Mutual funds sometimes get complicated, especially for novice investors who are unsure where to start. That is why mutual fund houses publish their fund factsheet each month containing information about their different schemes and performance. Fund factsheets contain details in precise format for investors’ easy reference. Simply put, these factsheets work as the investors’ guides to track their mutual fund schemes’ performances to make informed decisions.
However, factsheets often do not contain all the necessary information, leaving room for improvement. Here, we highlight the top five essential components a fund factsheet must include to help an uninformed investor make informed decisions.
- Investment Objective
A fund factsheet must outline the investment objective of a mutual fund scheme, along with its standard investment principles. This information is critical since the mutual fund’s investment objectives should also comply with the investor’s investment goals. For instance, equity funds have wealth creation as their primary investment objective, while regular income and capital preservation are the direct purposes of debt-oriented mutual funds.
- Fund and Manager Details
The fund factsheet must comprise basic details regarding the fund in question, including its inception date, AUM (Assets Under Management), NAV (Net Asset Value), and average monthly AUM. It must also mention the minimum amount for investment, ideal horizon, and exit load. Besides these vital fund details, the factsheet must also contain information regarding the fund manager.
The fund manager pilots a mutual fund scheme and handles its investing decisions. Consequently, information about the fund manager’s industrial expertise and qualifications can help investors feel security in the scheme’s prospect and invest more confidently. The fund factsheets contain information about other mutual fund schemes the manager handles, giving investors an idea of their performance.
- Portfolio and Performance
A fund factsheet must definitely contain information about the fund’s portfolio and performance. It helps the investor get an idea of the portfolio’s composition, mainly if it includes the companies or securities with enormous portfolio shares along with their share percentage. It must also contain sector allocation as an overall fund’s percentage, enabling investors to compare it with their benchmarked sectoral allocation. It helps an investor determine if the mutual fund concentrates excessively on a specific sector or company.
Although a fund’s past performance does not impact its future performance, knowledge of its past performance gives investors an idea of how it performed under certain conditions. The fund factsheets must provide the funds’ returns in one, three, and five-year periods, in addition to its returns since its inception. Besides that, it must include its benchmark index’s performance, allowing investors to compare its performance with the benchmark.
- TER (Total Expense Ratio)
TER refers to the annual expense an investor pays to the fund manager for operating and managing the fund. Usually, it is a set percentage of the assets the fund manages on behalf of the investor. It includes the operational costs, marketing expenses, and fund manager’s fees. Regular plans’ TER is higher than the direct plans, probably because it also includes the distributor’s charge.
Besides the TER, the fund factsheet must also include crucial ratios related to the mutual fund scheme, including the Sharpe Ratio, Beta, Dividend Shield, Portfolio Turnover Ratio, Standard Deviation, etc. For debt-oriented funds, having information about the fund’s average maturity, duration, and Yield to Maturity (YTM) helps. These enable investors to evaluate a fund’s performance and make informed decisions.
- Risk Involved
Every fund factsheet must include the percentage of risk involved in a mutual fund scheme. The risk meter may categorize the risk into very high, high, moderately high, moderate, moderately low, and low. A graphical representation of the risk involved helps an investor better understand the danger of investing in a mutual fund scheme. With this information, they can make their investment decisions according to their risk tolerance based on their capital availability.
Creating and evaluating a fund factsheet helps investors assess their condition accurately, collect information, and choose the best course of action. That is why it is essential to include all these components while creating fund factsheets. They help determine if an investment is worth the capital rather than going with instinct. Investors must carefully review the monthly factsheet and weigh it against their future plans and current portfolio.