Mutual funds are complicated investment assets, especially for investors who are new and unaware of the ins and outs of investing. New investors rely on their financial advisors to make investment decisions. Although advisors are integral in supporting an investor in their financial journey, investors also use fund factsheets to gain detailed information about funds they plan to invest in. A fund factsheet is a short document that fund managers prepare to help investors make financial decisions. It contains vital facts about a fund in a simple and easy format. These serve as starting points for uninformed, novice and timid investors.
Below are details that will help understand what a fund factsheet is, its importance and the information it holds.
An overview of a fund factsheet
A fund factsheet is an introductory document that provides an overview of a mutual fund. Potential investors refer to this easy-to-read report to make well-informed decisions before investing in a related fund. It is an excellent starting point to evaluate an investment, as it covers crucial aspects of a fund that every existing or prospective investor seeks. These include investment objectives, asset under management (AUM), benchmark, fund management, applicable exit loads, net asset value, and the minimum amount to invest.
Besides these, fund factsheets include essential parameters related to a fund’s risk and performance, such as beta, standard deviation, portfolio turnover, expense ratio and Sharpe ratio. It also shows holdings for the previous months across securities and sectors. In addition, it includes the fund’s performance history compared with its risk levels and benchmarks. In short, the document provides every critical piece of information that an investor should know before investing in a fund.
Importance of reading a fund factsheet
Every fund house publishes fund factsheets every month with the latest information about their funds. These documents are readily available on the websites of asset management companies and they contain vital information about the funds, including their market outlook, fund performance, portfolio composition, expenses, and comparison with benchmarks.
Considering the market’s dynamic nature and the plethora of information available on public domains, many investors are lost and find it difficult to make a final investment decision. This is when a fund factsheet becomes very useful.
Key information held by a fund factsheet
Listed below are key aspects provided by a fund factsheet:
Market outlook: Most investors form an opinion about a fund based on the market noise, which is not a sound investment strategy. Investors should invest for a long term; hence, investors have to stay in sync with the fluctuating market conditions to tread on the right track. A fund factsheet contains details about key factors related to the fund, including government policies, GDP, inflation and other factors that could affect market movements.
Investment objectives: This section provides precise information about a fund’s objectives and investment philosophy. Based on this information, investors can evaluate the fund’s compatibility with their financial goals.
Portfolio composition: The section contains information about the fund’s investment securities. It gives a complete overview of the fund’s portfolio, including detailed information on the stocks and sectors of equity funds. For debt funds, the section will include ratings for debt securities, indicating their risk exposure and average portfolio maturity.
Fund performance: Getting information on how a fund is performing is the basis of investing because the ultimate goal of an investor is to get higher returns. A fund factsheet comprises details of a fund’s performance in relation to its own benchmark, apart from the broader market index for equity funds. Comparing a fund’s performance with the benchmark indicates its overall performance since its inception. The investors or fund managers should carefully evaluate substantial differences between the fund’s performance and standards. The section also helps assess a fund’s performance amid different market conditions over different periods. Timely fund evaluation helps investors stay on course in their investment journey.
Information regarding the fund manager
Factsheets also contain information about fund managers, including their name, experience and management duration. The better the fund manager’s experience and standing, the higher the chances of delivering good returns.
With the help of fund factsheets, an investor does not necessarily have to be a market expert to make investment decisions. These documents come in handy while looking for relevant information in an easily comprehendible format. Going through a factsheet provides investors peace of mind and helps them make informed investment decisions.