Ignore the marketing copy. A mutual fund factsheet has exactly 7 numbers you need to check — AUM, expense ratio, R-squared, beta, turnover, portfolio concentration and rolling returns. Here is what each one means.
A mutual fund factsheet is the single most important document you can read before investing. It is legally mandated, updated monthly, and contains everything the fund company is required to tell you. Most people read the first page — the fund manager's photo, the trailing returns — and stop. Here are the 7 numbers buried deeper in the document that actually tell you whether the fund is worth your money.
1. AUM (Assets Under Management)
AUM is the total market value of all the money the fund manages. It tells you two things: size and survivability.
- Too small (below Rs 500 crore): The fund may be unprofitable for the AMC to run. Small funds can be merged or closed, and they often have higher expense ratios because costs are spread over fewer assets. - Too large (above Rs 30,000-50,000 crore for a single fund): The fund may struggle to deploy new inflows without moving the market, especially in mid-cap and small-cap categories. - Rapid growth or decline: If AUM doubled in 6 months, the fund manager may be struggling to find enough good ideas to invest the new money. If AUM halved, investors are fleeing — find out why.
2. Expense Ratio (TER — Total Expense Ratio)
This is the annual fee charged by the fund, expressed as a percentage of AUM. It is deducted from the fund's NAV every day.
- Direct plans: 0.1-0.5% for index funds, 0.5-1.2% for actively managed equity funds. - Regular plans (sold through distributors): 0.5-1.0% higher than direct plans because a distributor commission is built in.
A 1% difference in expense ratio, compounded over 20 years on a Rs 10,000/month SIP, is a difference of approximately Rs 15-20 lakh in final corpus. The expense ratio is the only guaranteed drag on your returns — everything else is uncertain.
Rule of thumb: For a large-cap fund, an expense ratio above 1.5% for regular plans (0.8% for direct plans) is hard to justify. For a small-cap fund, up to 2% is acceptable because the research cost is genuinely higher.
3. R-squared and Beta — do not skip these
These two statistics tell you whether the fund is actually doing what it claims.
R-squared (0-100): How closely the fund's returns track its benchmark. A large-cap fund with R-squared below 0.85 relative to the Nifty 50 is not really a large-cap fund — the manager is taking bets outside the category. A high R-squared (0.95+) means the fund mostly moves with the index and you should question why you are paying an active management fee for index-like returns.
Beta: How much the fund moves relative to the benchmark. A beta of 1.0 means the fund moves exactly with the market. A beta of 1.2 means: if the market goes up 10%, expect the fund to go up 12% — and if the market drops 10%, expect a 12% drop. A beta below 1.0 means lower volatility than the market.
Beta tells you the risk. If you do not know your fund's beta, you do not know your fund's downside.
4. Portfolio Turnover Ratio
This tells you how frequently the fund manager buys and sells. A turnover of 50% means half the portfolio was replaced in a year. A turnover of 200% means the entire portfolio was replaced twice.
- Low turnover (under 30%): The manager buys and holds. Lower transaction costs, lower realised capital gains distributions. Index funds typically have turnover under 10%. - High turnover (over 100%): The manager is actively trading. Higher costs, more frequent capital gains realisations that flow to you as taxable distributions.
High turnover is not automatically bad — but it needs to produce enough additional return to justify the additional cost and tax drag. Check the fund's pre-expense returns vs post-expense returns: if the gap is large, high turnover is eating your returns.
5. Top 10 Holdings and Sector Concentration
Every factsheet lists the top 10 stocks and the sector allocation. Two things to check:
- Top holding as % of AUM: If the largest single stock is above 8%, the fund has concentrated risk. A 20% drop in that one stock is a 1.6% hit to the fund's NAV. - Top sector as % of AUM: If the fund has 35%+ in a single sector (commonly Financial Services), it is making a sector bet — whether the fund manager calls it that or not.
Compare the fund's sector weights against the benchmark. If the fund has 25% in Technology vs 14% in the Nifty 50, it is overweight — you are paying for a sector bet you may not have intended.
6. Rolling Returns (not trailing returns)
Trailing returns (1-year, 3-year, 5-year) depend heavily on the start date. A fund that launched at the bottom of a crash will show spectacular 3-year returns. A fund that launched at a market peak will show poor returns. Neither tells you about the fund manager's skill.
Rolling returns solve this: they show what return an investor would have got if they invested on ANY day and held for the specified period. For example, a 3-year rolling return shows the range of outcomes — the best 3-year period, the worst, and the median.
Check: what was the WORST 3-year return? If the worst 3-year rolling return is negative, you know the fund can lose money over 3 years. If the range between best and worst is very wide, the fund is volatile.
Most factsheets show only trailing returns. You may need a third-party site (Value Research, Morningstar) for rolling returns — but the few minutes it takes is worth the insight.
7. Standard Deviation and Sharpe Ratio
- Standard Deviation: How widely the fund's monthly returns swing around the average. A standard deviation of 15% means: in a typical year, the fund's return will fall within ±15 percentage points of its average. Higher = more volatile. - Sharpe Ratio: Return per unit of risk. It is the excess return (above the risk-free rate) divided by the standard deviation. A Sharpe ratio above 0.5 for equity funds is acceptable; above 1.0 is excellent.
Do not compare Sharpe ratios across categories (equity vs debt). Compare within the same category.
The 5-minute checklist
When you open a factsheet, go to these 7 things, in this order:
1. AUM — is the fund viable? Above Rs 500 crore? 2. Expense ratio — is it competitive? Direct plan under 1%? 3. R-squared vs benchmark — is the fund actually active? 4. Beta — how much more volatile than the market? 5. Top 10 concentration — any single stock above 8%? 6. Turnover — is the manager trading too much? 7. Worst rolling 3-year return — what is the realistic downside?
If all 7 pass, read the fund manager commentary. If any one fails badly, you have a reason to look at a different fund.
Frequently Asked Questions
### Where can I find the monthly factsheet? On the AMC's website under 'Downloads' or 'Factsheets.' Also available on Value Research, Morningstar, and most mutual fund platforms. Download the PDF — the data tables are more reliable than the marketing summary on the homepage.
### What if the fund manager changed recently? Check the factsheet for 'Fund Manager — since [date].' If the current manager has been in place for less than 2-3 years, the historical returns were generated by someone else. Past performance is not the current manager's track record.
### Is a lower expense ratio always better? For index funds: yes, the lowest expense ratio in the category is almost always the best choice — all index funds tracking the same index hold the same stocks. For active funds: a slightly higher expense ratio is acceptable if the fund consistently delivers higher risk-adjusted returns (higher Sharpe ratio, higher rolling returns). But the burden of proof is on the higher-fee fund.
### How often should I check my fund's factsheet? Once a quarter is enough for long-term investors. Monthly checking leads to over-trading and second-guessing. The factsheet data that matters most (portfolio concentration, sector bets, expense ratio) changes slowly — quarterly is the right cadence.
### What is the most important number on a factsheet? If you check only one number: the expense ratio. It is the only thing that is guaranteed. Everything else — returns, alpha, fund manager skill — is uncertain and backward-looking. A low expense ratio is the only thing you can control.
Disclaimer
This article is for educational purposes only. It does not recommend any specific fund. Past performance does not guarantee future results. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing.