PhiGrowth Capital and Consultants

Choosing a Mutual Fund by yourself is much easier

—

by

Editor – 369wealthy
in
  1. A mutual fund fact sheet is a basic three-page document that gives an overview of a mutual fund. For potential investors, this is a necessary and easy report to read before delving more deeply.
  2. The first step is to download the fact sheets available on the respective mutual fund’s Asset Management Company’s (AMC) website. Click here to download the fact sheet.
  3. Use the factsheet to get a quick snap to find the investment objective of the mutual fund scheme
  4. You can also see the investment style box – a graphical representation of a fund’s strategy (value, or growth) and the market-cap focus (large mid- or small-cap stocks or a mix).
  5. You should look at the detailed month-end portfolio.
  6. For instance, for an equity scheme, you can see the list of all the companies it has invested in, and their percentage share in the portfolio.
  7. Many factsheets also list out the top 10 sectors that the scheme has exposure to. You can also look at the overall portfolio allocation across equity, debt and cash.
  8. Dont prefer equity schemes with consistently large cash holdings (over 10 per cent) as this money is not invested in stocks thereby it won’t provide any return.
  9. The next step is to analyse the scheme returns.
  10. Factsheets provide the latest one, three, five-year, and since. inceptions return for a scheme and for its benchmark index.
  11. You can go through the factsheets of a few years to get a broad sense on the scheme’s performance over time.
  12. Alternatively, you may want to look at what is called rolling returns that is all three-year returns (in this case) over a longer period such as say five years.
  13. Many websites offering MF fund advice provide rolling returns.
  14. Rolling returns, also known as “rolling period returns” or “rolling time periods,” are annualized average returns for a period, ending with the listed year. Rolling returns are useful for examining the behaviour of returns for holding periods, like those actually experienced by investors
  15. Portfolio Turnover Ratio (PTR) is the percentage of the scheme portfolio that has changed over the past one year and indicates the extent of portfolio change.
  16. Low PTs indicate that a scheme is following a buy-and-hold strategy, which also contributes to a lower expense ratio.
  17. A high PTR can indicate higher transaction (trading) costs that may impact returns, unless the frequent churn helps the scheme make well-timed entries and exists, contributing to better returns.
  18. Standard Deviation (SD) gives some sense of the volatility of the scheme return.
  19. Higher the SD, the greater the volatility which is not good for short term investor
  20. So, for instance, if a scheme has a SD of 6% and an average return of 12%, that means the actual scheme returns can range from 6 to 18%.
  21. To understand whether the PT and the SD for a particular scheme are too high or low, you can compare them with those of peer schemes from the same category.
  22. From a risk perspective, it’s also worth looking at the risk-o- meter, a pictorial meter that indicates the risk level of a scheme.
  23. From January 1, 2021, all MF houses have revamped their existing risk assessment method using SEBI’s new formula-based framework, which evaluates risk based on the portfolio composition and does not simply depend on the scheme category.
  24. The factsheet carries other scheme details such as assets under management, expense ratios and exit loads.
  25. While you mustn’t choose one scheme over another based only on expense ratios, but rather on the consistency of returns (as returns are calculated after accounting for expense ratios), it is still worth knowing what you are paying.
  26. Many AMC factsheets also provide details on their fund managers and the performance of the schemes managed by them.
  27. Fund manager should be in the fund for long term atleast for 5-10 years.