The investment strategy of the fund part 3

Allocation of asset: Asset allocation let you know how the funds assets are diversified across stocks, sectors, and current assets/cash. With the detail of stocks and sectors, this is another thing that needs to be taken care of. A fund manager had to decide the allocation to cash. The allocation to cash is in itself an important decision. By looking at the factsheet we can note down the allocation to cash by the equity fund. If the fund manager is holding to cash for some time, this means that he is waiting for the right opportunity or it means that he is not getting enough stock-picking opportunity at this point of time. Allocation to cash can be beneficial if the market takes a down turn, as a good portion is in cash which is not affected by the crash, where as stock allocation will take a beating. But a good allocation to cash can go against the fund at the time of market upswing. 

Information on the Fund manager:Fund manager is the person who is managing the funds. Some of the companies go for individual fund manager rather than a team of fund manager i.e. an investment team. But over a period of time it is better that a investment team managers your money rather than a individual star fund manager. Individual fund manager can quit the fund house any time thus affecting the stability of your fund. Therefore you need to check out the detail of the fund manager of the fund house or detail of their fund management team, so that you can verify and compare the fund houses on the basis of it. It is better to go for the fund house which has got stability in the fund management process.

Average maturity: In a debt fund factsheet this is on of the most important aspect to look into. In order to understand the fund manager’s view on debt market the investor has to go several months behind to see how the average maturity has moved. If the fund manager is maintaining a higher average maturity for quite sometime, it implies that the fund manager is expecting the interest rate to fall over the period of time. But if the average maturity is lower it means that the fund manager is expecting the interest rates to go up. 

Credit Rating Profile: Credit rating of the securities in which debt fund invest varies. Therefore investors should check out the credit ratings of the securities of their debt funds. Most of the debt funds do not take much of credit risk. They invest in high rated securities. AAA/Sovereign paper which carry the lowest credit risk, attract the highest investments. Where as AA+/AA carry high credit risk. 

Allocation to asset: Asset allocation in debt funds are again very important for the investors to look at. This will help him understand the risk a fund manager is taking and also the kind of approach the fund manager is taking towards the investment. The debt funds invest mainly in government securities and corporate bonds. Both of them carry varying risk.