Every month, Asset Management Companies (AMCs) release a detailed document for every scheme they run. This document is called the Fact Sheet. For a serious investor, the Fact Sheet is what a dashboard is to a pilot. It tells you the speed (returns), the fuel level (cash holding), the engine health (portfolio quality), and the turbulence ahead (risk ratios).
Most investors simply look at the return percentage and ignore the rest. In this module, we will learn how to decode the jargon and find the red flags hidden in plain sight.
1. The Header Information
The top section of any fact sheet contains the basic hygiene factors of the fund.
- AUM (Assets Under Management): The total size of the fund.
- Too Small (< ₹500 Cr): Risk of the fund shutting down or merging.
- Too Large (> ₹20,000 Cr): Harder to generate Alpha, especially in Small/Mid cap categories, as buying/selling moves the market price.
- Inception Date: When the fund started. Avoid funds younger than 3 years. They haven't been tested in a bear market yet.
- Expense Ratio: The annual fee. Always compare the Direct Plan expense ratio with category peers. A difference of 0.5% is massive over 10 years.
- Benchmark: The index against which the fund competes (e.g., Nifty 500 TRI). Make sure you compare apples to apples.
2. Portfolio Composition (Where is your money?)
This section lists the actual stocks or bonds your money has bought. You don't need to analyze every stock, but look for these patterns:
| Stock | Allocation |
|---|---|
| HDFC Bank Ltd. | 9.5% |
| ICICI Bank Ltd. | 7.2% |
| Infosys Ltd. | 6.8% |
| Reliance Ind. | 5.5% |
| ITC Ltd. | 4.1% |
Concentration Analysis
Look at the "Top 10 Holdings" percentage.
• < 30%: Diversified fund. Safer, but might act like an index fund.
• > 50%: Concentrated fund. The manager has taken high conviction bets. If these few stocks perform, you win big. If they fail, you lose big.
Cash Holding
Check the % of cash in the portfolio.
• High Cash (>10%): The manager is bearish or cannot find good stocks to buy. This creates "Cash Drag" (cash earns 0% return in a rising market).
• Low Cash (<2%): The manager is fully deployed.
3. Quantitative Indicators (The Risk Ratios)
This is the most technical part, usually found at the bottom of the fact sheet. Refer back to Module 5 for deep definitions, but here is what to check on the sheet:
Beta:
- > 1: Aggressive. Expect higher falls in a crash.
- < 1: Defensive. Expect protection in a crash.
4. Portfolio Turnover Ratio (PTR)
This number tells you how frequently the fund manager buys and sells stocks.
• Low PTR (< 30%): Buy and Hold strategy. Indicates high conviction. Lower transaction costs.
• High PTR (> 100%): Churning the portfolio. The manager is constantly entering and exiting. This increases brokerage costs (hidden inside the expense ratio) and indicates a lack of conviction or a tactical momentum strategy.
5. The Fund Manager's Commentary
Most fact sheets include a note from the CIO or Fund Manager. Read this to understand their thought process.
• Are they defensive or aggressive?
• Why did they underperform last month? (Did they hold cash while the market rallied?)
• What is their outlook on interest rates or sectors?
6. Total Expense Ratio (TER) Breakdown
Sometimes, fact sheets break down the TER.
Base TER + GST + Additional Expenses.
Ensure you are looking at the Total figure. Also, check if the TER has increased recently. AMCs sometimes lure investors with a low TER and raise it once the AUM grows.
Summary of Module 9
Reading a fact sheet prevents you from flying blind. It takes 5 minutes once you know where to look. Check the Concentration (Top 10 stocks), verify the Risk Ratios (Sharpe/Beta), and ensure the Expense Ratio hasn't crept up.
You now have all the tools: Fund Types, Analysis, SIP math, and Tax rules. In the final module, we will put it all together. We will learn how to design a complete portfolio based on your life goals in Module 10: Building a Portfolio.