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CRISIL FUND INSIGHTS

Monthly funds newsletter from CRISIL Research
Volume - 13 May 2012

MAKING MA RK
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Five investment strategies for uncertain times

Investment thoughts

Market volatility is not only inevitable but unpredictable in nature too. Even among asset classes, equities are more volatile by nature than debt. Often, we find that investors exit equity markets when uncertainty rises and negative sentiment creeps in, while the opposite is true when markets are bullish. In other words, investors follow the equity market cycles with a lag, exhibiting a typical herd mentality (Chart 1). In hind sight, this strategy only results in a loss and in the aftermath, investors tend to fear the markets rather than learn from their mistake and adopt a long-term strategy. This is highlighted by the fact that the domestic equity markets represented by the benchmark S&P CNX Nifty have returned 17% annualized gains in the 10 year period ended April 30, 2012 despite declines of 52% and 25% in 2008 and 2011 respectively. In case of debt, most investors increase their fixed deposit (FD) investments when interest rates are rising to lock into higher returns. However, when interest rates fall, they find little 'interest' in the Fds. Thus investors must separate facts from myths and follow well-defined investment strategies for long term portfolio gains.
Net Flows into Equity Funds (Rs Bn)

Chart 1 Inflow / outflows from Equity Mutual Funds* during market upheavals (Herd Mentality)
6500 5600 S&P CNX Nifty 4700 Steady inflows during market gains

800 400 0 -400

3800 2900 2000 Mar-07 Dec-07 Sep-08 Jun-09

Outflows indicate investor exit during market downfall Mar-10 Dec-10 Mar-12 Jun-11

-800 -1200 -1600

Strategy No 1 - Diversify across asset classes The first and foremost strategy is 'Don't put all your eggs in one basket'. Investors have to diversify their investments across different asset classes (equity, debt, gold) to reduce the risk associated with one asset class. (See Table 1). All asset classes behave differently under different market situations, i.e., all do not rise and fall at the same time. For example, in 2008 when equity markets (S&P CNX Nifty) fell by 52%, gold prices (CRISIL Gold Index) rose by 27%. In 2011 when equity markets fell by 25%, gold rose by 32%. Thus an investor relying only on equities would have made greater losses in 2008 and 2011 vis--vis an investor who had held a portfolio of equity and gold. Thus diversification helps minimise losses. Table 1: Asset allocation based on risk profile Percentage allocation to Portfolio Asset Class Investment Horizon low risk appetite Equity Long Low Gold Long Low Debt Short to Medium High

*proxy for retail investors Note - Equity inflows include Equity, Balanced, Other ETFs and Fund of Funds Investing Overseas mutual fund categories Source: NSE, AMFI

denotes net inflows denotes net outflows denotes S&P CNX Nifty movement

Strategy No 2 - Make disciplined long term Investments Investing through Systematic Investment Plans (SIP) is definitely a disciplined approach. However, investors do get swayed by different market cycles, i.e., SIPs are increased when the sentiment is good and are reduced or discontinued when sentiments are bad. This needs to change and investors must not get swayed by market cycles or time the markets. SIPs must continue irrespective of market cycles and investors should consider long-term investments of more than five years. SIPs work best when they go through multiple market cycles owing to the 'Rupee Cost Averaging' factor, i.e., buying more mutual fund units when the NAV is low and fewer units when the NAV is high (See Table 2).

medium risk appetite Medium Medium Medium

high risk appetite High Medium Low

Table 2: SIP Scenario Analysis

SIP of Rs 1,000 for 10 years started on May 1, 2002 Scenario 1 If SIP discontinued in 2008, amount redeemed and invested in FDs @ 8% p.a. till April 30, 2012 Scenario 2 If SIP is continued for the entire 10-year period and redeemed on April 30, 2012 Amount Annualised Principal Received Returns

80,000

2,07,821

10.01%

1,20,000

4,20,291

23.69%

Strategy No 3 - Gauge the interest rate cycle before investing in debt funds A common practice followed is to increase investment in FDs when interest rates rise. Many investors are, however, not aware of products like Fixed Maturity Plans (FMPs) offered by mutual funds which provide higher tax adjusted returns in a rising interest rate scenario vis--vis Fds. Investors also get stuck for safer modes of investments when interest rates fall. Gilt funds and long term income funds are the investments that can be followed when interest rates fall. This is because yields and bond prices move in opposite directions. So, gilt funds and long term income funds perform well when interest rates fall. With the recent easing of RBI's monetary stance, these funds are expected to benefit the most. For example, Gilt Funds gave 16.5% annualized returns from April 2000 to April 2004 following secular decline in yields. The returns were 61.30% (annualized) between August-December 2008 tracking the sharp correction in yields in 2008 following the global credit cum liquidity crisis.On the other hand, short maturity debt funds and liquid funds benefit, when interest rates rise. . Strategy No 4 - Look at gold as an investment not jewellery Gold has proven to be a safe-haven investment option not only because it is a hedge against inflation but also due to its low correlation with other asset classes such as equity and debt. Gold has also provided annualised returns of 18% over the past 10 years vis--vis 17% by equity (S&P CNX Nifty). Investors now have the option of buying gold in dematerialised or paper form through mutual funds. However, in the short term, gold prices can be volatile owing to which investors need to invest in SIPs of more than five years or beyond. Investors can either look at gold exchange traded funds (ETFs) or gold fund of funds for their investments. Strategy 5 - Track performance via benchmarks and rebalance portfolio regularly It is crucial to regularly track the performance of investments across asset classes to assess the impact of the changing market dynamics on the investor's portfolio. The following three steps can help: (i) Benchmarking - Compare the performance of the underlying asset classes with the respective benchmark, e.g. track the performance of equity investments with the S&P CNX Nifty or gold investments with the CRISIL Gold Index. (ii) Rebalancing - In order to maintain the same asset allocation between asset classes one needs to invest more in an asset class with declining weights or sell an asset class with increasing weights. This helps investors to buy more when markets are low and book profits when markets are high. (Iii) Weed Out Non-Performers - To monitor the best performing mutual funds, investors can refer to the quarterly CRISIL Mutual Fund Rankings on www.crisil.com. Conclusion Since volatility is a recurrent feature of the markets, it is best to stay calm and remain invested over a longer time frame. Rather than stay away from the market, it is crucial to keep pace with the changing market conditions and deal with uncertainty through the suggested five strategies. As Warren Buffet says, Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

CRISIL FUNDINSIGHTS
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The Indian equity markets (S&P CNX Nifty) fell around 1% in April due to weak global and domestic cues. Global cues included political problems in France and the Netherlands, S&P cutting Spain's credit rating to BBB+ from A, signs of slowdown in China and a tsunami alert in 28 countries including India (withdrawn later). On the domestic front, sentiments were marred after S&P revised its outlook on India's long-term credit rating from stable to negative and some corporates reported weak earnings. Selling by foreign institutional investors (FIIs) on weak global and domestic cues added to the fall. According to SEBI numbers, FIIs were net sellers of equities worth Rs 568 cr in April, the first month of net selling since December 2011 and compared to net buying of Rs 7,731 cr in March. Losses were capped due to the first monetary easing by the Reserve Bank of India (RBI) in three years; the central bank cut its key lending rate (repo rate) by a higher-than-expected 50 basis points (bps) to 8% at its annual policy review in April. Strong earnings reports from index majors like BHEL and TCS also helped erase some losses. Sectoral equity indices ended mixed during the month with the CNX FMCG gaining the most, up 6.25% as investors resorted to defensive buying amid the prevailing market volatility. CNX Auto Index followed with a gain of 5.38% boosted by the RBI's surprise rate cut, which is expected to benefit the interest rate-sensitive sector. CNX IT Index fell the most, down 6.61%, dragged down by disappointing growth outlook for FY13 by index heavyweight Infosys.

Market - Overview
Indices
S&P CNX Nifty BSE Sensex

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April 30, 2012

5248 17319

March 30, 2012

5296 17404

Absolute Change
-47 -85

% Change
-0.90 -0.49

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Indicators 10 Yr Gsec Monthly WPI Inflation April 30, 2012 8.67% 7.32% (April 2012) March 30, 2012 8.57% 6.89% (March 2012)

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Mutual Fund Overview

8.2
Net flows (Rs cr) Industry AUM (Rs lakh cr)

200000

Top Stock Exposures - April 2012

1 2 3 4 5 6 7 8 9 10 ICICI Bank Ltd. Infosys Ltd. HDFC Bank Ltd. ITC Ltd. Reliance Industries Ltd. State Bank Of India TCS Ltd. HDFC Ltd. Tata Motors Ltd. Bharti Airtel Ltd.

Top Sector Exposures - April 2012

1 2 3 4 5 6 7 8 9 10 Banks Computers - Software Pharmaceuticals Refineries/Marketing Diversified Cigarettes Oil Exploration Commercial Vehicles Telecom - Services Housing Finance

(AUM Rs lakh cr)

60000 7.0 -10000 6.4

-80000 -150000
May-11 Aug-11 Sep-11 Jun-11 Jul-11 Oct-11 Nov-11 Dec-11 Apr-11 Jan-12 Mar-12 Feb-12 Apr-12

Net Flows (Rs cr)

7.6

130000

Note:- The month-end portfolios as of April 2012 and quarterly average assets under management (AUM) as of March 2012 have been considered for the report.

New Stocks Entries and Exits in Mutual Fund Portfolios - April 2012
5.8
Entries Aarti Industries Ltd. Astral Poly Technik Ltd. Category/Index returns Large Cap Funds Diversified Equity Funds Small and Midcap Funds Balanced Funds Monthly Income Plans Long Term Gilt Funds Long Term Debt Funds Ultra Short Term Funds Liquid Funds Gold Funds* *CRISIL Gold Index Absolute Monthly Returns% Apr 2012 Mar 2012 -0.99 -1.12 -1.03 -0.56 0.47 1.16 0.09 0.11 0.61 0.21 0.33 -0.79 0.87 0.23 0.89 0.79 0.85 0.79 2.83 -1.11 Bharti Ventures Ltd. BOC India Ltd Hindustan Oil Exploration Co. Ltd. Lupin Laboratories Ltd. MMS Infrastructure Ltd. NBCC Ltd. Sarda Energy & Minerals Ltd. SIP Technologies & Exports Ltd. Sterling Holiday Resorts (India) Ltd. Zee Learn Ltd. Zuari Holdings Ltd. Exits Accel Frontline Ltd. Agre Developers Ltd. Andhra Pradesh Paper Mills Ltd. Dhunseri Investments Ltd. Dhunseri Petrochem & Tea Ltd. GEI Industrial Systems Ltd. Garware Polyester Ltd. Hitkari Fibres Ltd. IL&FS Investment Managers Ltd. India Cements Capital Ltd. ITC Bhadrachalam Paperboards Ltd. KNR Constructions Ltd. Mercator Ltd. Nagarjuna Agrichem Ltd. Nagarjuna Oil Refinery Ltd. Noida Toll Bridge Co. Ltd. Raymond Apparel Ltd. Shukra Jewellery Ltd. Thangamayil Jewellery Ltd. Tide Water Oil Co. (India) Ltd. Wanbury Ltd. Wipro Finance Ltd.

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The Indian mutual fund industry's month-end assets under management (AUM) rose by around 16% or Rs 92,937 cr to Rs 6.80 lakh cr in April 2012 primarily on the back of inflows returning to money market funds post the outflows seen in March; the month-on-month percentage gain in assets was the highest in the past one year. Money market funds recorded highest inflows in the last one year of Rs 75,752 cr, which constitutes 82% of the total monthly inflows, taking the total assets for the category to Rs 1.57 lakh cr at the end of the month. Income funds (including ultra short-term debt funds), which saw outflows for the past five consecutive months reported inflows of Rs 17,874 cr (highest in the last one year) in April; the category's month-end AUM rose by 6.5% or Rs 18,894 cr to Rs 3.09 lakh cr in the month.

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Assets managed under gold exchange traded funds (ETFs) rose by 3% or Rs 300 cr to end with assets of Rs 10,218 cr in the month primarily due to mark-to-market gains. Assets of equity funds fell by Rs 2,456 cr or 1.4% to Rs 1.80 lakh cr in April on outflows of over Rs 615 cr as well as mark-to-market losses in the underlying equity market. Mutual funds net sold equities worth Rs 525 cr in April compared with net selling of Rs 1,548 cr in March and were net buyers in debt to the tune of Rs 37,280 cr in April compared to net buying of Rs 1,00,573 cr in the previous month. Among major regulatory developments, SEBI directed fund houses to take action against distributors who circumvent norms to get the same day's NAV in debt schemes by splitting their purchases to ensure the Rs 1 cr limit is not crossed.

Fund news

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Axis Bank inked an agreement with Schroder Singapore Holdings, a wholly owned subsidiary of global AMC major Schroders, to sell 25% share of Axis Asset Management Company for an undisclosed amount. Bank of India acquired a 51% stake in Bharti AXA Mutual Fund for an undisclosed amount.

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CRISIL Fund Rank 1 Schemes - Equity

Mutual Funds' Performance Report Point to Point Returns % Average AUM Since 1 3 6 1 3 Inception (Rs.Crore) Month Month Months Years Years Inception Date Std. Deviation Sharpe (%) Ratio Scheme Name Style Box

Fund focus
Franklin Taxshield Fund (CRISIL Fund Rank 1)
Launched in April 1999, Franklin Taxshield Fund has been ranked CRISIL Fund Rank 1 for the past three quarters ending March 2012 in the Equity Linked Savings Scheme (ELSS) category. For the quarter ended March 2012, the fund's AUM was Rs 812 cr. Being an ELSS fund, investments are eligible for a deduction of up to Rs. 1 lakh under Section 80 C of the Income Tax Act. However, investors need to read the fine print of the new Direct Tax Code (DTC) which is likely to be implemented in April 2013, to check the eligibility of ELSS funds for tax benefit purposes.

Large Cap Equity Fidelity Equity Fund Fidelity India Growth Fund ICICI Prudential Focused Bluechip Equity Fund UTI Opportunities Fund Diversified Equity ING Dividend Yield Fund Mirae Asset India Opportunities Fund - Regular Quantum Long-Term Equity Fund Reliance Equity Opportunities Fund Tata Contra Fund Tata Dividend Yield Fund UTI MNC Fund Small & Midcap Birla Sun Life MNC Fund HDFC Mid-Cap Opportunities Fund SBI Magnum Sector Umbrella - Emerging Business Fund ELSS Canara Robeco Equity Tax Saver Fidelity Tax Advantage Fund Franklin Taxshield Fund Index Goldman Sachs Nifty Exchange Traded Scheme Kotak Nifty ETF Infrastructure Canara Robeco Infrastructure -4.84 2.71 -4.18 -9.47 17.17 12.14 6.00 2-Dec-05 25-Apr-08 119.22 119.60 14.99 17.90 -0.90 -0.68 -0.94 -0.95 1.29 3.15 -3.82 -9.47 14.82 -2.12 -7.92 NA 18.35 4.49 28-Dec-01 2-Feb-10 562.69 107.02 20.07 20.14 -0.50 -0.53 -0.27 -0.82 -1.55 6.81 4.02 5.65 3.07 -1.22 26.48 -1.71 -6.44 23.49 0.08 -1.04 23.21 32.42 12.67 26.25 2-Feb-09 27-Feb-06 10-Apr-99 362.34 1167.14 812.36 14.15 16.38 15.87 -0.40 -0.34 -0.30 0.11 12.26 0.43 11.84 5.55 12.36 9.02 7.74 6.96 33.94 4.81 34.32 16.20 10.80 22.38 27-Dec-99 25-Jun-07 11-Oct-04 257.66 1860.28 506.89 12.79 15.70 17.31 0.73 0.21 0.30 -0.40 -0.90 -1.52 5.08 4.94 5.37 -1.10 -4.21 29.12 1.47 -3.87 27.85 3.49 -2.83 28.52 6.22 2.30 34.78 13.28 12.28 13.68 20.31 9.14 17.84 16.40 24-Oct-05 4-Apr-08 13-Mar-06 29-Mar-05 21-Nov-05 24-Nov-04 1-Aug-05 97.18 214.36 105.67 3340.12 92.96 273.03 208.63 15.78 17.54 16.11 17.30 16.39 15.03 12.22 -0.30 -0.35 -0.04 0.08 -0.32 -0.07 0.68 -1.16 -1.32 -0.98 -1.47 3.02 2.34 3.46 4.91 -1.94 -6.56 22.62 -2.65 -6.74 22.62 -0.37 -3.99 22.88 2.62 1.73 24.53 19.07 3.41 12.92 16.39 16-May-05 23-Oct-07 23-May-08 20-Jul-05 3401.12 327.15 3805.27 2605.54 16.31 16.67 17.99 16.11 -0.35 -0.38 -0.22 -0.22

1.95 10.66 -1.62 -1.56 6.70 7.17

2.84 -3.22 25.59 3.57 -0.97 29.00 10.48 11.85 31.57

Performance
The fund has outperformed both its benchmark (S&P CNX 500 Equity Index) and the category average returns across various time periods (See Chart 1). In the 1-year period when the markets were negative, the fund managed to give lower negative returns, mainly due to active management of equity and sector exposures during this period. Over a longer time frame of 10 years, the fund has given an annualised return of 24% vis--vis 21% of the category and 18% of the benchmark. An investment of Rs 1,000 in the fund since inception (April 1999) would have resulted in the value increasing 21 times to Rs 21,019 as on April 30, 2012, at a compounded annualised growth rate of 26%.

0.74 12.89

6.87 12.84 40.33

Chart 1: Performance as of April 30, 2012

Returns (%) 30 20 10

DSP BlackRock Natural Resources and New Energy Fund -5.19

-3.45 -13.09 -14.56 16.89

CRISIL Mutual Fund Ranks as of March 2012 Point to Point Returns are as on April 30, 2012 Returns are annualised for periods above 1-year, other wise actualised Risk Ratios are annualised Period for Risk Ratios is two years For Sharpe Ratio the risk free rate is 7.41% - the average 91-day T-Bill auction cut-off rate for two years Average AUM is 3-months average number as disclosed by AMFI for the period January-March 2012
Large cap Small & Midcap Diversified

Style Box Legend Value Blend Growth

0 -10 -20 1 Years Annualized 3 Years Annualized 5 Years Annualized (Period) ELSS schemes 7 Years Annualized 10 Years Annualized

For a detailed write-up on the CRISIL Mutual Fund Ranking and the complete ranking list, please refer to www.crisil.com.

Franklin Taxshield Fund

S&P CNX 500 Equity Index

Average Assets under Management - A Bird's Eye View

Mutual Fund Name Jan-Mar 2012 (Rs.Crore) Oct-Dec 2011 Change % (Rs.Crore) (Rs.Crore) Change Mutual Fund Name Jan-Mar Oct-Dec 2012 2011 Change % (Rs.Crore) (Rs.Crore) (Rs.Crore) Change

Lower Risk
The fund has largely maintained lower volatility (risk) than both the category and benchmark over the past 5 years when considered on a monthly basis. Thus, the fund has generated higher returns by taking lower risk versus category / benchmark.

HDFC Mutual Fund Reliance Mutual Fund ICICI Prudential Mutual Fund Birla Sun Life Mutual Fund UTI Mutual Fund SBI Mutual Fund Franklin Templeton Mutual Fund DSP BlackRock Mutual Fund Kotak Mahindra Mutual Fund IDFC Mutual Fund Tata Mutual Fund Sundaram Mutual Fund Deutsche Mutual Fund Religare Mutual Fund Axis Mutual Fund Fidelity Mutual Fund Canara Robeco Mutual Fund JPMorgan Mutual Fund JM Financial Mutual Fund LIC Nomura Mutual Fund IDBI Mutual Fund HSBC Mutual Fund

89879 78112 68718 61143 58922 42042 34493 29298 25738 25450 19818 14099 12145 10465 8815 8688 7663 6369 5885 5799 5482 4859

88628 82306 69368 60377 57817 41552 35642 30565 29738 26476 21473 14775 13314 11814 8598 8797 7356 6759 6915 6223 6102 4897

1251 -4194 -649 765 1105 490 -1149 -1267

1.41 -5.10 -0.94 1.27 1.91 1.18 -3.22 -4.14

BNP Paribas Mutual Fund

4421

4805 4349 4582 3942 4616 4390 4600 2086 1308 2084 540 1069 473 858

-384 -85 -391 185

-7.99 -1.96 -8.53 4.69

Goldman Sachs Mutual Fund 4264 Baroda Pioneer Mutual Fund Principal Mutual Fund L&T Mutual Fund Peerless Mutual Fund Taurus Mutual Fund Morgan Stanley Mutual Fund Indiabulls Mutual Fund 4191 4126 3898 3801 3744 2053 1938 1854 1377 1046 910 797

Portfolio Analysis
The fund has predominantly invested in large cap stocks over the past three years, which are relatively less risky / volatile. Its exposure to CRISIL defined large cap stocks1 has been around 79% over this time period. The balance 21% has been invested in small and midcap stocks. The average equity exposure of the fund over three years period is 94%, almost same as that for the category. However, it has reduced its equity exposure over the past one year by maintaining a relatively higher exposure to cash & equivalents (8%) compared to the category average (4%). This has helped the fund limit its downside over the past year as the markets were negative.

-718 -15.56 -589 -13.42 -856 -18.61 -33 630 -1.60 48.15

-4000 -13.45 -1026 -1655 -676 -1170 -3.87 -7.71 -4.58 -8.78

Pramerica Mutual Fund Union KBC Mutual Fund ING Mutual Fund Sahara Mutual Fund Daiwa Mutual Fund AIG Global Investment Group Mutual Fund Mirae Asset Mutual Fund Edelweiss Mutual Fund Motilal Oswal Mutual Fund Escorts Mutual Fund Quantum Mutual Fund Bharti AXA Mutual Fund IIFL Mutual Fund

-230 -11.03 837 154.92 -24 437 -61 -2.22 92.40 -7.07

-1349 -11.42 217 -109 307 -390 2.52 -1.24 4.17 -5.77

Fund Manager
679 444 373 367 213 191 152 72 718 422 576 232 205 173 161 26 -39 21 -5.42 5.06

-203 -35.27 135 8 17 -9 58.14 3.96 9.94 -5.40

Mr. Anand Radhakrishnan is Sr VP, Portfolio Manager and Head of Portfolio Analytics. He is BE Chem, PGDM (IIM), and a CFA, with over 18 years of experience in investment management industry. Mr. Anil Prabhudas is AVP & Portfolio Manager. He is a CA with 18 years of experience in the investment management Industry.

-1030 -14.90 -424 -6.81

-620 -10.16 -38 -0.78

47 180.68

Every month, Fund Focus will feature one of the CRISIL Mutual Fund Rank 1 Schemes
1

Grand Total 664792 681708 -16916 -2.48 AAUM is quarterly average number and excludes Fund of Funds

Top 100 stocks based on market capitalisation listed on the NSE

Frequently Asked Questions

2.

Understanding Monthly Fund Factsheets on AMC Websites

1. What are monthly mutual fund factsheets?
A mutual fund factsheet is a monthly disclosure published by mutual funds on their websites. The factsheet provides important qualitative and quantitative information about the mutual fund to help investors take informed investment decisions. Chart 1 Sample Investment Style Boxes of Equity and Debt Mutual Funds
Investment Style - Equity Fund Value Blend Growth Large Cap Diversified Small & Mid Cap Investment Style - Debt Fund High Credit Quality Medium Low High Medium Low

Why investors should understand factsheets?

Factsheets mirror the working of mutual funds and hence are important tools for investors while they choose a fund to invest based on their risk return objectives. For investors who have already invested in mutual funds, factsheets help in tracking the performance of funds and ascertain whether they continues to match their financial goals and risk appetite.

Capitalisation

Interest Rate Sensitivity

3.

What information is available in a factsheet?

Factsheets broadly highlight three aspects 1) basic information, 2) historic performance 3) portfolio attributes. Basic Information - It provides general information about the fund - its objective, assets under management (AUM), fund manager details, exit loads, minimum investment amount, details about systematic investment plans (SIP) / systematic transfer plans (STP) among others. Some mutual funds also provide an investment style box (Chart 1). In case of equity funds, investors can gauge the type of stocks the fund invests in - one, by market capitalization (large cap, small and mid-cap and flexi-cap or diversified) and two, by type of stocks (growth, value or a blend of both). Growth stocks are stocks performing well consistently while value stocks are undervalued stocks with potential to become growth stocks. In case of debt funds, the style box will denote the overall credit quality of the fund (based on individual credit rating of instruments in the portfolio) as well as interest rate sensitivity of the portfolio. A portfolio with a longer maturity will have a higher interest rate sensitivity. Historical Information - This section looks at the fund's performance across time frames and compares it with the fund's benchmark and a market benchmark, viz., S&P CNX Nifty or BSE Sensex for equity funds and 10-year Gilt Index for debt funds. Factsheets also provide information on various risk ratios such as standard deviation (volatility), Sharpe ratio and Treynor ratio among others to judge the risk of the fund. Investors can refer to these numbers and understand how the fund is performing relative to peers. Investors may consult their investment advisors for details on using these risk ratios. Portfolio attributes - This is a snapshot highlighting where the fund has invested its corpus (across equity, debt, gold and cash) with details of equity stocks and debt securities along with the respective sectors, credit rating and percentage of the portfolio against each. Investors can interpret whether the fund is properly diversified or is concentrated in few stocks and sectors. Exposure to derivatives and other complex products are provided separately.

4.

What are the important portfolio components for an investor?

Asset allocation - This throws light on the distribution of the portfolio across various asset classes viz. equity, debt, gold and cash. Market capitalization profile - This attribute reflects the fund's exposure to midcap, small-cap and large-cap stocks. Investors can link their risk profile to the market capitalization profile of the fund. For example, a relatively higher large cap market capitalization profile will carry a relatively lower risk compared to mid and small cap stocks' exposure. Average maturity and modified duration - A debt mutual fund investor must look for the fund's average maturity and / or modified duration as it provides vital information about its interest rate sensitivity. A lower average maturity is associated with lower interest rate risk. Liquid funds have the lowest average maturity of less than 91 days. Credit quality profile - A debt fund's holdings are classified according to its credit ratings such as AAA, AA+, PI+ (given by credit rating agencies) etc. Funds having higher exposure to AAA (top rated long term debt) and P1+ (top rated short term debt) have lower credit risk and higher credit quality.

5.

What are the other data points that investors must understand from a fund factsheet?

Expense Ratio - Expense Ratio is the per-unit cost of managing a fund viz., the ratio of the total costs incurred while managing the assets of a mutual fund scheme. It includes fund management fee, registrar fees and selling and promotion expenses. Between two funds in the same peer group, the lower the expense ratio the better it is. Equity funds have a higher expense ratio vis-a-vis debt funds. The expense ratio varies between 1.75% and 2.5% for equity funds and between 1.5% and 2.25% for debt funds. Fund Manager - This section gives details like the fund manager's experience, education, investment style and performance. Some fund houses also disclose fund managers' performance across the number of schemes managed by them. Investors thus know whether their money is being managed by a novice or an experienced manager. Investors are advised to read the fund factsheet in conjunction with all parameters and not look at the parameters in isolation
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