Every fund house publishes a factsheet for each scheme every month. It looks intimidating — a dense page of numbers, ratios and small print — but most of what you need fits into a ten-minute routine. Here is the order we follow when we look at a fund for the first time.
Minute 1: objective and category
Start with the scheme’s investment objective and its SEBI category — large cap, flexi cap, liquid, corporate bond and so on. The category limits what the fund is allowed to buy. A large cap fund must keep at least 80% in the 100 largest companies; a liquid fund can only lend for up to 91 days. Ask: is this the kind of fund my goal needs? If not, stop here — no amount of past return makes a wrong category right.
Minute 2: benchmark and returns
The factsheet shows returns over 1, 3, 5 and 10 years next to the benchmark index. Compare the fund with its benchmark and with similar funds, not with your FD or a friend’s small cap fund. Look at longer periods first — one good year says very little. Remember that these are point-to-point returns; our article on rolling returns explains why a fund’s record looks different depending on the start date.
Minute 3: costs
Note the total expense ratio (TER) for the plan you are buying — regular or direct — and the exit load, such as 1% if redeemed within a year. Within a category, a much higher TER needs a good reason.
Minutes 4 and 5: what the fund owns
- Top 10 holdings: what share of the fund sits in the ten biggest positions? 35% to 50% is common for diversified equity funds; much higher means more concentration.
- Sector split: is a third of the fund in one sector, such as banks? That adds risk if that sector has a bad patch.
- Market-cap split: how much is in large, mid and small companies? A flexi cap fund with 40% in small caps behaves very differently from one with 10%.
- Cash: a large cash holding in an equity fund can mean the manager is cautious — or that money arrived faster than it could be invested.
Minute 6: risk measures
- Standard deviation: how much returns swing around their average. Higher means a bumpier ride.
- Beta: how much the fund moves when the market moves. A beta of 0.9 means it has tended to move about 90% as much as its benchmark.
- Sharpe ratio: return earned per unit of risk. Useful for comparing similar funds; higher is better.
- Portfolio turnover: how often holdings change. Very high turnover means more trading, which has costs.
Use these to compare funds within the same category. A small cap fund will always have a higher standard deviation than a large cap fund — that does not make it a worse fund, just a different one.
Minute 7: the riskometer
Every scheme carries a riskometer from Low to Very High, updated monthly. Most equity funds sit at Very High. It is a blunt tool, but it is a good reminder of what you are signing up for.
Minute 8: for debt funds — three extra numbers
- Yield to maturity (YTM): roughly what the portfolio would earn if every bond were held to maturity, before expenses. It is not a guaranteed return.
- Modified duration: how sensitive the fund is to interest-rate changes. A duration of 4 means the NAV could move about 4% for a 1% change in rates.
- Credit quality: the share in government securities and AAA-rated paper versus lower-rated bonds. Lower ratings mean higher yield and higher risk of default.
SEBI also requires a Potential Risk Class table for debt funds, showing interest-rate risk and credit risk on one grid. It is the quickest way to see what kind of debt fund you are looking at.
Minutes 9 and 10: size and the fund manager
Check the AUM (assets under management). Very small funds can have higher costs; very large small cap funds can find it harder to buy and sell. Then look at the fund manager and how long they have managed this scheme. A great five-year record means less if the manager who earned it left last year.
Your ten-minute checklist
- Is the category right for my goal and time frame?
- Has it done reasonably against its benchmark over five years or more?
- Is the expense ratio in line with similar funds?
- Is it concentrated in a few stocks or sectors?
- Do the risk numbers match what I can live with?
- For debt funds: what are the duration and credit quality?
- Has the same manager been running it for a while?
Where to find factsheets
Each fund house publishes them on its website, usually under “Downloads” or “Factsheets”, within the first two weeks of every month. Our Fund Simulator also shows how any fund would actually have done with a SIP or lump sum on past NAVs. If a factsheet still leaves you puzzled, send it to us on WhatsApp and we will walk you through it.
Figures above are illustrations based on assumed rates of return and are not a promise or guarantee of future returns. Mutual fund investments are subject to market risks, read all scheme related documents carefully. WishWiseWealth is an AMFI-registered Mutual Fund Distributor (ARN-188221).