Know How To Read A Mutual Fund Factsheet

Mutual fund factsheets provide essential insights into a fund’s performance, portfolio, key ratios, and other vital details. Understanding factsheets helps investors track investments, analyse risks, and make informed decisions. Prajwal Wakhare explains how to read a factsheet [EasyDNNnews:PaidContentStart]

Recently, mutual fund mis-selling cases have increased so much that most new investors either end up with expensive funds or invest in the wrong funds. The primary reason is investors’ lack of proper knowledge about mutual funds. However, you can avoid these issues if you know three things: 

1. Understand all the terms related to mutual funds.
2. Tracking mutual fund schemes through reading the factsheet.
3. Carefully analysing the ratios that affect mutual funds. 

In this article, we will discuss all the above-mentioned aspects, focusing more on understanding a fund by reading its factsheet with an example. Investing in mutual funds is just a first step. After you invest, you need to keep track of the actual performance. Knowing the performance of your investment is essential to deciding whether to stay invested (and even to put in additional money) or make an exit. It is not necessary to check the performance of your investment daily, but keep a check periodically. Being aware of the progress of your investment is good practice, just like everything from your car to your body, which need to undergo periodic check-ups. 

Tracking Mutual Fund Investments Using Fund Factsheet
A mutual fund factsheet is a basic one-page document that gives an overview of a mutual fund scheme, with special emphasis on disclosure of scheme performance and portfolio. Each mutual fund house publishes the factsheet every month. It is like a report card that indicates the health of the scheme. It keeps investors informed and updated about important fund details. With clear formatting and easy-to-understand data, these factsheets serve as a great starting point for investors who want to make the right investment decision. 

The mutual fund factsheet consists of five sections:
1. Basic information about the scheme
2. Fund manager’s details
3. Portfolio aspects
4. Quantitative and volatility measures (key ratios)
5. Performance aspect. 

We have taken the HDFC Mutual Fund’s factsheet to understand how to read a mutual fund factsheet. The factsheet is almost always available as a PDF on the website of mutual fund house. 

Let’s use the HDFC Balanced Advantage Fund Scheme as an example to understand how to read a mutual fund factsheet. As of November 30, 2024, it had the highest assets under management among all the mutual funds in India. Let’s start reading the factsheet. 

A mutual fund factsheet gives detailed information about the fund, such as its name, investment objective, date of inception, available options (growth or dividend), plans (direct or regular), and net asset value (NAV) for each plan showing the value of each unit of fund scheme, total expense ratio (TER) showing the cost of managing fund and which benchmark the fund is going to compare with. It also shows the assets under management (AUM), which indicates the total funds that the fund manager manages under the scheme. 

1. Basic Information about the Scheme
The following exhibit shows the basic information about the HDFC Balance Advantage Fund Scheme. As given below, the fund started on February 1, 1994, and it has both growth and dividend options and regular and direct plans mentioned with their NAVs. The fund had ₹95,569.87 crore assets under management as of November 29, 2024, which is the highest among all the mutual fund schemes in India. The average AUM for November 2024 was ₹94,453.15 crore. 

Investment Objective : To provide long term capital appreciation / income from a dynamic mix of equity and debt investments. There is no assurance that the investment objective of the Scheme will be achieved.
 

Referring to the data below, the fund has a total expense ratio (TER) of 1.35 per cent for regular plans and 0.75 per cent for direct plans. This indicates that the asset management company (AMC) charges 1.35 per cent of the net asset value (NAV) to regular plan holders and 0.75 per cent to direct plan holders as fees. The fund follows its benchmark, the Nifty 50 Hybrid Composite Debt 50:50 index, to measure its performance against it. This scheme has an additional benchmark index, Nifty 50, where the fund’s performance is also measured against the Nifty 50 index. As this fund falls under the Hybrid Fund category, it has mentioned its exposure to the equity portion, which is 53.33 per cent as of November 30, 2024. 

Understanding the fund’s exit load is important. Exit load is a fee charged on the NAV if an investor withdraws funds within a specified time. This fee discourages early withdrawals. Different funds have different exit load structures. The given fund allows withdrawals of up to 15 per cent of units annually without any exit load as shown below. Beyond this limit, it charges 1 per cent for withdrawals within 12 months and none thereafter. 


Source : HDFC Mutual Fund Factsheet

The factsheet includes the fund’s product labelling and risk-ometer. The product labelling shows the suitability of the fund scheme to the investor type, ideal investment duration, and focus. The risk-o-meter rates the fund’s risk from low to high. For example, the HDFC Balanced Advantage Fund, a hybrid fund, typically falls under ‘moderately high’ or ‘high’ risk, which suits investors comfortable with higher risk and those who want to invest for the long term and in a mixed bag of equity and debt. 

2. Fund Manager Details
In the world of investments, a mutual fund is like a ship, and the fund manager is its captain. The success of your journey depends on the fund manager’s skills. That’s why it’s important to know about the fund manager. A mutual fund factsheet shares details about the manager’s experience and qualifications. You can also check their past performance by looking at the track record of the other funds they manage. 

3. Portfolio Aspects
Portfolio aspects to check in a factsheet depend on the basis of the category of the fund where it can be equity, debt or hybrid. Asset allocation highlights the exposure to different asset classes - equity, debt and cash - in a portfolio. In our example, the factsheet shows the detailed asset allocation of the portfolio as it is a hybrid fund. 

Note: Equity exposure refers to the part of portfolio that is invested in direct equity. On the other hand, equity allocation shows the total investment in the equity asset class, including equity derivatives, equity mutual funds, ETFs and other equity-related instruments. 

Portfolio holdings and sector allocation inform investors about a fund’s concentration level in sectors and stocks. An aggressive fund manager may have high concentration among fewer companies and sectors, which may not be appropriate for investors seeking diversification. Investors should check whether the fund has taken higher-than-prudent exposure to riskier sectors or low-quality stocks. We have shown the top eight portfolio holdings of HDFC Balanced Advantage Fund with the industry allocation of the equity portion. The factsheet contains a detailed portfolio. 

Key Portfolio Aspects for Debt Funds
■ Credit Quality Profile: Debt funds risk is based on their credit ratings, such as AAA, AA+, or A1+, given by credit rating agencies. Funds with more investments in AAA rated long-term debt and A1+ rated short-term debt are considered safer and have better credit quality. Conservative investors should check if the fund manager is increasing exposure to lower-rated debt to boost returns. While these lower-rated papers may offer higher yields, they come with greater credit and liquidity risks compared to the top-rated papers. 

■ Instrument Allocation: This section shows how the fund’s money is distributed among different debt instruments like commercial papers (CPs), certificates of deposits (CDs), non-convertible debentures (NCDs), bonds, gilts, and cash equivalents. Investors should ensure that a significant portion is invested in short-term instruments like CPs and CDs for short-term debt funds like liquid, ultra-short-term, or short-term funds. Long-term instruments like gilts and bonds are more sensitive to interest rate changes. A higher allocation to these in short-term funds could increase risk. 

4. Performance Aspects
Past performance doesn’t guarantee future results, but it can give you a general idea of how a fund might perform. This section reviews the fund’s returns, both lump sum and SIP, over various time periods and compares them to the fund’s returns and market benchmark returns. Many fund houses also provide graphs showing the fund’s calendar year performance, along with standard SEBI-prescribed performance tables. 

5. Quantitative and Volatility Measures (Key Ratios)
The factsheet includes risk-return measures that are important to understand for their role and impact. However, no single ratio should be evaluated alone; a combined analysis gives a better understanding. The following figure shows the risk ratios of the HDFC Balanced Advantage Fund and below that we have explained each and every ratio in the table. 

Conclusion
Mutual fund factsheets are to be read by the average investor, so you don’t need financial knowledge to understand them. The document concisely explains the benefits and risks of that particular mutual fund. So, have you read the factsheet and feel confident in your decision to purchase? Don’t jump the gun just yet. You must also check the mutual fund prospectus, which contains much more information than the factsheet. 

You should review your mutual fund’s strategy, performance and fees at least quarterly to stay informed about any changes, but checking it monthly keeps you updated about your investment well. You don’t have to be a market wizard to stay on top of how your mutual funds are doing. All investors need to begin learning somewhere. A mutual fund factsheet is a great place to start, providing the most important information on a fund—from its size and holdings to fees and strategy—before you decide to invest. 

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