How to read Mutual Fund fact sheet
Fact sheet is a monthly report published by the asset management company (AMC) and contains critical information pertaining to a fund's portfolio, performance as well as the investment style. Some AMCs also publish a fund manager's views on the future of equity, debt and money markets in their fact sheets.
It acts as a guide for both existing and prospective investors as it enables them to track the performance of various schemes managed by the AMC. Let us consider the information that is given in equity and debt funds' fact sheet:
Debt funds: The critical components of a debt fund fact sheet are
Average maturity: This should be analysed over a period of time. It gives significant insights into the fund manager's views on the future direction of interest rates. As the performance of debt funds is inversely related to the direction of interest rates, the average maturity is of utmost importance. If this figure is consistently high (over a period of time), it implies that the manager expects the interest rates to fall in the future, and vice versa.
Rating profile: Debt funds invest in securities with different credit ratings, such as AAA, AA+, and these determine the fund's risk profile. The funds that invest a majority of their corpus in low rated debt instruments are prone to high credit risk, which can affect their performance considerably.
Some of the constituents that appear in the fact sheets of both equity and debt funds are:
Investment objective: The objectives provide an overview of the scheme to the prospective investor.
Performance: The fact sheet carries the past returns of the fund. The name and the corresponding performance of the benchmark index is also provided. Investors must consider the performance of the fund relative to its benchmark as the funds that perform better than the benchmarks are considered to be out performers.
Asset allocation: It gives the proportion of assets allocated to different classes, such as equity, debt, cash or money market instruments. Asset allocation helps determine whether the fund is following the investment style as stated in its offer document. For example, holding a high proportion of assets in cash during a bull market can prove to be detrimental to the performance of equity funds.
Equity funds: The vital components of an equity fund fact sheet are:
Stock allocation: It lists the individual stocks in which the fund has invested its corpus. The proportion of money put in such stocks is also mentioned. Equity funds invest in a large number of stocks, but investors must consider the top holdings (8-10 stocks) of the fund's scheme to determine its level and extent of diversification. The funds that allocate a very high proportion of their corpus (usually more than 45%) to just 8-10 stocks can prove to be volatile as their NAVs will be significantly affected by the performance of such stocks.
Sector allocation: This is important as equity diversified funds should invest across sectors to derive the maximum benefit from diversification. The funds that consistently allocate a substantial proportion of their assets to a single sector are more likely to be affected by industry factors.
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