Mutual funds religiously publish their factsheet every month. Most of us look at the factsheet to examine scheme performance and portfolio. However, hidden in plain sight are a few crucial data points, which can be useful while analysing a fund before recommending it to your clients
1) Fund manager
We often glance through the fund manager name. Looking at the name most seasoned advisors infer the fund management style. However, just looking at the scheme’s fund manager is not enough. It is equally important to read the adjoining data ‘managing this scheme since’.
This is extremely important as any recent changes in fund manager may result in some change in investment style and may have an impact on the scheme’s future performance. Also, look at the other schemes managed by the fund manager.
2) Inception date
This innocuous data point is of particular significance when seen in conjunction with ‘scheme performance since inception.’ This helps you understand if the scheme has been able to manage investors’ money during both bull and bear markets.
3) Portfolio turnover ratio – equity funds
This ratio helps you understand the portfolio churn over the past one year. A lower ratio means the fund manager has taken long-term investment calls. A high turnover ratio is indicative that there has been a portfolio overhaul in the past one year.
4) Sectoral allocation – equity funds
Looking at the top three sectors in which the fund invests, you can understand the fund manager’s sectoral bias. It helps you qualitatively analyse the fund and decide whether the client and you agree with the fund manager’s sectoral view.
5) Portfolio YTM (yield to maturity) – debt funds
This ratio helps you get a general idea of expected returns from the scheme over a time horizon closer to the average maturity of the portfolio. The ratio assumes that the securities will be held till maturity. Hence, this ratio is not particularly useful in case of long duration schemes where the portfolio manager actively trades securities based on interest rate view.This ratio is relevant in case of short to medium duration schemes, which aim to generate returns mainly through interest payments from invested securities.
So, the next time dig a little deeper to discover the finer aspects of schemes.
