You will be able to find a fund's objective, risks, charges, holdings and performance in its own documents within fifteen minutes.
Each of a fund's three documents answers a different kind of question. The factsheet tells you what the fund is trying to do and how it has done. The Product Highlights Sheet tells you the risks and the fees. The prospectus covers anything the other two leave out. If you know which one to open for each question, you can find the key facts about your own fund in about fifteen minutes.
Between them, the three documents answer almost every question an investor could ask about a fund, but most people read only the factsheet. Take Wei Ling, an example investor who bought an Asia equity fund. Her relationship manager gave her all three: a glossy two-page factsheet, a slightly longer Product Highlights Sheet and a very thick prospectus. She read the factsheet, signed, and took the other two home, where they stayed unopened in the envelope.
The factsheet is the fund's summary. It is usually one page, sometimes two as Wei Ling's was, and it is usually updated every month. A factsheet usually shows the fund objective in a sentence or two, the benchmark, the largest holdings, a breakdown by country or sector, performance over several periods, fund size, launch date and some of the charges.
Of the three documents, the factsheet is the easiest to read and the most selective. Treat it as marketing that has to be accurate. The figures on it are real, but the fund manager picks which ones to show. A factsheet may list the management fee and leave out other running costs, and it may present performance in a way that flatters the fund. It is the right place to start, and you then need the Product Highlights Sheet and the prospectus for the costs and risks it does not show.
In Singapore, MAS requires a Product Highlights Sheet for retail funds. It is short, it follows a set format, and it says what the fund is, what it invests in, the main risks and the fees. It is meant to let a retail investor understand a product without reading the prospectus.
This is the document to read for the risks in plain words. It usually lists market risk, liquidity risk and currency risk separately, plus any risks particular to the product, such as use of derivatives or a focus on one country. When Wei Ling opened hers, the main risks took up about a page: market risk in Asian shares, concentration in a few sectors, currency risk from holdings in other currencies, and emerging market risk.
It also sets out the fees in two groups. Fees paid directly are the ones you pay yourself, such as a sales charge or a redemption charge. Fees paid out of the fund are taken from the fund itself, such as the management fee, and you never see them as a separate bill.
The prospectus is the legal contract between the fund and its investors. It is long because it has to cover everything. It contains:
the investment powers, which say what the manager may buy and how much borrowing or derivative use is allowed the full schedule of charges, often given as maximum rates the dealing rules, including cut-off times and settlement periods the full list of risks the names of the manager, the trustee and the custodian
Nobody reads a prospectus from 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 answer is in the prospectus. If two documents seem to disagree, the prospectus is the one the fund is legally bound by.
Performance is the number most people look at first and the one they most often misread. Before you take any performance figure at face value, check three things: whether it is before or after charges, which benchmark it is compared with, and which period it covers.
Charges first. Many factsheets show returns on a NAV-to-NAV basis. The management fee and running costs are already deducted, because they come out of the NAV, but any sales charge you paid is not. Look for the footnote that says which basis is used. A fund with a sales charge has to earn that charge back before a first-year return means anything to you, so with a 3% sales charge, as an illustration, the fund needs to make back that 3% first. Some factsheets show a second performance line that includes the sales charge, and that line is closer to what you actually got.
Then the benchmark. A fund should be measured against an index that matches what it holds. For a fund of Asian shares, that means an Asian share index, ideally one that matches the fund's mix of countries. If the factsheet uses a benchmark that is easy to beat, or shows no benchmark at all, write that down. Module 6 returns to this when you test a fund against its own benchmark.
Then the period. Longer periods tell you more than one good year. Look for three-, five- and ten-year figures, and prefer figures shown as yearly averages over totals, so that you are comparing like with like.
All three documents are usually on the fund manager's website, on the fund's own page. A bank or platform must also give you the Product Highlights Sheet before you buy.
Wei Ling did this for 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 of the four risks listed, and the fees: a maximum sales charge of 5% in her example document, and an annual management fee. From the prospectus, using the contents page, she found the rest of the running costs and the dealing cut-off time. She wrote the source document next to each fact, so she can check it again when the documents are updated.
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, its benchmark, its three largest risks and its yearly charges. Next to each line, note which document you found it in.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).