How to read a mutual fund factsheet
Every AMC publishes a monthly factsheet for its schemes. It is one of the most useful documents for understanding what a scheme holds and how it is run. Here is how to read it.
Investment objective and category
Start with what the scheme is meant to do. The objective and SEBI category (for example, large cap, flexi cap or short duration) tell you where it can invest.
Riskometer
The riskometer rates the scheme on a six-level scale from Low to Very High. It is updated monthly based on the portfolio. Compare it honestly with your own ability to handle losses.
Portfolio and concentration
Look at the top ten holdings and sector allocation. A high share in a few stocks or one sector means the scheme may move sharply with them.
Expense ratio
The Total Expense Ratio (TER) is charged every year and reduces your returns. The factsheet shows TER for both regular and direct plans.
Debt fund metrics
For debt schemes, check average maturity, modified duration, yield to maturity and credit rating profile. Longer duration means more sensitivity to interest-rate changes; lower-rated papers mean more credit risk.
Performance, read carefully
Factsheets show past returns against a benchmark. Past performance may or may not be sustained in future and should not be the only basis for choosing a scheme.