Thread by @FinsenseG

Factsheet of a Mutual fund scheme is the most important document which should be read by an investor before taking a call on investing in it.

A thread on "How to read a Factsheet of Equity Scheme"

#mutualfunds

Investment Objective: This indicates the objective of the scheme and also gives an idea about where the scheme is going to invest. In above case, the scheme is planning to invest predominantly in large cap stocks as it is a Large cap category fund.

Date of Allotment: Launch date or NFO date of the scheme.

AUM: Asset Under Management is the total amount of money being managed under the scheme.

Benchmark: It is the market index. It could be Nifty 50 or any other index. This is important as the factsheet contains information regarding scheme performance vs benchmark. If the scheme delivers better returns than benchmark, it has out-performed the benchmark and vice versa.

Standard Deviation: It refers to the volatility of returns in a scheme from it's average. If the average return from scheme is 8% and standard deviation in 5%, then the investor can expect the return to be between 3% and 13%. Higher standard deviation implies greater volatility.

Beta: Beta is the measure of volatility of scheme compared to market. A beta of less than 1 indicates lower volatility than index and vice versa.

Portfolio Turnover: Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the managers.

It can be denoted by times (No. of times the total portfolio has been churned) or percentage (Percentage of AUM shows churning in the fund in past one year). Higher the ratio, more will be the costs incurred in brokerage and taxes and lower will be the returns.

Sharpe Ratio: It is a measure of risk adjusted return generated by scheme vs risk free return. It is calculated as (Scheme return - Risk free return (Eg: RBI T-bill))/Standard Deviation. Generally higher sharpe ration indicates better risk adjusted returns generated by scheme.

Exit Load: Exit load is a cost that an investor needs to bear if he or she sells the mutual fund units before a predefined time frame. This information is mentioned in factsheet and investor should check to get a sense of actual money receivable on redemption.

Entry Load: It is the expense to be borne by unit holder to buy units in scheme. Entry load has been removed by SEBI.

Tip: You can get more details regarding the number of shares held by scheme in each company by downloading Monthly Portfolio Disclosure from AMC website.