Posted on 6/7/2023 6:30:00 PM

Mutual funds are an appealing investment option for all types of investors. They offer access to the full suite of asset classes, allowing investors to invest based on their risk appetite. However, like with every investment, investors must know the ins and outs of a mutual fund to gain maximum benefits. This is where the mutual fund factsheet comes in handy.

A mutual fund factsheet can address many questions investors may have when investing in a mutual fund scheme. It provides a thorough overview of the scheme.

What is a mutual fund factsheet?

A mutual fund's purpose or philosophy, options {growth or Income Distribution cum Capital Withdrawal (IDCW)}, net asset value (NAV) of each plan, plans (direct and regular), the minimum investment requirement, systematic features (SIP, SWP, STP), assets under management (AUM), etc. statistics are covered in the factsheet.

By reading the factsheet, investors can take the first step and decide whether to invest in a mutual fund scheme. It gives readers a clear and concise image of the scheme through a brief description and visual representations in the form of charts. Monthly mutual fund fact sheets are made public.

Main components of the mutual fund factsheet

1. Risk assessment

Depending on an investor's risk tolerance or financial situation, some mutual fund schemes might not suit the investor's risk profile. Investors must evaluate their financial situation regarding the risk linked with the mutual fund scheme to determine the risk attached.

2. Portfolio allocation

A portfolio that is changed frequently over a year will result in more significant transaction costs for the fund. Portfolio turnover rates are often greater for aggressively managed mutual fund schemes than conservative ones

3. Performance analysis

The specifics of a mutual fund scheme's past performance are also essential. This section compares scheme returns, SIP returns, returns vs the benchmark, and the market's total return over one, three, five, or 10 years, or since inception.

4. Fees

To manage investors' investments on their behalf and conduct the scheme's general operations, mutual funds charge an expense ratio. A potential investor can find out the specific costs associated with purchasing a mutual fund and how much should be paid to the fund manager.

5. Basic scheme information

The basic scheme information section of a mutual fund factsheet provides information about the scheme's AUM (assets under management), minimum investment quantities (for a lump sum and SIP) and exit loads. The goal, category of the scheme (large, small, mid, multi-cap, etc.), Net Asset Value (NAV), and plans and options(Direct, Growth, IDCW, etc.) of the scheme are also included here.

Key ratios involved in the mutual fund factsheet

Key ratios


Standard deviation

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. It is applied to the annual rate of return of an investment to measure the investment's volatility.

To simplify, standard deviation indicates how much the returns of a mutual fund scheme may deviate from its average historical returns.

Sharpe ratio

The Sharpe Ratio is a measure for calculating risk-adjusted return. It is the average return earned in excess of the risk-free rate per unit of volatility or total risk. The ratio is useful in determining to what degree excess historical returns were accompanied by excess volatility. The bigger a portfolio's Sharpe ratio, the better its risk-adjusted performance. If the benchmark rate is greater than the portfolio’s historical return it’s called a negative sharpe ratio. Otherwise, the portfolio return would probably be in negative.


R-squared is a statistical measure of how closely the portfolio returns are correlated with its benchmark. It interprets the percentage of the scheme’s/security’s price movements that can be explained by the movement in the benchmark index.

R-squaredis usually reported as a number between 0 and 100. If a mutual fund scheme is with an R-squared of 0, it has no correlation to its benchmark at all. Whereas, if a mutual fund schemehas an R-squared of 100, then the scheme’s performance would exactly match the performance of its benchmark.

Tracking error

The standard The annualised standard deviation of the difference in between the Index Fund and the Target Index. For example, in the previous year ‘XYZ Index’ returned 10% while the ‘ABC scheme’ tracking the index returned 9.7%. Here the tracking error would be 9.7% - 10% = -0.3%.

Lower tracking error schemes offer returns that are generally in line with the benchmark indices.

Expense ratio

Total Expense Ratio is the percentage of a scheme’s average Net Asset Value. It usually indicates how much the scheme charges to manage your investment portfolio. Choosing a scheme shouldn't be based only on its expense ratio. Even though a scheme has a higher expense ratio, investors shouldn't shun it. Higher expense ratio schemes are considered to offer better returns than lower ratio schemes.

Importance of mutual fund factsheet

•  Before investing, prospective investors should thoroughly examine a mutual fund scheme. They can better grasp risk, return, the scheme's objective, portfolio allocation, etc., with a mutual fund factsheet.

Investors can then choose only those schemes that fit their investment objectives and avoid others by carefully reading a factsheet.

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

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