Over the last few lessons, we’ve explored the foundations of personal finance—starting early, understanding return calculations, learning key metrics like CAGR and XIRR, exploring the time value of money, and understanding how mutual funds and AMCs are structured.
In this article, we move a step deeper into the world of mutual funds and dissect one of the most important documents you will encounter as an investor:
👉 The Mutual Fund Factsheet
Whether you invest ₹500 or ₹5 lakh, understanding a fund’s factsheet is a crucial skill. Let’s break it down in the simplest possible way.
What Is a Mutual Fund Factsheet?
A factsheet is a monthly report published by every AMC that explains:
- What the fund aims to do
- Where your money is invested
- Key risk and performance metrics
- Fund manager details
- Fees, loads, and operational information
You can download it directly from the AMC’s website.
In this explanation, we will refer to Kotak Small Cap Fund as an example (not a recommendation).
1. Reading the Introductory Page
The first page of any factsheet provides a high-level description of the fund, especially the stated objective.
For example, the Kotak Small Cap Fund states:
“The fund seeks to generate capital appreciation by investing predominantly in small-cap companies across sectors.”
From this objective, we can understand:
- The portfolio is diversified across sectors
- Investments are mainly in equity and equity-related instruments
- Focus is on small-cap companies
This tells us what the fund manager intends to do—but not how they will do it.
2. Ignore the “Research Strategy” Section
Factsheets often describe:
- How stocks are selected
- Research frameworks
- Investment style (value, growth, blended)
This may look impressive, but as an investor, it shouldn’t influence your decision directly.
If you truly understood stock-picking methodologies yourself, you wouldn’t need a mutual fund in the first place.
Focus more on the portfolio and performance, not the fund manager’s storytelling.
3. Understanding Key Mutual Fund Jargon
A factsheet introduces several commonly used mutual fund terms. Let’s decode them:
Benchmark
A benchmark is the index against which a fund’s performance is measured.
For example:
- A small-cap fund → Nifty Smallcap Index
- A large-cap fund → Nifty 100 Index
A good fund must consistently outperform its benchmark.
4. Fund Type: Open-Ended, Equity, Growth
A mutual fund factsheet will define the type of fund. It usually has three parts:
1. Open-ended
The fund has no maturity date. You can invest or withdraw at any time.
2. Equity
Means the fund invests mainly in stocks.
(Other categories include debt, hybrid, and more.)
3. Growth Option
The fund reinvests profits, letting compounding work its magic.
Ideal for long-term wealth creation.
💡 Most long-term investors choose the Growth plan.
5. Fund Manager & Allotment Date
Fund Manager
A quick glance at:
- Their experience
- The other funds they manage
- …is useful, but don’t obsess over it.
Allotment Date
Shows how old the fund is.
Older funds = More historical data = Better analysis.
6. Plans and Options: Regular vs Direct
Every mutual fund offers two plans:
Regular Plan
- Comes through brokers/distributors
- Commission is added to the expense ratio
- Higher cost for you
Direct Plan
- Invest directly with the AMC
- No distributor commissions
- Lower expense ratio → higher returns over time
Most smart investors choose direct plans.
7. Dividend vs Growth Options
Dividend Payout
- Fund pays out dividends periodically
- Reduces NAV
- Not ideal for long-term wealth creation
Growth Option
- Dividends are reinvested
- Maximises compounding
- Best for long-term financial goals
8. Entry and Exit Loads
Entry Load
No longer applicable.
AMCs must clearly mention “Entry Load: Nil” for compliance reasons.
Exit Load
Fees charged when you redeem your units before a certain period.
Example:
- 1% exit load if redeemed before 1 year
- 0% if redeemed after 1 year
This encourages investors to stay invested longer.
9. Mutual Fund Categories and Subcategories
In 2017, SEBI cleaned up the mutual fund industry by enforcing:
- Clear definitions of large-cap, mid-cap, small-cap
- One fund per category per AMC
- Transparent portfolio construction rules
This solved problems like:
- Overlapping schemes
- Mis-selling
- Hidden small-cap investments inside large-cap funds
The 5 Broad Categories of Mutual Funds
- Equity
- Debt
- Hybrid
- Solution-Oriented (retirement, children’s plans)
- Others
Subcategories (examples)
Equity Funds
- Large Cap
- Mid Cap
- Small Cap
- Flexi Cap
- Large & Mid Cap
Debt Funds
- Liquid
- Money Market
- Short Duration
- Overnight
Not every investor needs to know every subcategory—you only need to understand the ones that match your goals and risk profile.
Final Thoughts
A mutual fund factsheet is one of the most valuable documents you will read before investing. It tells you:
- What the fund does
- How it invests your money
- Key risks, loads, and charges
- Whether it fits your goals
But remember:
A factsheet is also a marketing document.
Don’t be influenced by fancy language—focus on the data.
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