Reading A Fund Factsheet

Prior to investing in any mutual fund, an investor must necessarily go through the details provided in its factsheet. Here are some guidelines about what to look out for

Investment in mutual funds is less risky than direct investment in stocks. This is because investment in mutual funds gives you benefit of diversification, allows investing in a disciplined manner via a systematic investment plan (SIP) and offers the advantage of having an expert to manage the funds. Also, mutual funds offer a gamut of funds to suit different investment needs. Further, they are well-regulated by Securities and Exchange Board of India (SEBI) that makes them less vulnerable to any malpractices as is evident in some of the Ponzi schemes.

However, when you consider investing in mutual funds, it is important to know a few things beforehand such as the qualification and experience of the fund manager, where your money is getting invested, what are the fees and charges, risk metrics, fund performance, etc. Factsheet is the document which helps you understand these things. Therefore, before you consider investing or even after investing in any mutual fund scheme, it is important to check out its factsheet. Despite the guidance provided by Association of Mutual Funds in India (AMFI), SEBI has observed that uniformity was lacking in the information provided by the fund houses in their factsheets.

Therefore, SEBI introduced a new factsheet format in October 2015. Being a sensible investor, to ascertain the genuineness of the investment pitch made by your mutual fund distributor, reading the factsheet of the scheme is crucial. There are various details that tersely capture the various aspects of a fund such as the fund's investment objective, portfolio and essentially its performance with respect to its benchmark. Therefore, it is crucial to know how to read a fund's factsheet.

Understanding the Factsheet