Understanding a fund fact sheet

The more we use financial terms in our daily lives, the more they will become more comfortable to use going forth. Industry jargon does need to always give us a headache. It is like learning a new language, so it can be a challenging task to undertake. Be mindful that some professionals will use uncommon financial terms to deceive us or use them as an intimidation tool to not keep us adequately informed about the status of our investments. This plays a key role in ethical standards, honesty and integrity. There is more to a client-professional relationship than just the provision of a service or product.

Asking questions and seeking for more information on financial planning and resource management opens the door to better understanding. A professional in the financial industry that discourages or is uncomfortable being asked questions about the work they do for us should definitely ring our alarm bells.

By asking questions, we can get clarity and better understanding on the different drivers in our financial planning cycle. This would include having unbiased knowledge about ourselves, our financial and lifestyle goals, the financial planning instruments we choose to use and the professionals that assist us in our financial planning journey.  

Our financial planning topic for this week is UNDERSTANDING A FUND FACT SHEET. Investments and portfolio management are part of the base of most financial planning strategies to achieve identified financial and lifestyle goals. A collection of investment funds form an investment portfolio. It is like a collection of books (funds) that complete a library (portfolio). A fund is a group of equities, bonds, cash and other commodities. These different asset classes have varying percentages to collectively make up a total of 100 percent for a whole investment portfolio. The skeletal structure and identity of an investment fund is what is outlined in what we have come to know as a fund fact sheet.

Whether we already have an investment fund (or portfolio) or thinking of acquiring one, we will need to have the ability to read and understand a fund fact sheet. A fund fact sheet is usually a page long document which maybe longer in some instances. Each investment fund has its own fund fact sheet. These fund fact sheets are what allow us to compare different funds to ultimately choose the best option for us.

Some aspects to look out for on a fund fact sheet are: the provider; the date; the title; the risk profile; and portfolio manager or management team.

The provider

Starting from the top of a fund fact sheet, we need to be able to see the provider or seller name (or brand) of the investment fund in question. This also informs us of who we can contact to ask questions about the investment fund and where we can acquire the investment product should we decide to do pursue it.

The date

The date is very important because we need the latest information and developments on the investment fund. Different funds have different dates which may depend on when we request for the fund fact sheet or as the result of an automatic copy aligned with the fund’s annual report to already existing investors. Most credible fund fact sheets include a full date (day, month and year).

The title

The title or name of an investment fund is usually the first thing that stands out on a fund fact sheet. It is usually in large bold letters, still at the top of the fund fact sheet. The title, may in some instances, include both the full name of the investment fund and the abbreviated name when listed on investment statements.

When we own an investment fund product, on an ethical and professional standing, our financial planner, investment advisor or investment firm which sold us our investment fund need to send us at least one statement per year. This annual statement is what officially and regularly informs us on the performance of our investment fund or portfolio. We need to be mindful that once we buy into any investment, we must regularly monitor our investment. Regularly monitoring our investment is an act the ensures that our best interests are taken care of as time progresses into the future.

The risk profile

The risk profile is usually stated right below the title of our investment fund. In some instances, the risk profile forms part of the title or name of our investment fund. The risk profile is important to note because it tells us the type of investor the fund is meant to serve. In actuality, the risk profile of the investment fund is matched with our own risk profile. For example, we will see terms such as conservative (or low risk), balanced,(or medium risk) and aggressive (or high risk), that describe the risk profile of the ideal investor for the investment fund. 

We need to be alarmed when we see a fund fact sheet that states that any investor with any risk profile can buy into the investment fund product. Most especially because the two extremes of our risk profiles, being conservative and aggressive, usually do not mix. Let us think about this: High risk exposure is usually linked to the increased probability for higher returns. And lower risk exposure is usually linked to decreased probability for higher returns. Now, when these two opposite risk profiles are put together in one fund product, would it make sense to lower the risk exposure and ultimately gain less returns to accommodate the conservative investor over the aggressive investor? In more cases than not, a fund fact sheet that implies that any investor risk profile applies, basically deceives potential investors that do not want to absorb much risk (associated with lesser returns) whilst operating more for investors that want maximum risk to gain maximum returns.

The fund or portfolio manager/management

It is important to know who manages our investment fund or portfolio. The investment fund manager or management team carry-out the day-to-day management of our investment fund product. There is a section in a fund fact sheet (far right or far left) that states the full names of the investment fund manager or team, their experience in the investment industry, how long they have managed our particular fund, product and extra information they have for potential investors. Information about the investment management team, as well as the provider, lets us know that the company and professionals involved take responsibility and accountability for whatever happens in and with our investment product.  

A credible investment fund or portfolio fund fact sheet will have all these aspects. Should any of these aspects be missing in any promotional material for an investment fund product, they can be requested. Should they still not be provided, we must then think about whether or not we still want to buy into a financial product that clearly has questionable creditability.

It is also of most importance to have a fund fact sheet and annual statements of any retirement funds or portfolios. Most of us get employed, receive an employment contract, sign it and forget about it. We also end up agreeing to and signing for salary deductions to go towards our retirement savings owned by our employers without having adequate knowledge on how our funds are going to be managed. Most of us may not even be aware that saving into our employer’s retirement fund is optional and not always compulsory. It can be an advantage to opt into it because of the size of the retirement fund. However, it may also be a disadvantage if the retirement fund is mismanaged. As a country, we still need more responsibility and accountability across all industries and sectors. Therefore, having a fund fact sheet, initial future estimations and annual statements of our retirement funds will empower us with information to better handle a situation where we receive a retirement package that is extremely less than what was initially communicated.