| The Mutual Fund offer document and the fact | | | | enough stock-picking opportunity at this point of |
| sheet carry certain information that can give a | | | | time. Allocation to cash can be beneficial if the |
| great deal of detail about the fund, its past | | | | market takes a down turn, as a good portion is in |
| performance in terms of returns. Most of the | | | | cash which is not affected by the crash, where |
| fact sheet or offer documents published by the | | | | as stock allocation will take a beating. But a good |
| Asset management companies are of similar | | | | allocation to cash can go against the mutual fund |
| standard and the data provided by the AMC in | | | | at the time of market upswing. |
| these fact sheets are of importance to the | | | | 5. Portfolio Turnover Ratio: A portfolio turnover |
| investors. The investor should know what to look | | | | ratio tells the investor how much churning the |
| at in these fact sheets and offer document. Since | | | | mutual fund has witnessed over the period of |
| the fact sheet act as a guide, the investors | | | | time. The basis of this calculation is the number of |
| should take its guidance to get more information | | | | equity shares brought or sold by the equity fund |
| on the schemes of mutual fund companies. | | | | over the review period. High turn over indicates |
| If the mutual fund investor is informed, the | | | | high churning by the fund house. Churning of funds |
| probability of him getting good returns is very | | | | should be in line with the funds investment |
| high. So for the uninformed investors of mutual | | | | philosophy. High churning can be good or can be |
| fund we had put certain points and notes that | | | | bad for the fund, as I said it depends on the |
| they should look at when they are going through | | | | investment philosophy. For example a growth |
| a fact sheet. | | | | fund will witness high turnover as the churning is |
| Under the category of mutual funds the Equity | | | | high where as a value fund will have low turnover |
| fund fact sheet and debt fund fact sheet both | | | | because the churning will be low as the fund |
| need to be properly analyzed on the basis of | | | | manager invest for a long term. |
| certain points which are mentioned below. | | | | The portfolio turnover ratio is not given much |
| POINTS TO LOOK AT IN EQUITY FUND | | | | importance by the fund houses in their factsheets |
| FACTSHEET. | | | | as it will open their stock picking decisions in front |
| 1. Investment objective: The mutual fund’s | | | | of the investors, who can further compare it and |
| investment objective states what it aims to | | | | find out the weight age to their decisions. |
| achieve i.e. capital appreciation, income generation | | | | 6. Expense Ratio: The expense ratio shows us the |
| among others. It could also inform the investor | | | | expensive nature of the mutual fund. It shows us |
| about the investment style of the fund and the | | | | how expensive the mutual fund is for us. If an |
| kind of risk it is prepared to take for achieving its | | | | expense ratio is high it tells us that the mutual |
| investment objective. Ideally, an investment | | | | fund is expensive. In this expense ratio the fund |
| objective should be pointed enough for the | | | | management expenses form a large part. This |
| investor to understand whether his own | | | | fund management expense should decline with |
| investment objective fits well with that of the | | | | increase in net asset of the fund. The fund house |
| mutual fund. For instance, an investment objective | | | | as per regulation has to declare the expense ratio |
| that states that the fund will ‘attempt to | | | | so that the investors can come to know the |
| generate capital appreciation by investing | | | | expensive nature of the fund. |
| significantly in the mid cap segment’, it tells | | | | 7. Information on the Fund manager: Fund |
| the investor that it is likely to be a high risk – | | | | manager is the person who is managing the |
| high return investment. If the investor has the | | | | mutual funds. Some of the companies go for |
| risk appetite for such an investment he can | | | | individual fund manager rather than a team of |
| consider investing in the fund. | | | | fund manager i.e. an investment team. But over a |
| 2. Allocation of stock: Allocation of stocks by the | | | | period of time it is better that an investment |
| Asset management companies are shown in the | | | | team managers manages your money rather |
| factsheet, the composition of portfolio are shown | | | | than a individual star fund manager. Individual fund |
| properly so that all those investor who have | | | | manager can quit the fund house any time thus |
| invested in the mutual fund or those who wish to | | | | affecting the stability of your fund. Therefore you |
| invest in the fund can get an proper view of the | | | | need to check out the detail of the fund manager |
| style of mutual fund management by the AMC'S. | | | | of the fund house or detail of their fund |
| When we look at the stock allocation of the | | | | management team, so that you can verify and |
| AMC's we can judge the level of diversification by | | | | compare the fund houses on the basis of it. It is |
| taking into consideration the top 10 stocks in their | | | | better to go for the fund house which has got |
| portfolio. We believe that if a fund has more than | | | | stability in the fund management process |
| forty percent in the top 10 stocks than it is not | | | | POINTS TO LOOK AT IN DEBT FUND |
| properly diversified. In a volatile situation a mutual | | | | FACTSHEET |
| fund which is well diversified will be more effective | | | | 8. Average maturity: In a debt fund factsheet this |
| then sectoral flavor funds. Many times it is noticed | | | | is on of the most important aspect to look into. In |
| that the whole portfolio is well diversified but one | | | | order to understand the fund manager’s view |
| single stock is holding such a high investment that | | | | on debt market the investor has to go several |
| the balance of diversification cannot be maintained. | | | | months behind to see how the average maturity |
| This can turn out to be risky proposition for a | | | | has moved. If the fund manager is maintaining a |
| pure diversified equity funds. | | | | higher average maturity for quite sometime, it |
| 3. Allocation of sectors: A well diversified equity | | | | implies that the fund manager is expecting the |
| fund need to be diversified not only on the basis | | | | interest rate to fall over the period of time. But if |
| of stocks but it need to be well diversified across | | | | the average maturity is lower it means that the |
| sectors too. When we evaluate or analyze a | | | | fund manager is expecting the interest rates to |
| mutual fund it is not enough to evaluate the stock | | | | go up. |
| allocation but also the sectoral allocation. If a | | | | 9. Credit Rating Profile: Credit rating of the |
| mutual fund is not well diversified across sector it | | | | securities in which debt fund invest varies. |
| may get into trouble if there is a sudden crash in | | | | Therefore investors should check out the credit |
| the market. While calculating the sectoral allocation, | | | | ratings of the securities of their debt funds. Most |
| the investor must combine like-natured sectors to | | | | of the debt funds do not take much of credit risk. |
| understand the level of sectoral diversification. | | | | They invest in high rated securities. AAA |
| 4. Allocation of asset: Asset allocation let you | | | | Sovereign paper which carry the lowest credit |
| know how the funds assets are diversified across | | | | risk, attract the highest investments. Where as |
| stocks, sectors, and current assets/cash. With | | | | AA+/AA carry high credit risk. |
| the detail of stocks and sectors, this is another | | | | 10. Allocation to asset: Asset allocation in debt |
| thing that need to be taken care of. A fund | | | | funds are again very important for the investors |
| manager had to decide the allocation to cash. The | | | | to look at. This will help him understand the risk a |
| allocation to cash is in itself an important decision. | | | | fund manager is taking and also the kind of |
| By looking at the factsheet we can note down | | | | approach the fund manager is taking towards the |
| the allocation to cash by the equity fund. If the | | | | investment. The debt funds invest mainly in |
| fund manager is holding to cash for some time, | | | | government securities and corporate bonds. Both |
| this means that he is waiting for the right | | | | of them carry varying risk. |
| opportunity or it means that he is not getting | | | | |