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mutual fund factsheet

Mutual Fund Factsheet – A Detailed Study

Mutual fund Factsheet is a very common word nowadays, and there is a high probability that you must have heard or seen the same when you were getting pitched for a mutual fund. Every wealth manager or consultant carries a factsheet page to stress his point – why the specific mutual fund is good and you should opt.

In this paper, I will try to decode the complete fact sheet term by term so that you will be in a much better position to evaluate when next somebody shows this sheet. I will also try to put forward the ideal range for each and every parameter.

Every fund house releases Mutual fund factsheet every month, it’s a booklet type which carries each and every detail about all the running funds. It also carries application and service forms. You can opt for new funds or get service for the existing once.

 A simple Mutual fund factsheet page looks like this:-

HDFC equity fund factsheet

Mutual Fund Factsheet Detailed Explanation

Now I shall be explaining each and every word of the mutual fund factsheet so that you can make meaningful inferences from the same.

Fund Name & Style

On top of the factsheet, you will find the name of the fund followed by its style. This is basically the name of AMC followed by name of the fund. In this particular example, you can see the name of the fund is HDFC Equity Fund and its open-ended diversified fund meaning it would be investing in large, medium, and small-cap. Since it’s an open-ended you can easily move in and move out as per your need.

Category of the Scheme

As mentioned the category is multi-cap which means the fund would be investing in large, medium, and small-cap funds. Since it’s having exposure in medium and small-cap there shall be a little higher risk in this fund. You can easily evaluate the riskiness of the fund by having a look at composition.

Large-cap funds are safest followed by mid-cap and small-cap funds. Small-cap funds are the riskiest among the lot.

Investment Objective

In this the fund shall reiterate the purpose of the fund, you need to match your objective with the funds objective. Like in this case the objective is to generate capital appreciation by investing in equity over a long period of time. So you should opt this only when you have long term vision or goal. You should not select this fund for short term goals that might not help in achieving the goal.

Fund Manager

This would mention the name of the fund manager. It would also mention how long he has been managing the fund and total experience in the industry. This is very important as you are handing over your hard-earned money and a novice fund manager would not be able to do justice.

Ideally, a fund manager should have 10 years of experience and should be with the fund for at least 5 years. The logic is simple that in ten years fund manager must have seen all the up as and downs in the economy also if he has been managing the fund for more than 5 years it clearly means that he has been managing well and understand the fund and knows how to generate alpha.

In this case, the fund manager is Prashant Jain having more than 27 years of experience and has been managing this fund for the past 17 years, which clearly means the fund is a must-have in the portfolio.

Inception Date

That’s the date when the fund has started, in this case, the fund started on Jan 1, 1995. The inception of funds doesn’t matter much when you check the fund manager and the style of the fund.

NAV (As on….)

net asset value
850

Every fact sheet report shall come with NAV, though NAV keeps changing on a daily basis, It specifies the value of one unit. NAV has been divided into 4 categories

Regular Plan Growth option

This is regular, meaning some intermediary is there who has helped in the sale of the fund. Growth means, whatever profit as been generated in the fund has not been paid in form of dividends but rather units have been purchased.

Regular Plan Dividend Option

In this class of funds, whatever profit has been generated gets paid to investors in the form of dividends.

Direct Plan – Growth Option

In this case, the investor takes the fund from the AMC without any help of intermediary and investors reinvest the profit.

Direct Plan – Dividend option

In this case, the profit is being taken as dividend by the investor and no intermediary is there.

One this is very clear if you look carefully direct plan growth option NAV is always highest followed by regular plan growth. The lowest is always be off Regular plan – dividend.

Asset under Management

It’s the total amount of money that the fund is managing. It mentions the current situation and also the average situation since this is an open-end scheme there are continuous redemption and purchase of units. Ideally, you should look for funds having high AUM (discounts are there for higher values) minimum 5000 cr.

Quantitative Data

These are a few ratios and are very important in drawing a conclusion about the fund and also while comparing with the same genre of the fund.

Portfolio Turnover Ratio

This means how frequently the fund has changed over the past year. It’s calculated as a ratio of –

Minimum of securities bought and sold over average AUM.

A high ratio indicates high churning of the portfolio, which in turn means a high cost. When comparing two fund look for the fund having lower portfolio turnover. Portfolio turnover of 26% is high in this case.

Risk Ratios

ratios

Standard Deviation

Standard deviation is the deviation of the fund returns around the mean. It takes into account both the upside and downside risk as it factors both the positive and negative deviation of returns around mean. A high deviation means fluctuation in return. A stable reflects the well-researched investment. SD of 6% in this case is reasonable.

Beta

Beta reflects the fund risk in relation to the market as a whole or senility of funds returns to the market. The beta of one means the volatility of the fund and the market are aligned. A Beta of less than one means that the fund’s returns are less volatile compared to the market. On the other hand, a Beta greater than one implies that the fund’s returns are more volatile relative to the broader market.

The beta of 1.041% in this case reflects more or less alignment with the market. The beta of an Equity fund is in the range of 1% only.

Sharpe Ratio

Sharpe ratio is a measure of risk-adjusted performance of a fund or in simple terms its return per unit of risk. A positive number reflects risk are getting paid a negative reflects risk getting penalized or negative returns. A share ratio of -.055 clearly reflects risks that are getting negative returns.

Expense Ratio

These are the charges which the mutual fund company would be charging for managing the fund. This charge shall include everything from communication to charges to fund manager, courier charges, etc. A quick look confirms that the charges indirect are little less as compared to Regular, 1.24% compare to 1.81%.

You should always look for funds charging less, funds having high AUM would always have low charges as compares to funds having low AUM.

Benchmark

A benchmark is a reference point against which the performance of the fund needs to be judged. The idea of a fund manager is always to beat the benchmark.  In this case, the benchmark is nifty 500. So if the fund performs better than nifty 500, that would mean fund manager has done good job vice versa.

Exit Load

Mutual fund charges a penalty if you would exit from the fund before 1 year. It’s generally common for all funds. Its 1% of redemption/ switch.  There is no exit load if the redemption is exercised after 1 year.

Minimum Application amount

It’s the minimum amount that is required to start the investment. The different fund has different criteria for the same. The amount which is mentioned here is of a lump sum, a SIP can be started with as low as 500 Rs.

Segment Wise Breakup

This particular section specifies where funds are getting invested based on categories i.e. large, mid, or small-cap. Since it’s a Multi cap fund, the investment shall be in different buckets.

A quick look at this would help in understanding the fund better.

In this case, the majority of the fund is invested in large-cap and very little exposure to mid and small-cap, which clearly reflects the fund shall be stable, which can be proved by standard deviation figures.

Risk-o-meter

risk-o-meter
850

These graphic pictures reflects the risk of investing in the fund. It is divided into low, moderately low, Moderate, Moderately High, and High.

Since the investment is into equity the risk is relatively high. It helps investors in understanding the kind of risk the fund might have, so they can decide accordingly. Generally, a risk profile is used to understand the risk appetite of the investor.

Portfolio

This section gives detail of what all companies the fund has invested in. It mentions which companies, what percentage of total AUM, and also which industry that particular company belongs to. In the mentioned case the fund has been invested in varied sectors like Banking, software, power, pharm, etc. so the fund is multi-cap and multi-industry. Please be noted of the cash component in the portfolio, a nominal is required for working capital and other expenses hence it should below.

Industry Allocation

This tries to further explain the investment based on industry. It gives a cumulative figure. In the portfolio section, you got to know what all industries the investment is being done. This section mentioned the exact portion of AUM in a particular industry. Like in this case the banking industry has an exposure of 26.22% and power 10.89 %.

SIP Performance

This is the most important section, as this is the one which actually gives you the confidence in investing in a particular fund.

It tries to show how the fund has performed since its inception and during 1, 3,5,10, and 15 years period.

In this, you will find the amount which has been invested, the value of that investment over a varied time frames, and growth %. It also shows the performance against the benchmark.

Like in this example you can clearly see that since inception 30,40,000 Rs. has been invested and the value of that is 5,67,05,000 Rs a CAGR of 19.04% against a benchmark of 12.86%…Huge difference.

Though the fund has not done well as compare to benchmark in a period of 1, 3, and 5 years where it was trailing, in a longer period the fund has performed far better.

I am sure by now you have developed a strong understanding of “how to read the factsheet”. Understanding this single paper will give you an edge over others while investing.

Conclusion

Although Mutual Funds are managed by professionals who have expertise in the area, aligning financial goals for achieving desired results is what you should aim for. 

Choosing a Mutual Fund might look like a task, but reading a fund fact sheet correctly gives you an edge.  A mutual fund Fact sheet gives a holistic view and helps you make an ‘intelligent choice’.


You must read:

All about mutual funds

Types of mutual funds

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