Reading a fund factsheet,one box at a time.

What a factsheet is

Fund houses publish a factsheet for each of their schemes, usually every month, on their own websites. It is a few pages of numbers and short labels, written for people who already know the terms. That's why it can feel hard to read the first time.

It is a summary. The fuller documents are the scheme information document and the key information memorandum, which set out the fund's aims, rules, costs and risks in detail. If something on the factsheet surprises you, those are where to look next.

NAV: the price of one unit

NAV stands for net asset value. It is the value of everything the fund owns, minus what it owes, divided by the number of units. When you invest, you buy units at the NAV; when you redeem, you sell them back at the NAV.

NAV is worked out at the end of each business day. The industry body, the Association of Mutual Funds in India, publishes the latest NAV for every scheme on its website.

Two things often confuse new investors:

• A high NAV doesn't mean a fund is expensive, and a low one doesn't mean it is cheap. An older fund has simply had longer for its NAV to move. What matters is the percentage change, not the starting number.
• The same fund can show several NAVs. There is usually a direct plan and a regular plan, and sometimes a growth option and an income distribution option. Each has its own NAV, because costs and payouts differ.

Expense ratio and exit load

The expense ratio, sometimes called the total expense ratio or TER, is the yearly cost of running the fund, shown as a percentage of what you have invested. You never pay it as a separate bill. It is taken out of the fund little by little, so it is already reflected in the NAV and in every return figure.

• Direct and regular plans: a regular plan pays a commission to whoever sold it to you, so its expense ratio is higher. A direct plan has no distributor in between and costs less. The fund and its holdings are the same.
• Why small differences matter: the cost is taken every year, on a growing amount, so a gap that looks tiny compounds over a long time. Our fee slider shows the idea with made-up numbers.

The exit load is a charge some funds take if you redeem within a set period after investing. The factsheet states the period and the charge. It doesn't apply if you stay invested past that period.

Portfolio holdings

This section shows what the fund actually owns. It is the most useful part for understanding what you would be buying.

• Top holdings: the largest positions, each as a share of the fund. If the top few make up a large part of the fund, it is concentrated: a few names drive most of the result.
• Sector split: how much sits in banking, technology, consumer goods and so on. A fund with a broad name can still lean heavily on one or two sectors.
• Company size: many factsheets show how much is in large, mid-sized and small companies. Smaller companies tend to swing more in price.
• Cash: the part not yet invested. A high cash level changes how the fund behaves.
• Turnover: how much of the portfolio was bought and sold over the past year. High turnover means more trading, which has its own costs.

If you already own one fund, compare the holdings. Two funds with different names can own many of the same companies, which gives you less spread than it looks (see what diversification actually means).

If it's a debt fund, the holdings section looks different. You'll see the credit rating of what it lends to, the average maturity (how long until the loans are repaid), modified duration (how sensitive its value is to interest rate changes) and yield to maturity (what the holdings would earn if held to the end, before costs, and not a promise of what you'll get).

The benchmark

The benchmark is the market index a fund compares itself with. It answers a simple question: did the fund do better or worse than the part of the market it invests in?

• Check it fits. A fund investing in smaller companies should be compared with a smaller-company index, not a large-company one.
• Look for the total return version. Benchmarks are usually shown as a total return index, which adds back dividends. That makes the comparison fair, because the fund keeps the dividends it receives.
• Read it over several periods. Beating the benchmark in one year says little. Doing so across several periods, after costs, says more. Index funds aim to match their benchmark rather than beat it (see index funds and active funds).

Some factsheets also show risk measures alongside the benchmark, such as standard deviation (how much returns have swung), beta (how much the fund has moved with the market) and the Sharpe ratio (return for each unit of swing). They are all based on the past, over a stated period.

The riskometer

The riskometer is a dial that shows how risky the fund's holdings are, on a scale running from low to very high. It is worked out from what the fund owns, and it is reviewed regularly, so it can move as the portfolio changes. Many factsheets show a second dial for the benchmark, so you can compare the two.

A few things to keep in mind:

• It describes the fund, not you. Whether a level of risk suits you depends on when you need the money and how you'd cope with a fall (see how to start investing).
• "Low" doesn't mean "can't lose money". It means the fund's holdings have usually moved less.
• Equity funds usually sit at the high end. That's normal for a fund that owns shares, and it's why they suit long timelines.

How performance is shown

The performance table shows how the fund has done over set periods, all ending on the same date, usually the last working day of the month. Next to each figure you'll usually see the benchmark, and often a broad market index as well.

• Periods: typically one year, three years, five years and since the fund started.
• Yearly averages: returns for periods longer than a year are usually shown as a compound annual growth rate (CAGR), the steady yearly rate that would take you from the start value to the end value. Real returns were bumpier than that.
• Growth of a lump sum: many factsheets also show what a fixed amount invested at the start of each period would be worth at the end.
• SIP returns: some show what a monthly investment would have grown to. Because each instalment went in on a different date, this uses a different calculation (often called XIRR) and gives a different figure from the lump-sum one.
• Which plan: the table states whether the figures are for the direct or the regular plan. The regular plan's returns are lower by the extra cost.

Every one of these is a point-to-point number. Move the end date by a few months, especially around a sharp rise or fall, and the figures can change a lot. That's why a single strong year is a weak reason to choose a fund (see why chasing last year's winner often disappoints). The factsheet itself says past performance may or may not be sustained in future, and it means it.

What to look at first

You don't need to read every box. A sensible order for a first look:

1. What it invests in: the category and the stated objective, in one sentence.
2. The riskometer: does that level fit the money and the timeline you have in mind?
3. Costs: the expense ratio, whether you are looking at the direct or regular plan, and any exit load.
4. The benchmark: is it a fair comparison, and how has the fund done against it across several periods?
5. The holdings: how concentrated is it, and does it overlap with what you already own?

If something doesn't make sense, that's a good question to bring to a class rather than a reason to guess.

Educational content only. Not investment advice. This page explains how factsheets are laid out; it does not assess or recommend any fund.