Mutual Fund Investment : What is a fact sheet?

Terminology - Mutual Fund, 

Mutual Fund Investment : What is a fact sheet?

From FundsIndia.com 

The fact sheet is updated by the Asset Management Company (AMC) on a monthly basis and becomes available on the AMC’s website around the 10th of each month.

In order to provide uniform information across AMCs in a consistent manner, AMFI has clear guidelines on the information that should be presented in the fact sheet along with the methodology of calculation for the portfolio metrics.

As a mutual fund (MF)  investor, you would like to get comprehensive information on your fund. 

A single document provides this information for you – the fact sheet.

What is fact sheet?
A fact sheet is a document put out by each fund house that contains information pertaining to each of its funds as well as the general overall market. 

How is fact sheet useful?

The information contained in the fact sheet helps you understand how your fund has performed over the long term and where its investments are. Broadly, the information are of two types – information that does not change each month, and information that is more dynamic.

Static information covers the basic characteristics of the fund and thus, this rarely changes. What’s important to you is the category of the fund, or /what type of fund it is – a large cap equity fund or a thematic one, or a short-term debt fund, or an income fund and so on. 

Then there is the fund manager and how long he or she has been managing the fund. The longer the tenure in managing the fund, the better it is.

Then you have the benchmark – important because a fund’s aim is to beat its benchmark. Then you have the date of inception of the fund (it’s better to go for funds with at least a 3 year track record). 

Another bit of very useful information is the risko meter, which indicates the riskiness of the fund. Other information includes the types of plans and options available and the minimum amount for one-time or /  SIP investments.

Then you have the all-important information that relates to the performance and portfolio of the fund. 

Obviously, this changes from month to month and will tell you what your fund is up to, and how it’s been faring.

Take the data on fund performance. The fund and benchmark returns for multiple time periods is available – since inception, for the last 1, 3, 5, 7, 10, or / 15 years if the fund has been around for that long, and the last 3 calendar year performances. 

This gives you a very good perspective on the how the fund has fared in different periods and market cycles. A good fund outperforms its benchmark and its category across all time frames.

Let’s say a fund, in the one year period has not done well. Its returns in the longer time period will help you understand if the under performance is only recent. 

In such a case, you can retain holding your fund. Or, say the one-year performance happens to be outstanding. If it is a consistent performer, the long-term returns should also be good. If not, the good return may just be a one-time occurrence. In the past few years, each calendar was more or less either an up trend or a down trend so calendar year returns will, for the moment, also show performance in different market cycles.

How much a SIP of Rs. 10,000 in the fund and the benchmark would have grown is shown across time frames, as well as the SIP yield. This data is updated on a quarterly basis. Note that the various returns may not all be available under each fund where the static information and portfolio details are shown. Some AMCs put a part of the performance figures for all funds bunched up at the end.

Also important is the fund’s holdings and sector classification. The percentage of the portfolio invested in the top 10 stocks indicates how concentrated the holdings are in the fund; if it’s over 45%, holdings are concentrated. 

Significant movement of a single stock in either way can influence the fund’s returns much more if it is a concentrated portfolio. Sector classification is another data point to watch; a diversified exposure to sectors helps reduce risk. Higher holding in sectors with good growth potential obviously will help boost returns.

For debt funds, sector classification takes a back seat. What is important is the ratings (AAA, AA, A, A1, etc) of the instruments held. It indicates the quality of papers the fund holds and the risk level. 

Lower quality papers (A and below) bring in higher yields but are far riskier than a fund that holds AAA papers. Here too, look at the extent of exposure to each instrument. High concentration in lower rated papers raises the risk level even more and may not be a good idea. Allocation to instruments – debentures, CD, CP, gilts is also important information.

Finally, you have the risk-return metrics of standard deviation, beta, and sharp ratio. Some AMCs may give additional metrics as well. Lower beta and standard deviation figures are preferable. Sharpe ratio, on the other hand, should be higher. These figures need to be compared with similar funds for you to draw meaning from it.

Apart from all these, the fact sheets also carry a monthly market commentary on the equity and debt along with their outlook. Dividend history of all schemes since inception will be listed at the end of the fact sheet.

For the wealth of information that it provides, the fact sheet is one document that cannot be ignored.

Share: