Why Reading a Factsheet Matters
Every mutual fund in India publishes a factsheet every month — a standardised document mandated by SEBI. Learning to read it is the single most important skill for a serious mutual fund investor. It tells you what the fund actually holds, how it has performed, how much risk it takes, and what it costs.
Yet most investors never look at a factsheet. They invest based on past returns alone — which is exactly what SEBI warns against.
This guide walks through every section of a typical mutual fund factsheet using concrete examples.
Section 1: Fund Identification
At the top of every factsheet you'll find:
Fund Name and Category
Example: "HDFC Mid-Cap Opportunities Fund — Mid Cap Fund"
SEBI classifies every fund into a specific category (large-cap, mid-cap, flexi-cap, liquid, etc.). This classification determines what the fund must invest in — a mid-cap fund must hold at least 65% in mid-cap stocks (companies ranked 101–250 by market cap).
Benchmark Index
Every fund must declare a benchmark. A mid-cap fund's benchmark is typically the Nifty Midcap 150 TRI (Total Return Index). All performance comparisons should be made against this benchmark — not absolute return.
If a mid-cap fund returned 18% in a year when the Nifty Midcap 150 TRI returned 22%, the fund underperformed — despite the impressive absolute number.
Fund Manager
Name and experience of the person managing the fund. Check:
- How long have they managed this specific fund?
- What is their track record on other funds?
- Have they been through at least one full market cycle (bull + bear)?
Section 2: NAV and AUM
Net Asset Value (NAV)
NAV is the per-unit price of the fund. A higher NAV does not mean the fund is "expensive" — it simply means the fund has been around longer or has grown more. Comparing NAVs between different funds is meaningless. Only compare the NAV of the same fund over time to measure growth.
Example: Fund A NAV = ₹250 | Fund B NAV = ₹15. Fund B is NOT cheaper or better — they are simply different funds with different histories.
AUM (Assets Under Management)
Total money managed by the fund. Expressed in crore rupees.
What to look for:
- Too small (under ₹300–500 crore): May have limited market access, higher impact costs, and vulnerability to large redemptions
- Too large (over ₹50,000 crore for mid/small cap): Makes it difficult to take meaningful positions in smaller stocks without moving the market
- Sweet spot: ₹2,000–₹30,000 crore for most equity categories
Portfolio Turnover Ratio
The percentage of the portfolio that was bought and sold during the year. A turnover ratio of 100% means the entire portfolio was replaced once. High turnover = higher transaction costs = potentially lower net returns. Good actively managed equity funds typically have turnover below 50%.
Section 3: Expense Ratio (TER)
The Total Expense Ratio (TER) is the annual percentage of AUM charged to run the fund. It includes fund manager salaries, research costs, administration, regulatory compliance, and (for regular plans) distributor commission.
TER is deducted daily from the fund's NAV — you never pay it as a separate charge, but it reduces your returns.
SEBI's Maximum TER Limits (2025)
| AUM Slab | Maximum Equity TER |
|---|---|
| First ₹500 crore | 2.25% |
| ₹500–₹750 crore | 2.00% |
| ₹750–₹2,000 crore | 1.75% |
| ₹2,000–₹5,000 crore | 1.60% |
| Above ₹5,000 crore | 1.05% + performance fee cap |
Direct plans always have TER = Regular plan TER minus distributor commission (see Direct vs Regular guide →).
Section 4: Performance Section
Point-to-Point Returns
Most factsheets show 1-year, 3-year, 5-year, and since-inception returns. These are calculated from a specific date to the factsheet publication date.
Do NOT rely solely on point-to-point returns. They are highly sensitive to the start and end dates chosen. A fund can look brilliant with 5-year returns that happen to exclude a crash period.
Rolling Returns (What to Actually Look For)
Rolling returns measure performance over every possible period of a given length. For example, every 3-year period starting monthly over the past 10 years. This eliminates the "lucky start date" problem and shows consistent performance.
A fund with high average rolling returns AND a high percentage of positive rolling periods is far more reliable than one with high point-to-point returns.
Ask your distributor for rolling return data — it's not always shown in factsheets but is available from research platforms.
SIP Returns
Many factsheets show SIP returns (XIRR) for ₹10,000/month SIP over 1, 3, 5 years. This is more relevant to most investors than lump sum returns.
Section 5: Risk Metrics
Standard Deviation
Measures how much the fund's returns fluctuate around its average. A higher standard deviation means more volatility. Compare within the same category — a small-cap fund naturally has higher standard deviation than a large-cap fund.
Sharpe Ratio
(Return − Risk-free rate) ÷ Standard Deviation
The higher the Sharpe ratio, the better the risk-adjusted return. The "risk-free rate" used is typically the 91-day T-Bill rate (~6.5% in 2025).
| Sharpe Ratio | Interpretation |
|---|---|
| Below 0.5 | Poor risk-adjusted return |
| 0.5 – 1.0 | Acceptable |
| 1.0 – 2.0 | Good |
| Above 2.0 | Excellent |
Alpha
Excess return above benchmark, after adjusting for risk. Positive alpha = fund manager skill. Look for consistent positive alpha over 3 and 5 years, not just one year.
Beta
Sensitivity to market movements. Beta > 1 means the fund amplifies market swings. Beta < 1 means it dampens them.
| Beta | Behaviour |
|---|---|
| 0.8 | Falls/rises 20% less than market |
| 1.0 | Moves exactly with market |
| 1.2 | Falls/rises 20% more than market |
R-Squared (R²)
How closely the fund tracks its benchmark (0–100 scale). An R² of 90+ means the fund moves very closely with its index — typical for index funds. A low R² (60–70) for an active fund means it is genuinely different from the index, which is what you want from an active manager.
Section 6: Portfolio Holdings
The most concrete section of the factsheet. Shows you exactly what the fund owns.
Top 10 Holdings
Lists the largest stock positions by percentage of portfolio. Key questions:
- Are these stocks concentrated (one stock > 10%)? High concentration increases risk.
- Do you already own these stocks in other funds? This reveals overlap.
- Are the holdings consistent with the fund's stated style (value, growth, quality)?
Sector Allocation
Pie chart showing portfolio split across sectors (financials, IT, healthcare, FMCG, etc.). Check:
- Is the sector allocation consistent with the fund's mandate?
- Is the fund overweight in any single sector (>30%)? This creates concentrated risk.
- How does it compare to the benchmark sector weights?
Market Cap Allocation (for equity funds)
Shows the split between large-cap, mid-cap, and small-cap stocks. A mid-cap fund must hold 65%+ in mid-cap — verify this is true. Funds that drift from their stated category mandate may not align with your intended risk exposure.
Section 7: How to Compare Factsheets
When comparing two funds in the same category, use this framework:
| Metric | What to Compare | Better is... |
|---|---|---|
| Rolling returns (5yr) | Average and % of periods positive | Higher |
| Sharpe ratio | Within same category | Higher |
| Alpha | 3-year and 5-year | Positive and consistent |
| TER | Direct vs Direct, Regular vs Regular | Lower |
| AUM | Category appropriate range | Neither too small nor too large |
| Portfolio overlap | Cross-check top holdings | Lower is better if holding both |
Conclusion
A mutual fund factsheet contains everything you need to evaluate a fund objectively — but you have to know what to look for. Most investors skip it entirely and rely on return rankings, which is the least reliable way to select a fund.
The metrics that matter most for fund selection, in order: consistent rolling returns, positive and stable alpha, appropriate Sharpe ratio, reasonable TER, and portfolio composition aligned with the fund's mandate.
Your AMFI-registered distributor can help you interpret factsheets and identify funds that genuinely fit your goals and risk profile.
Read about expense ratios and direct vs regular plans → | Start with a free risk assessment → | Contact InfoFin Mehta →
