How to Read a Mutual Fund Factsheet for Better Mutual Fund Analysis
Past returns alone don't reveal how a fund is managed or the risks involved. A mutual fund factsheet is a monthly document published by every Asset Management Company (AMC) that provides key information about a scheme, including its portfolio, performance, expenses, and risk measures. SEBI requires AMCs to disclose these details regularly, helping investors make informed decisions. Look for:
1. Investment Objective
Start by reading the fund's investment objective. It explains what the scheme aims to achieve and where it primarily invests, such as large-cap stocks, debt securities, or a mix of asset classes. This helps determine whether the fund matches your financial goals.
2. Portfolio Holdings
Review the top holdings and sector allocation. A concentrated portfolio may carry higher risk, while a diversified portfolio spreads investments across multiple companies and sectors. The factsheet also shows the percentage allocation to each holding.
3. Performance Against the Benchmark
Compare the fund's returns with its benchmark across different time periods rather than focusing only on one-year performance. Consistent long-term performance relative to the benchmark is generally more meaningful than short-term gains.
4. Expense Ratio
The expense ratio represents the annual cost of managing the fund. Since this cost is deducted from the fund's assets, a lower expense ratio can improve long-term returns, especially for passive funds. The expense ratio is disclosed separately for Direct and Regular plans.
5. Risk Measures
Most fact sheets include metrics such as Beta, Standard Deviation, and Sharpe Ratio. These help evaluate volatility, market sensitivity, and risk-adjusted returns, giving a clearer picture than returns alone.
6. Fund Manager and AUM
Check who manages the fund and the Assets Under Management (AUM). While a larger AUM may indicate investor confidence, it should be considered alongside the fund's investment strategy and consistency.
Conclusion
Effective mutual fund analysis goes beyond checking historical returns. A factsheet brings together essential data on portfolio composition, costs, risk, and performance in one place. Reviewing these sections before investing can help you compare funds objectively and choose schemes that align with your investment goals instead of relying solely on recent returns.