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Mutual fund fact sheet analysis is important before investing in any type of mutual fund scheme. It gives you information about the fund house, the composition of the scheme and where your money is going to be invested.

This article covers the following:

  1. What is a Mutual Fund Fact Sheet?
  2. What are the Components of a mutual fund fact sheet?
  3. Why is Mutual Fund Fact Sheet Analysis important?
  4. Key ratios involved in a mutual fund fact sheet analysis
  5. How to Interpret a Mutual Fund Fact Sheet?
  6. Conclusion

 

1. What is a Mutual Fund Fact Sheet?

A mutual fund fact sheet is a basic three-page document that is designed for the purpose of giving an overview of the mutual fund and its performance. It is beneficial for potential investors to go through this report to analyze and evaluate a mutual fund scheme and learn the pros and cons of the same.

A fact sheet provides an easy and comprehensible picture of the fund through simple description and illustrations through charts. It presents a good idea of a particular mutual fund to the investor who can take the first step towards considering whether to invest in a mutual fund or not. Mutual fund sheets are disclosed on a monthly basis.
 
Mutual Fund Fact Sheet
 

2. What are the Components of a mutual fund fact sheet?

The fact sheets generally give out information related to following aspects of a mutual fund scheme:

a. Fees

Mutual funds charge an expense ratio in order to manage your money on your behalf and to run the overall administration of the fund house. An investor can learn the details of fees involved in buying a mutual fund and how much to be paid to the fund manager.

b. Risk Assessment

Not every mutual fund is made for you. There may be mutual funds that are not appropriate for the certain type of investors depending on their risk appetite or financial standing. In order to assess the risk attached to the fund, the investor must assess his/her financial position in relation to the risk associated with the mutual fund.

c. Annualised Returns

Before selecting a mutual fund, it is very important to examine it from a returns standpoint. A record of returns earned by a mutual fund over a period of past 1,3,5 and 10 years is presented to give a picture of how the mutual fund has fared in the market over a period of time.
 

3. Why is Mutual Fund Fact Sheet Analysis important?

Mutual fund investments may often seem tricky and confusing to potential new investors, which is why it is advisable to equip oneself with detailed information of the know-how of investing in these schemes. Financial advisors can come in handy in providing the necessary and invaluable tips and advice. However, as an investor, it is imperative that one must take time and effort to ensure they possess a clear knowledge of their investments’ performance in these mutual funds.

Mutual fund fact sheets, to this very effect, come in handy for investors to keep track and remain well informed of their mutual fund investments. The factual data and information these fact sheets contain help investors to gain an overview of the portfolio and a close insight into the performance of these funds.

 

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4. Key ratios involved in a mutual fund fact sheet analysis

 

Portfolio Turnover Ratio Measures the funds trading activity
Expense Ratio Cost of managing the funds
Beta Measures funds volatility compared to the benchmark
Sharpe Ratio Measures funds’ performance compared to the risk taken
R-squared Measures relationship between portfolio and the benchmark
Information Ratio Measure of risk-adjusted returns of the funds

 

5. How to Interpret a Mutual Fund Fact Sheet?

A mutual fund fact sheet contains a plethora of information one should look into and consider before making an investment. This information pertains to following aspects of the mutual funds:

a. Basic Information

This provides general information about the fund such as its objective, options, plan, net asset value, the minimum amount to be invested and data related to assets managed. Suitability of a particular product is highlighted by fund’s ‘product labeling’ and risk associated with a particular fund is given by ‘riskometer’.

b. Performance details

By providing the funds’ historical performance data, a clear picture is obtained of how the fund has fared in the market across time frames. This can be further compared to the individual fund’s benchmark and the market benchmark. These may include the graphical representation of the annual performances along with prescribed performance tables.

c. Information about Fund Managers

A fund manager’s expertise in the handling of portfolios is a very decisive factor in the effective managing of the investment. A fund manager’s experience and qualification are available in the factsheet for investors to know then better. Their performance in handling portfolios across time is listed alongside.

d. Portfolio Attributes

Equity/Hybrid Funds Debt Funds
Asset Allocation:

Talks about different asset classes in a portfolio – equity, debt, and cash

Credit Quality:

Debt funds are classified according to its credit ratings

Company and Sector Allocation:

Informs about the concentration level of funds in sectors and company stocks, whether the funds are concentrated on fewer stocks or diversified across stocks.

Instrument break-up:

Gives information on allocation to various debt instruments

Quantitative Data such as:

Average maturity period for debt securities in the portfolio

The modified duration which is the measure of the price sensitivity of the debt portfolio to interest rate changes.

Yield to maturity indicating returns earned from interest and annual gain/loss from bonds till the time of maturity.

Fact sheets can be a reliable guide for investors as the financial markets are subject to unpredictable fluctuations and volatility. Always use it to spread or mitigate risks and for diligent investment decision making.
 

6. Conclusion

Many a time investing in mutual funds might be a jittery activity. It involves analysis of numerous qualitative and quantitative factors across different time intervals. Additionally, you need to keep your financial goals, risk appetite and investment horizon in mind. In case tracking financial markets isn’t your thing and you are finding it too difficult to understand, then just go for ClearTax Save. You can invest in hand-picked funds in a hassle free and paperless manner.

 

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