Reading a factsheet

You are entitled to see exactly what your fund owns, twelve times a year, free, in a spreadsheet. Almost nobody looks.

What you are entitled to

SEBI:

The mutual funds are required to disclose full portfolios of all of their schemes on a monthly basis on their website and on the website of AMFI within 10 days from the close of each month/half-year respectively in a user-friendly and downloadable spreadsheet format. For debt schemes, such disclosure is done on fortnightly basis within 5 days of every fortnight.

Full portfolios. Not the top ten — everything. Monthly for most schemes, fortnightly for debt. And SEBI specifies what each line carries:

The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.

The last sentence is the one to remember. Illiquid securities, unrated debt and non-performing assets must be disclosed. A fund in trouble is obliged to show you where, in a spreadsheet, before the trouble reaches the NAV.

If your email is registered you are sent the monthly statement; you can also demand a physical copy free of charge.

The questions the portfolio answers

Five, in rough order of usefulness.

How concentrated is it? Add the top ten holdings as a percentage of net assets. Thirty per cent and sixty per cent are different products with the same category label. Neither is wrong — a concentrated fund is a stronger expression of a view — but you should know which you own.

Does it hold what its name says? A fund in a category must meet the category's minimums, and it can meet them and still spend the remainder somewhere unexpected. The portfolio is where you find out.

How much is in cash? A large cash position is a market call the manager has made on your behalf. It may be right. It is not what you bought an equity fund to do, and it drags in a rising market.

How much does it overlap with what you already own? This is the most valuable and least performed check. Two well-regarded funds in the same category frequently hold the same fifteen companies. Holding both is not diversification; it is paying two fees for one portfolio.

What changed since last month? Comparing two consecutive portfolios shows what was bought and sold. A fund whose holdings turn over almost completely between statements is doing something quite different from one that looks the same in March and September.

The numbers on the summary page

Assets under management. How much the scheme runs. It matters for two reasons chapter 3 covered: the expense ratio cap falls as assets grow, so a big fund must be cheaper; and a very large fund in small caps has a genuine problem — the positions it needs are too big to buy or sell without moving the price.

The benchmark. The index the scheme measures itself against. Check that it is the honest one for the category, and that comparisons use its total return version. Chapter 9 is about this.

Portfolio turnover. Roughly how much of the portfolio was traded over a year. High turnover means more trading costs inside the NAV, and a manager whose process depends on being right more often.

The fund manager and their tenure. A ten-year record under a manager who arrived last year is not that manager's record.

Expense ratio, both plans. Chapter 3.

For debt schemes, two more

Debt funds report fortnightly, and two disclosures carry most of the information.

Credit quality — how much sits in government securities, in the highest rated paper, and in lower rated paper. Yield above the market's is almost always credit risk being taken somewhere, and this is where it shows.

Duration — the portfolio's sensitivity to interest rates. SEBI's own framing in chapter 2's terms: when rates fall, the NAVs of such funds "are likely to increase in the short run and vice versa". Longer duration means a larger move for the same change in rates.

A debt fund is not a safer version of a bank deposit. It is a portfolio of bonds whose value moves, and those two numbers say how much and why.

What a factsheet cannot do

It cannot tell you whether the holdings are worth their prices, and it is a snapshot of a date that has passed — up to ten days before you read it, and longer by the time you act.

Both are the same caveat as the shareholding pattern in chapter 6 of the equity subject. A census of what is owned, not a verdict on whether owning it was wise.

The point

Full portfolios are published monthly, fortnightly for debt, in a spreadsheet, and must disclose illiquid holdings, unrated debt and non-performing assets. The most valuable checks are concentration, cash, and how much two funds you own overlap.