How to read a fact sheet for debt fund?

As an investor in the mutual fund space, you are always advised to make fully informed decisions before investing. After all, it is your hard-earned money, and you have full rights to know what will happen with your money when it gets invested in a mutual fund.

 

The fund managers who manage your invested amount towards mutual funds release fact sheets periodically. You need to understand the various components in the fact sheet and study the same to avoid any financial risks.

 

Mutual fund investments are tricky unless you are fully aware of the product. Before we get into a detailed discussion on the fact sheet for debt funds, let us look at some basic definitions that may help you understand the fact sheet.

 

What is a debt fund?

 

A debt fund is a mutual fund where the investment is made in instruments that ensure fixed returns. Some examples of fixed income instruments are government bonds and debt securities. Another name for a debt fund is a fixed income fund. The major advantage of a debt fund is its stable returns. If you happen to be an investor with a low-risk appetite, looking for a regular rather than a very high return, debt funds are an option for you. Debt funds are almost like a fixed deposit in a bank.

 

How to read a fact sheet for debt funds?

 

You are advised to study the mutual fund fact sheet published by the fund managers. The fact sheet contains all the relevant details you should know before investing in mutual funds. It is, in fact, a comprehensive document about the debt fund and is an excellent guidebook for an investor. It is very important to know how to read a fund fact sheet.

 

 

 

Five aspects of a fact sheet for debt funds

 

Mutual fund fact sheets typically have five broad sections. As an investor in debt funds, you are advised to understand these sections and decipher the contents.

 

1. Basic information

 

This is the section which carries all the generic information about the debt fund. Some of the points covered are as under:

The objective or philosophy of the debt fund
Net Asset Value (NAV) of the fund
What is the minimum amount that may be invested in the fund
What is the mechanism of investment in the fund
What is the Asset Under Management (AUM) for the fund
What is the exit load for the fund

 

2. Performance

 

The past performance of a debt fund cannot be a guarantee for its future returns. A tabular or graphical representation of the past performance of a fund gives you a fair idea of the possible performance of the debt fund in future. The fact sheet contains past debt fund performance under SIP and lumpsum options. The fact sheet also provides a comparative analysis of the fund’s performance against its benchmarks.

 

3. Details of the fund manager

 

Always remember that your fund manager is your pilot. The expertise of the pilot will ensure the maximum benefits that you may expect to get out of your investment. The fact sheet of your debt fund gives details of the fund manager, their experience and expertise in handling funds in the past, along with the results.

 

4. Portfolio allocation

 

While studying the debt fund fact sheet, ensure that portfolio allocation is towards AAA-rated companies. The debt fact sheet also carries important quantitative data, which tells you the expected time it will take to have all the debt securities in the stage of maturity. This information gives you a fair idea of the quantum of gain you may expect from your investment if you hold onto the funds until their maturity.

 

5. Key ratios

 

The fact sheet also gives you details on some key ratios like portfolio turnover ratio. If the portfolio is churned too many times, it shows uncertainty in the fund manager and a higher management cost which is not a healthy sign.

 

The fact sheet for your debt funds is like a gospel you need to follow. Understanding the fact sheet properly will help you make the right investment.