The effort is to help an existing and potential investor take an informed decision to invest, stay invested or redeem out of the fund. It is an important piece of document as it communicates the fund house’s philosophy and past performance. It is also used by distributors as a marketing tool.
Here are some important points that an investor should look at in a fund’s fact sheet:
INVESTMENT OBJECTIVE
It explains what the fund intends to do. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. An investor can align his/her investment needs with the funds objective and invest accordingly.
INVESTMENT OBJECTIVE
It explains what the fund intends to do. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. An investor can align his/her investment needs with the funds objective and invest accordingly.
Based on the investment objectives, various schemes can be broadly classified as follows:
Equity/growth schemes: These aim to provide capital appreciation over a medium to long term. In these schemes a majority of the portfolio is invested into equities.
Income/debt schemes: These aim to provide regular and steady income by investing into fixed-income instruments such as corporate and government bonds, debentures and other debt securities.
Balanced schemes: These aim to provide both growth and income. They invest in equities and fixed income securities, in a proportion which is pre-defined in the investment objective of the scheme.
Liquid funds/schemes: These aim to provide capital preservation and easy liquidity. They invest in relatively safer instruments such as inter-bank call money, T-bills, certificate of deposits and commercial papers.
Equity/growth schemes: These aim to provide capital appreciation over a medium to long term. In these schemes a majority of the portfolio is invested into equities.
Income/debt schemes: These aim to provide regular and steady income by investing into fixed-income instruments such as corporate and government bonds, debentures and other debt securities.
Balanced schemes: These aim to provide both growth and income. They invest in equities and fixed income securities, in a proportion which is pre-defined in the investment objective of the scheme.
Liquid funds/schemes: These aim to provide capital preservation and easy liquidity. They invest in relatively safer instruments such as inter-bank call money, T-bills, certificate of deposits and commercial papers.
PORTFOLIO & PERFORMANCE
The equity/balanced fund’s portfolio diversification can be explained under two parts:
Top 10 stocks: The percentage of the top 10 holdings accounts for of the net assets of a fund can reveal whether the fund is well-diversified or is a concentrated one. A concentrated portfolio has the potential to generate higher returns but at the same time is more volatile as compared to others. The consistency in the top stock holdings can also reveal a lot about the fund’s management style.
The equity/balanced fund’s portfolio diversification can be explained under two parts:
Top 10 stocks: The percentage of the top 10 holdings accounts for of the net assets of a fund can reveal whether the fund is well-diversified or is a concentrated one. A concentrated portfolio has the potential to generate higher returns but at the same time is more volatile as compared to others. The consistency in the top stock holdings can also reveal a lot about the fund’s management style.
Sector allocation: A diversified equity fund is expected to invest across various sectors. A concentrated portfolio across a few sectors enhances the fund’s risk profile and makes it prone to volatility. Funds at times tend to have higher allocations towards a single sector.
While the same could be indicative of the fund manager’s confidence in stocks from a given sector, it also makes the fund an over-leveraged one. Income/debt schemes and liquid schemes normally invest in debt instruments of government, banks, financial institutions and corporates carrying different ratings and maturity profiles.
While the same could be indicative of the fund manager’s confidence in stocks from a given sector, it also makes the fund an over-leveraged one. Income/debt schemes and liquid schemes normally invest in debt instruments of government, banks, financial institutions and corporates carrying different ratings and maturity profiles.
The portfolio is constructed depending on the risk return profile as well as the liquidity needs of the portfolio in compliance with the scheme objective.
The fact sheet contains returns of funds vis-ीं-vis the respective benchmark across various time frames. The hallmark of a good fund is in its ability to deliver superior performance year after year.
The objective of any active investment strategy is to outperform the benchmark, and this extra return is what is called as the fund managerङs alpha. It is therefore important to identify funds with a track record of beating the benchmark. Thus, an investor should ensure consistency in returns over different periods of time before investing.
The fact sheet contains returns of funds vis-ीं-vis the respective benchmark across various time frames. The hallmark of a good fund is in its ability to deliver superior performance year after year.
The objective of any active investment strategy is to outperform the benchmark, and this extra return is what is called as the fund managerङs alpha. It is therefore important to identify funds with a track record of beating the benchmark. Thus, an investor should ensure consistency in returns over different periods of time before investing.
EXPENSE RATIO
AMCs usually disclose the expense ratios and load structure in the fact sheets. The load and the expense ratios affect the fund’s performance. Higher expenses charged to a scheme can alter the scheme’s performance. The impact is more in case of debt funds as here the payback is less than for equity funds.
However, investors should understand that although loads and expense ratios have a direct impact on the returns, they cannot be used as the sole criterion for evaluating a fund. The fund’s investment style and performance are far key parameters than load and expenses while evaluating a fund.
AMCs usually disclose the expense ratios and load structure in the fact sheets. The load and the expense ratios affect the fund’s performance. Higher expenses charged to a scheme can alter the scheme’s performance. The impact is more in case of debt funds as here the payback is less than for equity funds.
However, investors should understand that although loads and expense ratios have a direct impact on the returns, they cannot be used as the sole criterion for evaluating a fund. The fund’s investment style and performance are far key parameters than load and expenses while evaluating a fund.
PERFORMANCE EVALUATION PERIOD
This is one of the key aspects of a fund’s performance evaluation. Each type of a scheme has different investment objective and time horizon of investment for risk-adjusted return expectation.
A liquid fund’s performance should be evaluated over a short period (say for 3-6 months) and an income fund’s performance should be evaluated over 6-18 months whereas an equity/balanced fund should be evaluated over medium to long term (2-5 years). Such an evaluation is necessary to get an appropriate perspective of the fund’s performance profile and help investor to take right decision.
This is one of the key aspects of a fund’s performance evaluation. Each type of a scheme has different investment objective and time horizon of investment for risk-adjusted return expectation.
A liquid fund’s performance should be evaluated over a short period (say for 3-6 months) and an income fund’s performance should be evaluated over 6-18 months whereas an equity/balanced fund should be evaluated over medium to long term (2-5 years). Such an evaluation is necessary to get an appropriate perspective of the fund’s performance profile and help investor to take right decision.
Source: economictimes.com
No comments:
Post a Comment