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BYNARENDRANATHAN,ETBUREAU|UPDATED:MAY11,2015,08.34AMIST PostaComment

Thesestatisticscanhelpyouunderstandwhat'sunderthehoodofamutualfund:

1.CreditRating(Debtschemesonly)

Whatitindicates

Alldebtpapersthatthefundinvestsinareratedbyagenciesaccordingtotheirriskprofile.
Whilegovernmentsecuritiesaretotallyriskfree,corporatepapersareratedfromAAA
(highestsafety)toD(default).

Howisitcalculated Thesestatisticscanhelpyouunderstandwhats
underthehoodofamutualfund.

Agenciesusetheirownmethodologytorateafund.Theratingsareusuallyprovidedin
thefund'sfactsheet. BigChange:
TheendofFiveYearPlans:Allyouneedtoknow

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Implicationsforinvestors

Highratingindicatesthatthefundistakinglowercreditrisk.Sinceinvestorsgofordebtinvestmenttoreducerisk,theyshouldavoid
schemeswithtoomanylowqualitypapers.

2.SharpeRatio

Whatitindicates

Thisratioshowsthereturnperunitofthetotalrisktakenbythescheme.

Howisitcalculated

(Returnriskfreereturn)standarddeviation

Implicationsforinvestors

Compareonlywithincategories.HigherthancategoryaverageSharperatioindicatesthatthefundmanagerwasabletogeneratehigher
returnperunitoftotalrisk.

3.AverageMaturityorMaturityProfile(Debtschemesonly)

Whatitindicates
Debtfundsinvestinpaperswithvaryingmaturities.Thematurityprofileindicatestheaveragematurityofalldebtsecuritiesinafund.

Howisitcalculated

Thisisusuallygiveninthefund'sfactsheet.

Implicationsforinvestors

Marketpricesoflongdurationpapersaremoresensitivetomovementsininterestrates.Investorsshouldavoidfundswithlongmaturity
ifinterestratesarelikelytorise.Ifratesarelikelytofall,suchschemescangivehigherreturns.

4.ExpenseRatio

Whatitindicates

Thisratiorepresentstheannualexpensethefundwillchargetheinvestor.Itrangesbetween0.1%(forfixedmaturityplans)to3.25%
(forsmallsizedequityfunds).

Howisitcalculated

Totalexpenseschargedbythefund/averageassetsundermanagementofthefund.

Implicationsforinvestors

Thelowertheexpenseratio,thebetteritisfortheinvestor.Sincemostdebtfundsgeneratesimilargrossreturns,expenseratio
becomesmoreimportantfordebtfunds.Directplanshavelowerexpenseratios.

5.PortfolioConcentrationRatio

Whatitindicates

Thisratioshowswhereandhowmuchhasthefundinvested.

Howisitcalculated

Thisisusuallyapercentageofthefund'stopfivestocksorsectors.

Implicationsforinvestors

Normalrangeis30%40%fortopfivestocksand30%60%fortopfivesectorsfordiversifiedfunds.Investorsgotomutualfundsfor
diversification,anyundueconcentrationinitsportfoliodefeatsthisgoal.

6.ExitLoad

Whatitindicates

Thisisthepenaltychargedbyamutualfundforleavingaschemeearly.

Howisitcalculated

Exitloadnormallyrangesbetween0%(forliquidfunds)and1%(upto1yearofholdinginanequityscheme).

Implicationsforinvestors
Investinschemeswithlowerexitload.Pleasenotethattheexitloadwillbechargedbasedontheloadstructureapplicableatthetime
ofinvestmentandnotatthetimeofredemption.

7.StandardDeviation

Whatitindicates

Thisisameasureofthevolatilityinafund'sreturnsand,therefore,indicatestheriskinafundsportfolio.

Howisitcalculated

First,calculatetheaverageofdailyreturns.Deductthisaveragefromeachdailyreturnandsquarethedifference.Thesumofallthese
squaredvaluesisthendividedbythenumberofdaystogetthevariance.Andthesquarerootofthevarianceisstandarddeviation.

Implicationsforinvestors

Lowerthedeviation,thebetteritis.However,oneneedstocompareitonlywithincategories.Therangecanbebelow1%forliquid
fundsand20%40%forequityfunds.

8.PortfolioTurnoverRatio

Whatitindicates

Thisratiocaptureshowfrequentlyaschemetrades(buysorsells)initsportfolio.Whileitwillbelowforpassivelymanagedschemes,it
cangoupto500%foractivelymanagedequityschemes.

Howisitcalculated

Totalvalueofsecuritiessoldorboughtover12months/averageassetsundermanagementofthefund.

Implicationsforinvestors

Thisrationeedstobecomparedwithincategory.Activeinvestorscanoptforschemeswithahighturnoverratio,whilepassive,long
termbuyandholdinvestorscangoforlowturnoverratioschemes.

9.Treynor'sRatio

Whatitindicates

Thisratioindicatesthereturnperunitmarketriskalsoknownassystemicrisktakenbythescheme.

Howisitcalculated

(Returnriskfreereturn)beta

Implicationsforinvestors

Compareonlywithincategories.HigherthancategoryaverageTreynor'sratioindicatesthatthefundmanagerwasabletogenerate
higherreturnperunitofsystemicormarketrisk.

10.Beta

Whatitindicates

Itmeasuresthefund'sperformancecomparedtothemarket.
 Howisitcalculated

ThevarianceofmarketindexiscalculatedasexplainedforStandardDeviation.Tocalculatecovariancebetweenmarketindexandthe
scheme,thedifferencebetweendailyreturnsoftheschemeandtheindexisfirstsquared.Thesumofallthesesquaredvaluesis
dividedbythenumberofdaystogetthecovariance.Finally,betaiscalculatedbydividingthecovariancebetweenmarketindexandthe
schemewiththevarianceofmarketindex.

Implicationsforinvestors

Abetavalueofonemeansthefund'sNAVmoveswiththemarket.Lessthanonemeansthefundislessvolatilethanthemarket,and
aboveoneindicatesitismorevolatilethanthemarket.

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