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Moneylife » Investing » Mutual Funds » Funny facts from factsheet of mutual funds

Funny facts from factsheet of mutual funds

Vivek Sharma | 22/11/2012 04:15 PM | 

The factsheet of a mutual fund displays its investment information. But, do the investments in the factsheet, match their mandate?

The fact sheet of a mutual fund is a very important document for a prospective investor as well as an existing investor. It won’t be an exaggeration to call the fact sheet an ocean of information. Where else will an investor get information about investment objective, expense ratio, beta, standard deviation, etc, of various schemes of a mutual fund? Factsheets need to read by every investor extensively in order to get a fair idea about how investments are being made by a mutual fund. But more important than all this is that fact sheets also reveal some strange investments made by mutual funds which do not match with the investment objectives.

A Moneylife article on global funds had stated that how Fidelity International Opportunities Fund was not a truly global fund, “Fidelity International Opportunities Fund, which will soon be christened L&T Global Real Assets Fund, led the list with an annualised return of 21.21%. However, it is important to note that this scheme is not a pure global scheme. Amazingly, there are just two foreign picks in its top 10 holdings—Samsung Electronics and Origin Energy. The other top picks include HDFC Bank, HDFC and ITC. It appears more like a multi-cap, multi-country fund.”

Read more news and analysis on mutual fund by Moneylife.

Let us have a look at some other mutual fund schemes where the investment objective and actual practice of mutual fund do not match well. Here are some such examples:

Case-1: Reliance Small Cap Fund

Investment Objective: The primary investment objective of the scheme is to generate long-term capital appreciation by investing predominantly in equity and equity-related instruments of small-cap companies and the secondary objective is to generate consistent returns by investing in debt and money market securities.

Actual Practice versus Investment Objective:  The scheme has investment in Infosys which is 1.64% of total investment. Whether Infosys is a small-cap or not is an open secret. On the lighter side, is the fund confident that Infosys will turn into a small-cap shortly?  Similarly the scheme has invested in several mid-cap companies. There is no investment made in debt and money market by the scheme as per the fact sheet. (Source: Nov 2012 factsheet)


Case-2: Reliance Diversified Power Sector Fund

Investment Objective: The primary investment objective of the scheme is to seek to generate continuous returns by actively investing in equity and equity-related or fixed income securities of power and other associated companies

Actual Practice versus Investment Objective:  The scheme has invested 5.19% of total corpus in ICICI Bank. It is not sure if ICICI Bank qualifies as associated company of power sector companies and if that is the case why only “ICICI Bank”.  Investment objective and actual practice do not seem to gel well. (Source: Nov 2012 factsheet)


Case-3: ICICI Prudential Banking and Financial Services Fund

Investment Objective: Long-term investment of funds having potential for capital appreciation in banking and financial services sector

Actual practice versus investment objective: The scheme has invested 1.5% of total corpus in Max India. Though Max India has interest in the finance business, it is predominantly into healthcare, so the actual investment and investment objective does not seem to match perfectly.


All these three cases reflect that mutual funds are not consistent with their investment objectives always. This highlights the need for an investor to go through factsheet end-to-end and decide before investing in a mutual fund. The actual practice versus investment objective is a fair reflection of how a mutual fund operates.

You might also want to read other articles by the same writer. To visit these articles, click here.

(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post-graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)

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Balaji GK

Balaji GK 3 years ago

The view expressed by vivek sharma on Mutual Fund scheme portfolio seems to lack some understanding. Any scheme objective as laid out by the Fund will deemed to be complied if 70% of the portfolio is kept in said objective(count out debt invt since it is temporal). So there is no major deviation when the keep some money outside the purview which could some times act as natural hedge. Also in the specific instance of ICICI Bank being included in Power sector Fund is not bad if in the opinion of the Fund Manager, the scheme will benefit due to ICICI power sector exposure. Also sectoral fund and thematic Fund by definition will include allied sectors or services that stand to benefit directly or indirectly. So in my sense dont sensationalise the issue without knowing the barfe facts...

Baaji GK
Chief Mentor
VIVA Finishing Skool

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vivek sharma

vivek sharma 3 years ago in reply to Balaji GK


You must learn to quote regulations in right perspective. Let me quote the SEBI regulation here as per the master circular on mutual funds which says,' The amended Regulation mandates that AMCs shall appoint separate fund manager for each separate fund managed by it unless the investment objectives and assets allocations are the same and the portfolio is replicated across all the funds managed by the fund manager. The replication of minimum 70% of portfolio value shall be considered as adequate for the purpose of said compliance’.

Hence, this requirement is for appointment for separate fund managers and not meeting investment objectives. Also note that there is no dearth of good power sector companies in India. A power sector fund can easily invest in power sector companies in India without deviating from fund's objective.

Banks exposure to power sector has been a cause of concern and hence the question of bank's benefiting from power sector exposure is more of a wishful thinking. If you read various reports on power sector exposure, you will realise that banks are struggling to recover money invested in power sector.

Last but not the least; I will request you to once again refer to a good dictionary to understand the meaning of word,' sensationalize'. Whatever, I have written are the facts sourced from fact sheets of mutual funds. The question of sensationalisation does not arise.

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Rakesh 3 years ago in reply to vivek sharma

Mr Balaji is a mentor of some finishing 'skool'. He needs some basic education about mutual funds

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Deepti Nair

Deepti Nair 3 years ago

The avive view specifically in the case of the ICICI Prudential Banking and Financial Services Fund would not be right. Max has business interests in life insurance, health insurance, hospitals and old age service providing.
As per fund manager valuations estimates, only between 12% to 16% of the value of the company is attributable to hospital business and old age service providing. The remainder of the valuation is attributable to life insurance, health insurance ( which comes under the discription of financial services ) and the cash in the books. So, this company is predominantly a financial services provider

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P V Deshpande

P V Deshpande 3 years ago

I somwhat disagree on the views sighted by the author. If you see offer document of any mutual fund scheme, objectives are mentioned whereby the fund manager has to work out the strategy. But he has given some leverage too. With this freedom, he can divert some amount towards buying some scrips way out of the main stream so as to outperform the benchmark. Take for example of 'infosys' in 'Reliance Small Cap fund' where allocation is just 1.64% as author has mentioned.

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Rakesh 3 years ago in reply to P V Deshpande

If fund managers have so much of leeway, then why launch so many different funds?
The reason is when they launch a fund, they sell different'flavours. I guess you don't know this angle which is why you response is so theoretical

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Ramesh Poapt

Ramesh Poapt 3 years ago

Bahot achheji, kya baat hai?
pl keep it up...

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Winmyid 3 years ago

The "primary" investment objective, that means there are some secondary objective!

Being a part of a global fund, I can tell you that most of the fund manager will not remember their own objective because its written (copy and pest) by lawyers or by some analyst!

They all should write:

The "primary" objective of the fund to maximize AUM for the fund and the secondary objective to maximizing return by taking any amount of risk...

Customer, reader, do not give a damn about Sharpe ratio, all they see is "1Y, 3Y and 5Y return) and so does the moneylife meg in their "best fund recommendation"

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Rakesh 3 years ago in reply to Winmyid

Moneylife is not into 1y, 3y, 5y fixed period analysis
Pls read carefully before commenting

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Rakesh 3 years ago in reply to Winmyid

Moneylife is not into 1y, 3y, 5y fixed period analysis
Pls read carefully before commenting

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