You will be able to find a fund's objective, risks, charges, holdings and performance in its own documents within fifteen minutes.
When Wei Ling first bought her Asia equity fund, the relationship manager slid three documents across the desk: a glossy two-page factsheet, a slightly longer Product Highlights Sheet and a prospectus thick enough to prop a door open. She read the factsheet, signed and took the rest home, where they stayed in the envelope.
Most people do the same. Yet between them, those three documents answer almost every question you could ask about a fund. This lesson tells you which document holds which answer, so you can find what you need in about fifteen minutes.
The factsheet is the fund's one-page summary, usually updated every month. It is the easiest to read and the most selective. Expect to find the fund's objective in a sentence or two, the benchmark it compares itself with, the largest holdings, a breakdown by country or sector, performance over several periods, the fund size, launch date and some of the charges.
Treat it as marketing that has to be accurate. The figures are real, but the factsheet chooses which ones to show. It may list the management fee and leave out other running costs, and it may show performance in a way that flatters. It is the right place to start, and the wrong place to stop.
In Singapore, MAS requires a Product Highlights Sheet for retail funds: a short document, written to a set format, that says what the fund is, what it invests in, the main risks and the fees. It exists so that a retail investor can understand a product without wading through the prospectus.
The Product Highlights Sheet is where to look for the risks in plain words. It usually separates market risk, liquidity risk, currency risk and any risks particular to the product, such as the use of derivatives or a focus on one country. It also sets out the fees you pay directly, like the sales charge and redemption charge, and the fees paid out of the fund, like the management fee. Wei Ling found her fund's main risks listed in about a page: market risk in Asian shares, concentration in a few sectors, currency risk from holdings in other currencies, and emerging market risk.
The prospectus is the contract between the fund and its investors. It is long because it has to cover everything. Here you find the investment powers, which say what the manager is allowed to buy and how much borrowing or derivative use is permitted. You also find the full schedule of charges, often as maximum rates, the dealing rules with cut-off times and settlement periods, the full list of risks, and the names of the manager, the trustee and the custodian.
Nobody reads a prospectus front to back. Use the contents page and go straight to the sections you need. When the factsheet and the Product Highlights Sheet leave a question open, the prospectus is where the answer is. If two documents seem to disagree, the prospectus is the one the fund is bound by.
Performance is the number most people look at first, and the one most often misread. Before you take any figure at face value, check three things.
The first is whether it is shown before or after charges. Many factsheets show returns on a NAV-to-NAV basis, which means the management fee and running costs are already deducted, because they come out of the NAV, but any sales charge you paid is not. A fund with a 3% sales charge needs to earn that 3% back before a first-year return means anything to you. Some factsheets show a second line that includes the sales charge. Look for the footnote that says which basis is used.
The second is which benchmark the fund compares itself with. A fund holding Asian shares should be measured against an index of Asian shares, ideally one that matches its mix of countries. If the factsheet uses a benchmark that is easy to beat, or shows no benchmark at all, note it. Module 6 returns to this when you test a fund against its own benchmark.
The third is the period. Longer periods tell you more than one good year. Look for three, five and ten years, and for figures shown as yearly averages rather than totals, so you can compare like with like.
Wei Ling tried this with her own fund. From the factsheet she took the objective, which was long-term capital growth from Asian shares outside Japan, and the benchmark, an Asia ex-Japan equity index. From the Product Highlights Sheet she took the three largest risks and the fees: a maximum sales charge, which in her example document was 5%, and an annual management fee. From the prospectus she found the rest of the running costs and the dealing cut-off time. She noted the source next to each fact, so she could check it again when the documents were updated.
You can find all three documents on the manager's website, usually under the fund's own page, and your bank or platform must give you the Product Highlights Sheet before you buy. In the activity below you will do the same for your own fund, one line per fact, with the document each one came from.
For your fund, write one line each on its objective, benchmark, three largest risks and yearly charges, citing the document each came from.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).