Knowing only the category of funds and investing money can help you achieve your goals but, it will not give you confidence in selecting the right funds.
Have you ever wished to know about the fund house and the scheme in which you are making your investment? When you start an investment in any mutual fund scheme, it is important that you understand the scheme-related facts.
Knowing only the category of funds and investing money can help you achieve your goals but it will not give you the confidence in selecting the right funds. Reading and understanding the factsheet of a mutual fund plays a crucial role while investing your monies.
Initially, you may find reading the factsheet a bit cumbersome as they have different formats. However, once you are in the habit of reading them, you can understand your fund much better and feel confident to know where and how your money will be invested.
Basic details of the scheme
You will get to know the nature of the mutual fund scheme, such as, whether the scheme is equity-oriented, debt-oriented or a balanced one. Equity mutual fund schemes aim at capital appreciation by investing in stock markets. On the other hand, if you want to preserve capital, then you should invest in debt markets through a debt fund or income fund.
Fund Manager’s details
Knowing your fund manager is very important, s/he is the one who manages the scheme. Fund managers do have analysts in their team who analyse the performance of the scheme and participate in the growth of scheme.
Mode of Investment
You can invest either through the lumpsum mode or through an SIP (systematic investment plan) mode. SIP works on the principle of making periodic investments of a fixed sum. For instance, an investor may opt for making an investment every 10th of the month in an equity mutual fund scheme for a period of ten years. Whereas, through the lumpsum mode, investment is done in one go where the minimum investment amount may slightly be on the higher side.
Minimum investment amount
Every mutual fund scheme comes up with a certain minimum investment amount for new investors. By going through the factsheet one can easily get to know how much one can invest in a particular scheme and in which mode – lumpsum or SIP. In most of the cases, minimum of Rs 5000 or more can be invested through the lumpsum mode in a particular mutual fund scheme and if you are opting the SIP mode then you can invest a minimum of Rs 500 a month.
Net Asset Value
The factsheet also tells you about the NAV or the net asset value which is the total asset value per unit of the particular mutual fund after deducting all related and admissible expenses. The everyday NAV value keeps its importance as it is the value at which the investor enters or exits the particular mutual fund scheme. This NAV is calculated at the end of every business day.
Scheme’s Benchmark
Well, every scheme is designed having their own unique characteristics and accordingly, the scheme’s performance varies as it is linked to its respective benchmark. However, there are other factors too which help in directing the performance of a scheme. For example, some of the benchmarks include the Nifty, Sensex, BSE100, BSE200, CNX 100 among others.
Know the AUM size
Assets under management (AUM) is the total market value of assets that an Asset Management Company (AMC) or financial institution manages on behalf of investors. It basically refers to the updated cumulative market value of investments managed by a mutual fund or any investment firm. Knowing it will help you understand the size of the fund house.
Risk Measures
The factsheet gives you an idea about the statistical measure of the range of an investment’s performance through standard deviation which means if the mutual fund scheme has a high standard deviation then in such case its range of performance is wide, having greater volatility. Also, through various other methods, you can also get to know the measure of risk-adjusted returns and volatility in the security’s price compared to markets volatility.
Performance and Rating
However, the past performance of the scheme may not give you an idea about the future performance of the scheme but it can eventually give you a brief objective of the scheme. When it comes to observing the mutual funds especially in the case of debt funds after evaluating their creditworthiness, an outline of various investments based on the ratings becomes the rating profile of the fund.
Entry/Exit load applicability
A mutual fund may incur a small charge in form of the load at the time of making entry and exit in a scheme to compensate the distributor or the agent. Mostly, it is charged at 1 % in both the case, however, it may vary as per the schemes.
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