Mutual Fund Prospectus PDF

MUTUAL FUND PROSPECTUS WHAT IS A MUTUAL FUND PROSPECTUS? IT IS A LEGALLY BINDING AGREEMENT BETWEEN THE INVESTOR AND THE MUTUAL FUND IT DETAILS THE INVESTMENT OBJECTIVES AND STRATEGIES OF A PARTICULAR FUND AS WELL AS THE FINER POINTS OF THE FUND’S PAST PERFORMANCE IT ALSO INCLUDES INFO...

MUTUAL FUND PROSPECTUS WHAT IS A MUTUAL FUND PROSPECTUS? IT IS A LEGALLY BINDING AGREEMENT BETWEEN THE INVESTOR AND THE MUTUAL FUND IT DETAILS THE INVESTMENT OBJECTIVES AND STRATEGIES OF A PARTICULAR FUND AS WELL AS THE FINER POINTS OF THE FUND’S PAST PERFORMANCE IT ALSO INCLUDES INFORMATION ABOUT THE FUND MANAGERS AND THEIR FINANCIAL BACKGROUND IT CAN BE OBTAINED DIRECTLY FROM FUND COMPANIES THROUGH MAIL, EMAIL OR PHONE TYPES OF MUTUAL FUND PROSPECTUS 1. STATUTORY PROSPECTUS – DETAILED DOCUMENT ABOUT THE FUND’S INVESTMENT GOALS, FEES, RISKS, AND PERFORMANCE , MANAGEMENT, SHAREHOLDERS’ INFORMATION AND COMMISSIONS. IT IS REQUIRED TO BE DELIVERED TO ALL SHAREHOLDERS. 2. SUMMARY PROSPECTUS – IT IS A FEW PAGES LONG AND CONTAINS MORE OF MARKETING LANGUAGE. IT HIGHLIGHTS THE MOST IMPORTANT INFORMATION IN A CONCISE FORMAT. MAIN SECTIONS OF A MUTUAL FUND PROSPECTUS 1. INVESTMENT OBJECTIVE – IT OUTLINES THE FUND’S PRIMARY GOAL. IT INCLUDES GROWTH, INCOME OR A COMBINATION OF BOTH. THIS WILL HELP YOU UNDERSTAND WHAT THE FUND IS TRYING TO ACHIEVE WITH YOUR MONEY. 2. INVESTMENT STRATEGY – IT EXPLAINS HOW THE FUND PLANS TO ACHIEVE ITS OBJECTIVE. IT INCLUDES THE TYPES OF SECURITIES THE FUND WILL INVEST IN (STOCKS, BONDS, ETC.), THE  THE GEOGRAPHIC REGIONS IT FOCUSES ON, AND THE INDUSTRIES IT TARGETS. 3. RISK FACTORS – ONE OF THE MOST IMPORTANT PARTS OF THE PROSPECTUS. IT DETAILS THE RISKS ASSOCIATED WITH INVESTING IN THE FUND. 4. PAST PERFORMANCE – IT PROVIDES INFORMATION ON HOW THE FUND HAS PERFORMED IN THE PAST. IT USUALLY SHOWS RETURNS FOR VARIOUS TIME PERIODS SUCH AS 1-YEAR, 5 YEAR, 10-YEAR. IT MAY ALSO COMPARE THE FUND’S PERFORMANCE  TO A BENCHMARK INDEX. 5. DISTRIBUTION POLICY – THIS EXPLAINS HOW THE FUND WILL DISTRIBUTE THE INCOME TO INVESTORS. IT DESCRIBES THE TAX TREATMENT OF THESE DISTRIBUTION. FOR EXAMPLE DIVIDENDS MAYBE TAXED AT A LOWER RATE THAN ORDINARY INCOME. 6. FEES AND EXPENSES – IT BREAKS DOWN THE COSTS ASSOCIATED WITH INVESTING IN THE FUND. THESE CAN IMPACT YOUR RETURNS OVER TIME SO ITS IMPORTANT TO UNDERSTAND WHAT YOU’LL BE PAYING. 7. FUND MANAGEMENT - IT PROVIDES DETAILS ABOUT THE FUND MANAGERS , THEIR EXPERIENCE AND TENURE WITH THE FUND. HOW TO EVALUATE MUTUAL FUND PERFORMANCE 1. SCALE PERFORMANCE OF THE FUND AGAINST THE BENCHMARK – A GOOD MUTUAL FUND IS ONE THAT CONSTANTLY BEATS ITS BENCHMARK IN THE LONG TERM. WHEN A FUND GENERATES HIGHER RETURNS THAN THE BENCHMARK THE EXCESS IS KNOWN AS “ALPHA” OF THE FUND. YOU SHOULD BE EXPECTING THE FUND TO CROSS THE BENCHMARK AND RECREATE A HIGHER ALPHA. 2. ALWAYS COMPARE SIMILAR FUNDS – BY THIS YOU WILL KNOW WHICH ONE IS BETTER. 3. CONSIDER EXPENSE RATIOS – IT MIGHT SEEM SMALL AT THE BEGINNING BUT YOU MUST KNOW THE BITE IT CAN TAKE OUT OF YOUR INVESTMENT. 4. MARKET AND ECONOMIC CYCLE – TALK TO AS MANY INVESTMENT ADVISORS AS POSSIBLE AND THEY CAN TELL YOU WHAT IS IMPORTANT TO ANALYZE WHEN AND HOW YOU CAN DETERMINE WHICH IS THE BEST MUTUAL FUND FOR YOU. 5. RISKS – THESE CAN NOT BE ELIMINATED BUT YOU CAN WEIGH IT ACCORDING TO YOUR RISK APPETITE. ALL YOU NEED TO DO IS ANALYZE YOUR MUTUAL FUND’S RISK PROFILE BY USING A RISKOMETER. A RISKOMETER IS A VISUAL REPRESENTATION OF A MUTUAL FUND SCHEME’S RISK PROFILE THAT DEMONSTRATES THE DEGREE OF RISK CONNECTED TO THE INVESTMENT. 6. MANAGER’S TENURE – CONSIDER THE FUND IF THE MANAGER’S TENURE IS APPROXIMATELY A 3-YEAR PERIOD. HOW TO MEASURE MUTUAL FUND RETURN TOP 5 MEASURES TO MEASURE MUTUAL FUND’S RETURN 1. ALPHA – A FINANCIAL RATIO THAT REFLECTS THE RETURNS GENERATED BY THE FUND OVER AND ABOVE THE RETURNS GENERATED BY THE BENCHMARK INDEX. THE ALPHA VALUE OF ZERO MEANS THE FUND HAS PERFORMED IN LINE WITH THE BENCHMARK. A NEGATIVE VALUE WOULD MEAN IT HAS UNDERPERFORMED AND IF ABOVE ZERO WOULD MEAN IT HAS OUTPERFORMED. 2. BETA – IT SHOWS THE TENDENCY OF A PORTFOLIO’S RETURN TO FLUCTUATE AS PER THE MARKET MOVEMENTS. BETA VALUE OF 1 MEANS THAT THE MUTUAL FUND IS AS VOLATILE AS ITS BENCHMARK. WHILE A VALUE ABOVE 1 MEANS THE FUND IS VOLATILE AND A VALUE BELOW 1 MEANS THE FUND REACTS LESSER THAN ITS BENCHMARK. 3. EXPENSE RATIO – IT IS THE RATIO OF THE TOTAL FUND’S EXPENSES TO ITS ASSETS AND REFLECTS THE PER UNIT COST OF MANAGING A FUND. THIS IS AN ESSENTIAL FACTOR TO BE CONSIDERED WHILE SELECTING A FUND SINCE THE HIGHER THE EXPENSE RATIO, THE LOWER IS THE RETURN AND VICE VERSA. 4. ALLOCATIONS IN THE FUND’S PORTFOLIO – A WELL DIVERSIFIED PORTFOLIO IS EXPECTED TO GENERATE BETTER RETURNS SINCE VOLATILE ASSETS ARE BALANCED OUT WITH STABLE ONES. 5. ROLLING RETURNS – THE AVERAGE ANNUAL RETURNS FOR A SPECIFIED TIMEFRAME WITH RETURNS TAKEN INTO ACCOUNT TILL THE LAST DAY OF THE DURATION. IT REFLECTS THE RELATIVE AND ABSOLUTE PERFORMANCE OF THE FUND AT REGULAR INTERVALS. IT IS MORE EFFECTIVE, ACCURATE AND UNBIASED AS THEY SHOW HOW THE FUND PERFORMED DURING THE ENTIRE DURATION. HOW TO MEASURE MUTUAL FUND RISK 5 WAYS TO MEASURE MUTUAL FUND RISK 1. ALPHA 2. BETA 3. R SQUARED – REPRESENTS THE PERCENTAGE OF A FUND PORTFOLIO THAT CAN BE EXPLAINED BY MOVEMENTS IN A BENCHMARK INDEX. ITS VALUE RANGES FROM 0 – 100. R-SQUARED VALUE BETWEEN 70- 100 HAS A GOOD CORRELATION TO THE INDEX. 40 -70 AVERAGE CORRELATION AND 40 OR LESS DOES NOT PERFORM LIKE THE INDEX. 4. STANDARD DEVIATION – MEASURES THE DISPERSION OF DATA FROM ITS MEAN. IT IS APPLIED TO THE ANNUAL RATE OF RETURN OF AN INVESTMENT. IT TELLS US HOW MUCH THE RETURN ON A FUND IS DEVIATING FROM THE EXPECTED RETURNS BASED ON ITS HISTORICAL PERFORMANCE. A VOLATILE STOCK WOULD HAVE A HIGHER STANDARD DEVIATION. 5. SHARPE RATIO – MEASURES THE RISK- ADJUSTED  PERFORMANCE. IT IS CALCULATED BY SUBTRACTING THE RISK-FREE RATE OF RETURN FROM THE RATE OF RETURN OF AN INVESTMENT AND DIVIDING THE RESULT BY THE INVESTMENT’S STANDARD DEVIATION OF ITS RETURN. IT TELLS INVESTORS WHETHER AN INVESTMENT’S RETURN ARE DUE TO WISE INVESTMENT DECISIONS OR THE RESULT OF EXCESS RISK. THE GREATER AN INVESTMENT’S SHARPE RATIO, THE BETTER ITS RISK-ADJUSTED PERFORMANCE. RISK-ADJUSTED RETURN IN MUTUAL FUND A TECHNIQUE TO ANALYZE AND MEASURE THE RETURNS ON INVESTMENT FOR WHICH THE FINANCIAL, MARKET, CREDIT AND OPERATIONAL RISKS ARE ANALYZED AND ADJUSTED SO THAT THE INDIVIDUAL CAN MAKE A DECISION ON WHETHER THE INVESTMENT IS WORTH IT WITH ALL THE RISKS IT POSES TO THE CAPITAL INVESTED.