A mutual fund factsheet summarises a scheme’s objective, category, costs, risk, performance, and portfolio. Scan the objective, benchmark (TRI), TER & exit load, riskometer, long-term & rolling returns vs benchmark, risk ratios (Sharpe/Std Dev), portfolio quality/mix, and fund manager track record. Use it to judge fit and costs, not to chase past returns.
Why this matters
Every AMC in India publishes a monthly factsheet. If you can read one confidently, you can avoid unsuitable funds, spot costs that quietly compound, and build a portfolio aligned with your goals and risk tolerance. This guide explains each section with Indian-market context and quick formulas.
What is a mutual fund factsheet?
A concise, SEBI-mandated disclosure with standardized sections: scheme details, benchmark, AUM, NAV, expenses, loads, performance, risk metrics, portfolio, riskometer, and fund manager notes. Treat it as a scorecard and disclosure document, not a promise of future returns.
The 10 sections you should scan (and what to look for)
1) Scheme Objective & Category (SEBI classification)
- Confirms whether it’s Equity, Debt, Hybrid, Solution-Oriented, or Other (FoF, Gold, International, etc.).
- Check the subcategory (e.g., Large Cap, Short Duration, Aggressive Hybrid) to ensure apples-to-apples comparison.
- Look for: Plain-English objective consistent with your goal horizon.
2) Benchmark (use TRI)
- In India, funds are expected to use Total Return Index (TRI) benchmarks (e.g., NIFTY 50 TRI).
- Look for: Consistent outperformance after costs over 5–10 years and across rolling periods, not just 1Y.
3) AUM & NAV
- AUM signals fund scale/liquidity; neither “bigger is always better” nor “small is nimble” is universally true.
- NAV is just the per-unit price; it does not tell you if a fund is cheap or expensive.
- Look for: AUM stability through cycles.
4) Costs: TER (Expense Ratio), Plan & Exit Load
- Factsheets show TER separately for Direct and Regular plans.
- Exit load (if any) applies on redemptions within a stated holding period.
- Look for: Lower TER (Direct plan) and load-free or modest exit terms aligned to your horizon. Small TER differences compound (see visual below).
5) Riskometer & Suitability
- Standard risk levels: Low, Low to Moderate, Moderate, Moderately High, High, Very High.
- Look for: Risk level matching your goal; equity funds should be “Very High/High” only if you can handle drawdowns.
6) Performance: Point-to-Point & Rolling
- Typical tables show 1Y/3Y/5Y/10Y CAGR vs benchmark & category average; some show SIP/XIRR and rolling returns.
- Look for: Consistency—outperformance across rolling 3Y/5Y windows and lower drawdown depth/length. Avoid cherry-picking single periods.
7) Risk Metrics
- Standard Deviation (volatility): Lower is steadier.
- Sharpe Ratio: Return per unit risk relative to risk-free (higher is better).
- Sortino Ratio: Focuses on downside risk (higher is better).
- Beta: Sensitivity to market moves (<1 defensive, >1 aggressive).
- Alpha: Excess return vs benchmark after adjusting for Beta (positive & persistent is scarce).
- Look for: Competitive Sharpe/Sortino with sensible Beta, not “alpha” that appears only in one timeframe.
8) Portfolio Snapshot
For Equity Funds
- Top holdings, sector weights, market-cap mix (Large/Mid/Small).
- Look for: Diversification (no single stock >10% unless justified), sector balance, and turnover discipline.
For Debt Funds
- Credit quality mix (Sovereign/AAA/AA/A & below), Yield to Maturity (YTM), Macaulay Duration, Modified Duration, Average Maturity.
- Look for: Quality bias (higher AAA/SOV), duration aligned to rate view and your horizon; avoid yield-chasing in lower-rated papers.
9) Portfolio Turnover / Churn
- High churn can inflate trading costs and tax impact for investors using non-equity funds.
- Look for: A turnover story that matches the stated strategy (e.g., higher in momentum funds, lower in buy-and-hold).
10) Fund Manager, Team & Process
- Tenure, number of schemes handled, philosophy notes.
- Look for: Process consistency over personalities; stable team; disclosures of co-managers and risk controls.
Quick formulas you’ll see (made simple)
- CAGR (Compounded Annual Growth Rate)
CAGR=(Ending ValueBeginning Value)1/n−1\text{CAGR} = \left(\frac{\text{Ending Value}}{\text{Beginning Value}}\right)^{1/n} – 1
Use for point-to-point returns (e.g., 5-year).
- SIP Return (XIRR)
Returns for irregular cashflows (your monthly SIPs). XIRR is the discount rate that sets NPV of cashflows to zero. - Sharpe Ratio
Sharpe=Rp−Rfσp\text{Sharpe}=\frac{R_p – R_f}{\sigma_p}
Higher = better risk-adjusted return.
- Duration & Rate Sensitivity (Debt)
Approx. price change ≈ −- Modified Duration × change in yield.
E.g., Mod. Dur. 3 → ~3% price fall for +1% yield move. - Net Return ≈ Gross Return − TER (rule of thumb)
Small TER differences compound into large rupee gaps over time.
Visual: How expense ratio drag compounds
The chart below compares a ₹10 lakh lump sum at 12% gross for 15 years with Direct (0.75% TER) vs Regular (1.75% TER). The difference at year 15 is highlighted.
A 5-minute workflow to read any factsheet
- Fit first: Confirm category, objective, riskometer suit your goal/horizon.
- Costs: Note Direct vs Regular TER and any exit load.
- Benchmarking: Check TRI outperformance over 5–10Y and rolling periods.
- Risk profile: Compare Std Dev, Sharpe, Beta vs category.
- Portfolio quality: Equity—sector/cap mix & concentration; Debt—credit, YTM, Macaulay/Modified Duration.
- People & process: Manager tenure and consistency.
- Red flags: Sudden style drift, yield-chasing (debt), persistent underperformance, inexplicably high TER, extreme concentration, frequent strategy changes.
Red flags you shouldn’t ignore
- Underperformance vs TRI over most rolling 3Y/5Y windows.
- Style drift: e.g., “Large Cap” holding many mid/small caps.
- Credit quality deterioration to chase YTM in debt funds.
- Churn explosion without performance benefit.
- Frequent fund manager changes or opaque process notes.
- TER hikes despite rising AUM.
FAQs
1) Is a higher NAV bad?
No. NAV isn’t valuation. It’s just the per-unit price. What matters is underlying portfolio, costs, and returns vs benchmark.
2) Which is better—Direct or Regular?
Direct has a lower TER, so everything else equal it compounds better. If you need advice and monitoring, a fee-only advisor plus Direct can be efficient. (Related: Direct vs Regular Mutual Funds.)
3) Are SIP returns shown in factsheets accurate?
SIP/XIRR tables are illustrative and depend on the exact dates chosen. Prefer rolling SIP/XIRR when available and compare vs TRI.
4) How are these funds taxed?
Broadly, equity-oriented (≥65% Indian equity) get equity taxation; most international, gold, FoFs, and debt funds are taxed as non-equity. Always verify current rules before investing. (Related: How are Mutual Funds Taxed?)
Putting it together: an Indian example (equity)
- Category: Large & Mid Cap (equally invests in both).
- Benchmark: NIFTY LargeMidcap 250 TRI.
- What you’d want to see:
- 5Y CAGR ≥ benchmark and decent rolling returns.
- Sharpe in top quartile of category.
- Top holdings diversified; no single sector overweight.
- Turnover consistent with stated process.
- TER (Direct) competitive; exit load minimal.
Key takeaways
- Use the factsheet to judge fit, risk, and cost, not to chase last year’s winners.
- Benchmark with TRI and verify rolling as well as point-to-point returns.
- In equity, prefer consistent risk-adjusted returns with disciplined diversification.
- In debt, focus on quality and duration, not just headline YTM.
- Costs compound—Direct plans usually help long-term outcomes.
Disclosure: Past performance is not indicative of future results. Read the Scheme Information Document (SID) and consult a SEBI-registered advisor for personalised advice.