Mutual Fund Factsheet - Meaning, Features and Advantages

What is a Mutual Fund Factsheet?

A Mutual Fund Factsheet is one of the guides/ documents containing all the information for analyzing the mutual funds before making a decision pertaining to investment. It may not contain all the requisite information of all the mutual fund schemes offered by the fund houses because there is no fixed format that is followed by fund houses for the factsheet. 

Who uses the Mutual Fund Factsheet?

This document may be used by investors, fund distributors, fund rating agencies, research analysts, media and others to access information about the various schemes of the mutual fund. While it is not a regulatory requirement to publish the monthly fact sheet, it is a market practice followed by all the fund houses, on a voluntary basis. Since the fund factsheet is a marketing and information document, various SEBI Regulations and advertisement norms prescribed under sixth schedule of (SEBI Mutual Funds) Regulations, 1996 are applicable to it. Apart from this, AMFI has also provided a circular on the best practices guidelines to be followed by mutual funds for standardization of information in factsheets.

What is the information available in the Mutual Fund Factsheet?

The factsheet usually provides information on the Schemes offered by Mutual fund houses – its objective, options (growth or dividend), plans (direct and regular), net asset value (NAV) of each plan, minimum investment amount, and assets under management (AUM) data. It may also contain the fund’s performance relative to the benchmark provided for the different periods along with the benchmark returns, as required by SEBI’s regulations. The factsheet also provides portfolio allocation to different sectors and securities in case of equity oriented schemes. All the data provided in the factsheet is usually as on a month end.

In the factsheet, security wise as well as sector wise allocation may also be provided for equity schemes. Some factsheets also disclose the derivatives exposure taken by the mutual fund schemes. In the debt funds, the fact sheet discloses the rating profile of the various securities, and a snapshot of exposure of the scheme to various rating baskets. It also provides various ratios such as portfolio turnover ratio, Beta ratio, Sharpe ratio etc.

Investors can also look at the fund's product labeling and riskometer. Product labeling underlines product suitability for investors. The suitability of the scheme depends upon multiple factors such as the financial need of the investor from the investment, the risk and return preferences, the investment horizon and other individual preferences. Riskometer is a presentation that helps investors measure the risk associated with the scheme. It presents various levels of risks - low, low to moderate, moderate, moderately high, high and very high.

Some of the key Ratios and terminologies in the factsheet and their significance

1. AUM: AUM or assets under management refers to the recent / updated cumulative market value of investments managed by the scheme’s fund manager.
2. NAV:The NAV or the net asset value is the total asset value per unit of the mutual fund after deducting all related and permissible expenses. The NAV is calculated and disclosed at the end of every business day. It is the value at which the investor enters or exits the mutual fund.
3. Exit Load:Exit load is charged at the time an investor redeems the units of a mutual fund. The exit load is reduced from the prevailing NAV at the time of redemption. The investor will receive redemption proceeds at NAV less Exit Load. For instance if the NAV for one mutual fund unit is Rs. 100 and the exit load is 1%, the investor will receive Rs. 99 per unit.
4. Portfolio Turnover Ratio: Portfolio Turnover Ratio is a metric that measures the frequency at which securities in a portfolio are bought and sold. This ratio measures the fund’s trading activity, which is computed by taking the lesser of purchases or sales and dividing by average net assets of that period.
5. Expense Ratio: Total expenses charged to the scheme for the month expressed as a percentage to average monthly net assets.
6. Tracking Error:Tracking error indicates how closely the portfolio return is tracking the benchmark Index return. A lower tracking error indicates portfolio closely tracking benchmark index and higher tracking error indicates portfolio returns with higher deviation from benchmark index returns. This is majorly disclosed for passive schemes.
7. Benchmark: A group of securities, usually a market index, whose performance is used as a standard or benchmark to measure investment performance of mutual funds.
8. Modified Duration: Modified Duration is the price sensitivity and the percentage change in the price for a unit change in the yield.

Components of the mutual fund fact sheet

According to the AMFI Best Practices Guidelines Circular No. 61/2015-16, on Standardization of Information in Factsheets, this is the data to be reflected in the factsheet:

Category
1. Scheme Name
2. Investment Objective 
3. Type of Scheme
4. Name of FM/experience
5. Date of Allotment
6. Average AUM
7. Latest AUM as on the factsheet date
8. Latest NAV per unit
9. Load information
10. Benchmark

Expense Ratio
1. TER Direct
2. TER Regular

Dividend History - Other than Daily/Weekly
Dividend to be published other than Daily/Weekly/Fortnightly

Portfolio Data
Investment in securities
Allocation by sector for equities
Allocation - Asset as well as rating-class for debt

Quantitative/Volatility Measures
Standard Deviation for equity fund
Beta for equity fund
Sharpe ratio for equity fund
Portfolio turnover for equity fund
Modified duration for debt fund
Average maturity for debt fund
Portfolio YieldTracking Error

Fund Performance/Returns
Reflect returns for both liquid and non-liquid funds
SIP Returns 

Conclusion

In conclusion, the Mutual Fund Factsheet may be a  crucial document for investors and analysts, offering a comprehensive overview of a mutual fund's performance, structure, and risks. It includes vital information such as the fund’s objectives, portfolio allocation, historical returns, NAV, AUM, expense ratios, and risk indicators like the riskometer. Investors may use the factsheet to assess the fund’s performance against benchmarks, understand the level of risk, and make informed investment decisions. While it is not a mandatory regulatory requirement, fund houses voluntarily provide this document, making it a key resource for transparency and decision-making for investors.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully

Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.

Published on Nov 24th 2024