The factsheet which can be availed from respective AMC websites or fund houses every month can help track the scheme performance and its holding details.
If you are investing in mutual funds you should study the scheme dynamics in details to choose the best fund that suits your requirement. Among the things you should know is the objective of the scheme and its holdings to understand whether they are on the right track with the right investments.
You should also know the holdings, trailing returns and asset allocation of your mutual fund scheme. Knowing all this will help you comprehend the weight of stock and fixed income present in your fund. Since market volatility varies as per the benchmark of the scheme, it is important to know the fund's benchmark in order to track the accurate returns of your scheme. These would give you an indication of how much risk your scheme contains.
A good way to know a scheme is going through the mutual fund factsheet to understand and track its performance. Reading the funds factsheet every month, which can be availed form respective AMC websites or fund houses where you have made your investments can help you know the computation of returns and its frequency along with the benchmark.
Ajit Narasimhan, Head—Savings and Investment, BankBazaar.com has explained few implications that how reading mutual fund factsheets can be helpful to investors in understanding their schemes much better.
Fund performance: You essentially invest in mutual funds to grow your investment and beat inflation. The fund performance lists out the how the returns the fund has been generating, as well as how well the fund has been performing against its benchmark over a period of time. A fund that consistently outperforms index and benchmarks, grows faster and gives higher returns and can be a good option.
Information about the portfolio: As an investor, you should invest in schemes and funds to get the best returns. A mutual fund scheme would invest in more than one sector because concentration in one sector can make the fund more prone to higher volatility. The details of the portfolio give a picture of where and how effectively your money is being invested.
Gives information about operational features: Portfolio turnover ratio tells the investor how much churn the fund’s portfolio has seen over the period of review. It is based on the number of shares bought or sold as a percentage of the fund’s stock portfolio. High portfolio turnover indicates high transaction or trading costs and impacts the return for the investor. A growth fund can have a high turnover ratio but a value fund should typically have a lower churn. A high churn is not necessarily a bad thing always. Typically, if the portfolio turnover of your fund is increasing but not your return on investment (ROI), then you have cause to worry.
Similarly, the expense ratio is capped at 2.5% of the fund value. Higher the expense ratio, the more expensive your mutual fund investment is. Fund management expenses form the largest chunk of the expense ratio. These must decline with a rise in net assets. So there is more scope for larger equity funds to reduce their expense ratios.
Gives an overview of market and outlook of fund managers: Investors should know the fund manager(s) is managing their funds. This can help them look at other schemes managed by the fund manager and the performance of the schemes managed by them. It is usually preferable to have a team instead of a single fund manager as the chances of drastic changes in fund management pattern due to attrition are less likely. When the same names manage your money, over a period of time there is stability in the fund management process.
Mutual fund factsheet may also help you in understanding the comparison of schemes within the fund and across the fund houses while investing money in any number of schemes. This can also guide you whether you are required to change/ modify your risk taking capacity while further investing your money in other mutual fund schemes.
