed in detail in the following points.

Investment objective: The investment objective of a fund can be to provide regular dividends or growth by reinvesting profits. 

Type of scheme: This means whether the fund will invest in large caps, small caps, mid-caps, etc.

Fund manager name and experience: The fund manager is the person who is responsible for making investment decisions. This part lets us know the names of the fund managers and the number of years of experience the manager has.

Benchmark: This is the index against which the return of the fund is compared. If the return delivered by the fund is higher then the fund has outperformed the market and vice versa.

Expense ratio: As the fund is managed by investors professionally they charge investors a small amount of charges which are called expense ratios. Direct funds mean an investor will be buying units directly via an online aggregator like Groww, Zerodha coin, etc., or from company websites, etc. Regular funds mean the investors are buying via a brokerage, etc. Charges in the case of direct funds are much lower as compared to regular funds.

3. Load structure and Quantitative indicators

i. Load structure

Entry load: Entry load is a charge an investor has to pay when he buys a mutual fund unit. 

Exit load: Exit load is the charge levied on an investor when he sells his holdings before a particular period. Exit load is charged to the investor to discourage him from withdrawing his money in a shorter duration of time. As the duration of holding increases the exit load decrease. 

ii. Quantitative indicators

Beta: Beta is the ratio used to calculate the general diverge of return as compared to the respective scheme’s benchmark. This means if the beta is less than 1 then the scheme is less volatile as compared to its benchmark and vice versa.

Standard deviations: This ratio tells us how much scheme returns have deviated from their mean return. The higher the standard deviation higher the volatile the scheme is and vice versa.

Portfolio Turnover: It is the percentage change in the holding period of stocks in the portfolio during the particular year. Portfolio turnover is the measure of funds trading activity. 

Sharpe Ratio: Sharpe ratio measures the risk-adjusted return of the fund. Higher the ratio better is the risk-adjusted performance compared to a scheme that has a  lower Sharpe ratio scheme

4. Portfolio disclosure

Portfolio disclosure shows the portfolio allocation of the fund. As we know mutual funds are funds that pool investor’s money and invests according to the particular investment objective. 

This part of the fact sheet contains the top holdings of the fund.

An investor should only check whether the mutual fund is diversified or not because doing a detailed analysis of each holding will be useless because if an investor knows how to analyze and pick stocks he should not invest in a mutual fund in the first place.

5. Sector allocation

This section of the fact sheet tells us which sectors the fund manager has invested the investor’s funds in. The more diversified the portfolio is the better for the investors as the risk of one sector underperforming gets nullified by another sector’s outperformance.

Also with a diversified portfolio, the overall risk of the fund is reduced to a great extent which means the volatility in the portfolio is reduced.

Also Read: How to analyze a mutual fund? 

Disclaimer

I am not a SEBI registered investment advisor. This article is for information purposes any scheme or company name mentioned here is just for example & not a recommendation. 

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of the future performance of the schemes. 

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