How often do mutual funds report their holdings

Mutual funds are required disclose their complete holdings on quarterly basis as per Securities and Exchange Commission (SEC) mandates. SEC Forms N-Q and N-CSR are used by Mutual Funds to disclose their quarterly holdings.

As of April 25th, 2024 the AUM (Assets Under Management) of mutual funds in India has grown by over 124% over the last five years. It has created multiple opportunities for investors to diversify their investments across different asset classes catering to a wide range of investor profiles, which differ in their risk tolerance, investment horizon, and financial goals.

It is important to understand the mutual fund report and the composition of a mutual fund’s portfolio for both investors and analysts to understand if a fund aligns with their investment goals.

Hence a periodic disclosure of holdings through a mutual fund report is essential to maintain transparency, evaluate fund performance, and assess risk so that individuals can make informed investment decisions.

What is the holding or turnover ratio of a mutual fund?

Multiple factors need to be taken into consideration to gauge the performance of a mutual fund. One such metric is the holding ratio.

Simply put, a holding ratio reflects the different stocks in a given basket of mutual funds. It is calculated as the minimum amount of stock sold or purchased in a fund divided by the assets under management in the given fund. The time frame for calculating this ratio can either be monthly, quarterly, or annually, and it is calculated in percentages.

If the holding ratio is higher in a mutual fund report for a fund, it indicates a long-term investment strategy where the trading activity is lower.

A turnover ratio, on the other hand, is similar to the holding ratio, but it measures the percentage of the portfolio that was turned over or replaced during a given period.

This ratio is a critical indicator of the fund's trading activity and can impact its risk profile and tax implications.

It points to a higher frequency of trading, which also means potentially higher costs and taxes. A turnover ratio of 100 indicates that the fund now has a completely new portfolio of assets.

Disclosures for mutual funds

The Securities and Exchange Board of India has mandated mutual fund houses and financial institutions to disclose their portfolios periodically through mutual fund reports to ensure greater transparency. It also ensures that there is no insider trading and prevents unfair practices.

This disclosure in the mutual fund report should contain all the information about the different securities held in different asset classes, how they are distributed in different sectors along with charges, fees, etc. By doing this SEBI wants to ensure that investors always make informed decisions.

• Mutual funds are required to disclose their portfolio twice a year, in March and September. Some funds also offer monthly updates to their investors via the mutual fund report.
• Unaudited financial earnings in the mutual fund report should disclose the balance sheet and revenue accounts twice a year.
• Mutual fund annual reports should also be made available to all investors at the end of a financial year.
• The Scheme Information Document (SID) of a mutual fund contains details such as the objective of the fund, strategies to be used, fees, risks, etc need to be provided. Another document called the Statement of Additional Information (SAI) also needs to be provided with SID.
• Mutual funds should quarterly update, publish, and make available the performance figures of the scheme in the mutual fund report.
  
• Any adjustments made in fund management or investment strategy also need to be fully disclosed in the mutual fund analysis report.

Disclosure timing of mutual funds

Earlier, mutual fund schemes were required to disclose their net asset value within a specified period. However, this led to miscalculations due to changes in time zones and differences in market hours. So, starting from July 1, 2023:

• NAV must be declared by 9 A.M. on T+1 day (10 am for FoFs) for all schemes with Exchange Traded Commodity Derivatives (ETCDs) and Fund of Funds.
• Schemes with at least 80% of assets in permissible overseas investments, index funds, and ETFs must declare their NAV by 10 A.M. on T+1 day. The current deadline is 11 P.M. on T day.

Here, “T day" refers to the date of investment in mutual fund units in India.

Holding ratio for different types of funds

The holding ratio for a mutual fund indicates how much of the fund's portfolio has remained unchanged in a given timeframe. Let’s look at how it varies for different mutual fund categories:

1. Equity funds: The holding ratio of these funds is determined by the investing approach of the fund manager. A lower holding ratio in the mutual fund report will indicate an aggressive approach where stocks are traded frequently to double down during market upswings. A higher holding ratio points to a buy-and-hold strategy for long-term growth.
2. Debt funds: Debt funds are generally held till maturity since they are invested in bonds or other debt products. Since Debt Funds are less frequently traded, they tend to have a higher holding ratio.
   
3. Index funds: They are meant to replicate the performances of specific indexes as a result they have the least amount of trading leading to low turnover and high holding.
4. Balanced funds: They invest in both equity and debt instruments. The equity component might be frequently traded while the debt component might have a lesser turnover. This results in an overall moderate holding ratio in the mutual fund report.

Conclusion

Mutual Funds remain one of the most attractive financial instruments in the market today. They are a simple avenue for achieving diversification. By spreading investments across a diverse array of stocks, bonds, securities, and market segments, mutual funds can be aligned with individual risk-reward profiles.

Their transparent, affordable, tax-efficient, and liquid nature makes them a favoured choice for retail investors, both novices and experienced. Additionally, the tight regulatory framework of SEBI ensures complete disclosure in the mutual fund report, making them a trustworthy investment.

Investing in mutual funds has become seamless with platforms like the Bajaj Finserv Mutual Fund Platform, boasting over 1,000 schemes for easy comparison and selection.

Whether opting for a lumpsum investment or initiating a SIP for a new mutual fund scheme, investors can utilise the Bajaj Finserv Mutual Fund Platform to pursue their financial goals confidently.

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