How to Read a Mutual Fund Fact Sheets Like a Pro

What is a Mutual Fund Fact Sheet?

A fact sheet is a mandatory monthly document published by an Asset Management Company (AMC) that provides a comprehensive overview of a mutual fund. Think of it as the fund’s official report card, detailing its objective, performance, holdings, and risks. It’s the single most important document for your research.

1. Fund Basics (The Identity Card)

This top section tells you exactly what the fund is. It’s the first filter to see if the fund’s basic nature aligns with your goals.

Key Checks:

• Fund Category: Is it a Large-Cap, Mid-Cap, Hybrid, or Debt fund? This must match your risk appetite and investment horizon.
• Assets Under Management (AUM): This is the total money invested in the fund. For most equity funds, an AUM between ₹500 Cr and ₹20,000 Cr is a healthy range.
• Benchmark: This is the index the fund aims to beat (e.g., Nifty 50). The fund’s primary job is to outperform its benchmark.
• Red Flag: An AUM below ₹100 Cr might indicate liquidity risk, while an AUM above ₹50,000 Cr in an active fund can sometimes make it difficult to outperform.

2. Performance (The Report Card)

This is the section everyone looks at, but often incorrectly. Don’t be swayed by a single year of high returns; consistency is key.

Key Checks:

• Rolling Returns: Look for 3-year or 5-year rolling returns if available. This is better than point-to-point returns as it shows performance consistency over different market cycles.
• Benchmark Comparison: Does the fund consistently beat its benchmark over 3, 5, and 10 years? A one-time victory doesn’t count.
• SIP Returns: Check the performance of a Systematic Investment Plan (SIP). A fund that delivers steady SIP returns is generally better at managing volatility.

3. Portfolio (Looking Under the Hood)

This section reveals where your money is actually invested. It’s crucial for understanding the true risk and strategy of the fund.

Key Checks:

• Top 10 Holdings: Are the top stocks stable, high-quality companies? For a diversified fund, the top 10 holdings should ideally not exceed 50% of the portfolio to avoid concentration risk.
• Sector Allocation: Is the fund overly concentrated in one sector (e.g., 40% in Banking)? This increases risk if that sector underperforms.
• Style Drift: A “Large-Cap” fund holding more than 15-20% in small-cap stocks is a major red flag. It means the fund manager is taking on more risk than the fund’s mandate allows.

4. Risk Ratios (The Volatility Meter)

These numbers tell you about the fund’s “personality”—is it a steady, calm performer or a volatile, risky one? Always compare these ratios with other funds in the same category.

Key Checks:

• Standard Deviation (SD): This measures how much the fund’s returns fluctuate (its volatility). A lower SD is better, indicating a smoother ride.
• Sharpe Ratio: This measures risk-adjusted return (how much return you get for the amount of risk taken). A Sharpe Ratio above 1 is considered good.
• Portfolio Turnover: This shows how often the fund manager buys and sells stocks. A high turnover (>100%) can lead to higher costs and may indicate a lack of a clear strategy.

5. Costs (The Silent Return Eaters)

Every rupee you pay in costs is a rupee less in your final returns. High costs can significantly erode your wealth over the long term.

Key Checks:

• Expense Ratio: This is the annual fee. Always compare the Direct Plan vs. the Regular Plan. The difference can be huge. For active equity funds, aim for an expense ratio below 1.5%; for index funds, below 0.5%.
• Exit Load: This is a fee charged if you withdraw your money too early (usually within one year). A 1% load for withdrawals within 1 year is standard for equity funds.

6. Fund Manager (The Captain of the Ship)

You are entrusting your money to the fund manager and their team. It’s important to know who they are and their track record.

• Manager’s Tenure: How long has the current manager been managing this fund? A tenure of 3+ years is a good sign of stability. Be cautious if a “star manager” just left or joined.
• AMC’s Track Record: Does the Asset Management Company (like HDFC, ICICI, etc.) have a long history of managing funds well across different categories?

🔍 Fact Sheet Cheat Sheet (60-Second Scan)

In a hurry? Run through this quick checklist to get an 80% picture of the fund’s health:

• Category & AUM: Does it fit my goal and is the size healthy?
• 5-Year Returns vs Benchmark: Is it a consistent winner?
• Top 5 Holdings & Sector %: Is it too concentrated in a few stocks or one sector?
• Expense Ratio: Is the Direct Plan’s ratio competitive?
• Sharpe Ratio: Is it greater than 1?
• Fund Manager Tenure: Has the manager been around for at least 3 years?

Final Thoughts: From Data to Decision