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While investing in a mutual fund, investors may have numerous questions in their minds, and a mutual fund factsheet can answer many of them. A mutual fund factsheet is a comprehensive picture of the fund.

What is a Mutual Fund Fact sheet?

A mutual fund factsheet is a document containing necessary information about a mutual fund/scheme. It represents the crucial details of a mutual fund through descriptions, figures and illustrations to make it easy for investors to understand. 

All the fund houses send mutual fund factsheets to their existing investors. Moreover, they also need to make it available on their official websites for easy access by potential investors.

Importance of a Mutual Funds Fact sheet

  • For potential investors, it is necessary to check a mutual fund from various aspects before investing. A mutual fund factsheet helps them to understand the risk, return, the objective of the fund, portfolio allocation, etc.
  • With growing awareness about investments and the active promotion of mutual fund schemes, some investors may get trapped by the misspelling of mutual funds. Carefully reading a factsheet may help them understand the pros and cons of a scheme, which may help them too choose only those that suit their investment objectives and avoid others.

Components of a Mutual Funds Fact Sheet

1. Basic Fund Information

A mutual fund factsheet usually contains the following basic information about the fund. 

  • The fund’s investment objective, which could be to generate capital appreciation, provide regular income, offer liquidity to investors, etc.
  • Category – Like equity, debt or hybrid scheme, and sub-categories like large-cap, mid-cap, small-cap, multi-cap equity scheme, conservative hybrid scheme or aggressive hybrid scheme, etc.
  • Type of scheme – for instance, open-ended, close-ended or interval scheme, growth funds or income funds or liquidity funds, etc.
  • Benchmark index against which the performance of the scheme can be compared.
  • Exit load, which means the charges that an investor would need to pay for redeeming mutual fund units or exiting the mutual fund scheme.
  • Riskometer, which indicates the level of risk involved in the concerned mutual fund. The needle of the risk-o-meter points to the amount of risk involved, which can be low, low to moderate, moderate, moderately high, high or very high.

2. Details About the Fund Manager

The mutual fund factsheet includes details about the fund manager’s qualifications and experience. It may also contain information about historical returns of the funds managed by the fund manager. 

It is important to know these all because fund managers will analyse market trends, make investment strategies and ensure legal compliance. They are going to make investment decisions, which can have a significant impact on returns generated by mutual funds. Well-qualified and well-experienced fund managers are likely to make better investment decisions.

3. Portfolio Allocation

Mutual funds involve an investment of pooled money across various assets and sectors. The mutual fund factsheet constitutes crucial information about the portfolio allocation, which can give you the answer to the following questions: 

  • In which assets is the money being invested? 
  • What percentage of net assets is invested in which assets/securities?
  • In which industries/ sectors is the money being invested?
  • What percentage of net assets is invested in which industries?
  • What percentage of net assets is invested in which companies? 
  • How much cash is idle?

4. Performance Analysis

Another crucial part of a mutual fund factsheet is the details of the fund’s historical performance. Usually, this part includes a comparison of scheme returns, SIP returns, returns against the benchmark, and the overall return of the market for one year, three years, five years, ten years or more. 

Key Ratios and their Significance in a Mutual Funds Factsheet

A mutual fund factsheet includes the following key ratios that can impact the performance of the concerned scheme/fund.

1. Standard Deviation

A mutual fund’s standard deviation is the measure of its volatility. It shows how far the fund’s returns can deviate from the average returns generated by the fund. 

It is important to check the standard deviation because it signifies the risk factor and potential returns of the concerned mutual fund. You may also compare the standard deviation of funds within the same category to make a wiser investment decision.

2. Beta

Beta is a measure of volatility in mutual fund returns compared to the benchmark. When standard deviation tends to show the overall risk, beta shows the fluctuations in mutual fund returns against market movements. 

You can check the beta of a mutual fund to know whether it is suitable for your risk tolerance level.

3. Sharpe Ratio

Sharpe ratio is a metric showing the return generated by the mutual fund over a risk-free rate. It indicates whether a mutual fund is performing well or not for the risk it inherently carries. 

You may check and compare the Sharpe ratio of mutual funds belonging to similar categories or offering similar returns to determine which fund can offer better returns for the amount of risk undertaken.

4. R-squared

The R squared ratio is a metric that explains a fund’s performance compared to the benchmark. Its value ranges from 0 to 100 bps, where a value near 100 shows the fund’s performance has a high correlation with the index it follows and vice versa.

5. Expense Ratio

The expense ratio measures expenses incurred for the mutual fund compared to the total value of assets in the funds. Total expenses include administrative expenses, management and distribution costs. 

If two funds have a similar value of assets under management, the expense ratio can show which fund uses lower resources to manage the same assets.

How to Interpret a Mutual Fund Factsheet?

Here are some points you can consider while reading the mutual fund factsheet.

  • If the fund’s objective, degree of risk and expected returns align with your investment objective, you may consider investing in it.
  • If the fund managers are not well-qualified or well-experienced, the performance of the mutual fund portfolio may be affected.
  • Sudden or frequent changes in the fund management team may affect fund performance.
  • Comparing a mutual fund’s various aspects with its past performance and with the funds in a similar category can help you better understand the firm’s performance.

Here is what these ratios suggest about a fund.

Standard deviationA higher standard deviation of a mutual fund suggests higher volatility.
A lower standard deviation of a mutual fund suggests lower volatility.
BetaA beta of more than 1 shows higher volatility, and less than 1 shows lower volatility of the fund relative to its benchmark.
A beta of 1 means the fund is as volatile as the benchmark index.
Sharpe ratioA higher Sharpe ratio suggests a higher risk-adjusted return.
A lower Sharpe ratio suggests a lower risk-adjusted return.
R-squaredR-squared of 0 means unrelated to the benchmark.
R-squared between 1-40% means the fund has a lower correlation with the benchmark index.
R-squared between 40%-70% means the fund has a moderate correlation with the benchmark index.
R-squared between 70%-100% means the fund is highly correlated with the benchmark index.