Reliance Equity Fund-10 (2)

8/4/2019 Reliance Equity Fund-10 (2)

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Reliance Equity Fund(an open Ended Diversied Equity Scheme)

Scheme Inormation Document

The particulars o the Scheme have been prepared in accordance with

the Securities and Exchange Board o India (Mutual Funds) Regulations

1996, (herein ater reerred to as SEBI (MF) Regulations) as amended

till date, and fled with SEBI, along with a Due Diligence Certifcate rom

the AMC. The units being oered or public subscription have not been

approved or recommended by SEBI nor has SEBI certifed the accuracy

or adequacy o the Scheme Inormation Document.

The Scheme Inormation Document sets orth concisely the inormation

about the scheme that a prospective investor ought to know beore

investing. Beore investing, investors should also ascertain about any

urther changes to this Scheme Inormation Document ater the date o

this Document rom the Mutual Fund / Investor Service Centres /Website

/ Distributors or Brokers.

The investors are advised to reer to the Statement o Additional

Inormation (SAI) or details o Reliance Mutual Fund, Tax and Legal

issues and general inormation on www.reliancemutual.com

SAI is incorporated by reerence (is legally a part o the Scheme

Inormation Document). For a ree copy o the current SAI, please

contact your nearest Investor Service Centre or log on to our website

wwwreliancemutual.com.

The Scheme Inormation Document should be read in conjunction with

the SAI and not in isolation.

This Scheme Inormation Document is dated September 29, 2010.

NaME oF MUTUaL FUND

Relince Mutul Fund11th fr & 12th fr, one Indibulls Centre, Twer 1

Jupiter Mills Cmpund, 841, Senpti Bpt Mrg,

Elphinstne Rd, Mumbi - 400 013

Tel N. - 022-30994600

Fx N. - 022-30994699

NaME oF SPoNSoR CoMPaNY

Relince Cpitl Limited

Registered oce:

H Blck, 1st Flr, Dhirubhi ambni Knwledge City,

Kprkhirne, Nvi Mumbi - 400 710.

Tel. 022 - 30327000, Fx. 022 - 30327202

Website : www.relincecpitl.c.in

NaME oF aSSET MaNaGEMENT CoMPaNY

Relince Cpitl asset Mngement Limited

Crprte oce:

11th fr & 12th fr, one Indibulls Centre, Twer 1



Tel N. - 022-30994600

Fx N. - 022-30994699

Website : www.relincemutul.cm

NaME oF TRUSTEE CoMPaNY

Relince Cpitl Trustee C. LimitedCrprte oce:

11th fr & 12th fr, one Indibulls Centre, Twer 1



Tel N. - 022-30994600

Fx N. - 022-30994699

Website : www.relincemutul.cm

Continuous oer o the Units o the ace value o Rs. 10 each or cash at NAV based prices(subject to applicable load)


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TaBLE oF CoNTENTS

HIGHLIGHTS/SUMMARY OF THE SCHEME ...................................................................................................................1

I. INTRODUCTION ..................................................................................................................................................3

A. RISK FACTORS .............. ............... ................ ............... ................ ............... ................ ............... ................ ............... ................ .3

B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME .............. ................ ................ ............... ................ ............... .7

C. SPECIAL CONSIDERATIONS ............... ................ ............... ................ ............... ................ ............... ................ ............... ......... 7

D. DEFINITIONS & ABBREVIATIONS .............. ............... ................ ............... ................ ................ ............... ................ ............... .8

E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY .............. ............... ................ ............... ................ ............... .... 9

II. INFORMATION ABOUT THE SCHEME ................................................................................................................10

A. TYPE OF THE SCHEME ............... ................ ............... ................ ............... ................ ................ ............... ................ ..............10

B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME? ............... ............... ................ ............... ................ ............... ..10

C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS? ................ ............... ................ ................ ............... ................ ..............10

D. WHERE WILL THE SCHEME INVEST? ............... ............... ................ ............... ................ ............... ................ ............... .......10

E. WHAT ARE THE INVESTMENT STRATEGIES? ................ ............... ................ ............... ................ ............... ................ .........11

F. FUNDAMENTAL ATTRIBUTES ................ ............... ................ ............... ................ ............... ................ ............... ................ ....17

G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE? .............. ................ ............... ................ ............... ............19

H. WHO MANAGES THE SCHEME? ............... ................ ............... ................ ............... ................ ............... ................ ..............19

I. WHAT ARE THE INVESTMENT RESTRICTIONS? ................ ............... ................ ............... ................ ............... ................ ....20

J. HOW HAS THE SCHEME PERFORMED? ............... ................ ............... ................ ............... ................ ............... ................ .22

III. UNITS AND OFFER .............................................................................................................................................23

A. NEW FUND OFFER (NFO) ................ ............... ................ ............... ................ ............... ................ ............... ................ .........23

B. ONGOING OFFER DETAILS ............... ............... ................ ............... ................ ............... ................ ............... ................ .........25

C. PERIODIC DISCLOSURES ............... ................ ............... ................ ............... ................ ............... ................ ............... ............38

D. COMPUTATION OF NAV .............. ............... ................ ............... ................ ............... ................ ............... ................ ..............39

IV. FEES AND EXPENSES .........................................................................................................................................40

A. NEW FUND OFFER (NFO) EXPENSES .............. ............... ................ ............... ................ ............... ................ ............... .......40

B. ANNUAL SCHEME RECURRING EXPENSES ............... ................ ............... ................ ............... ................ ............... ............40

C. LOAD STRUCTURE........... ............... ................ ............... ................ ............... ................ ............... ................ ............... ............40

D. WAIVER OF LOAD FOR DIRECT APPLICATIONS .............. ............... ................ ............... ................ ............... ................ ......40

V. RIGHTS OF UNITHOLDERS .................................................................................................................................41

VI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH

ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY ......41


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HIGHLIGHTS/SUMMARY OF THE SCHEME

1. INVESTMENT OBJECTIVE

The primary investment objective o the scheme is to seek to generate capital appreciation & provide long-term growth opportunities byinvesting in a portolio constituted o equity & equity related securities o top 100 companies by market capitalization & o companies whichare available in the derivatives segment rom time to time and the secondary objective is to generate consistent returns by investing in debt andmoney market securities.

The und will have the lexibility to invest in a range o companies as mentioned above with an objective to maximize the returns, at the sametime trying to minimize the risk by reasonable diversiication. However there can be no assurance that the investment objective o the schemewill be realized, as actual market movements may be at variance with anticipated trends.

2. LIQUIDITYThe Scheme will oer or Sale / Switch-in and Redemption / Switch-out o Units on every Working Day on an ongoing basis.

As per SEBI Regulations, the Mutual Fund shall despatch Redemption proceeds within 10 Working Days o receiving a valid Redemption requestA penal interest o 15% per annum or such other rate as may be prescribed by SEBI rom time to time, will be paid in case the Redemptionproceeds are not made within 10 Working Days o the date o receipt o a valid Redemption request. However, under normal circumstancesthe Mutual Fund will endeavor to despatch the Redemption cheque within 3 4 Working Days rom the receipt o a valid Redemption request

3. BENCHMARK

S&P CNX Nity

4. TRANSPARENCY/NAV DISCLOSURE

a) The NAV will be calculated and disclosed at the close o every working day which shall be published in at least two daily newspapers andalso uploaded on the AMFI website and Reliance Mutual Fund website i.e. www.reliancemutual.com.

b) The NAV o the Scheme will be calculated and declared by the Fund on every Working Day. The inormation on NAV may be obtained bythe Unitholders, on any day rom the oice o the AMC / the oice o the Registrar in Hyderabad or any o the other Designated InvestoService Centres.

c) Investors may also obtain inormation on the purchase /sale price or a given day on any Working Day rom the oice o the AMC / theoice o the Registrar in Hyderabad/ any o the other Designated Investor Service Centres.

d) For any NAV inormation, investor may also call our Touchbase customer service centre at 3030 1111 (24 X 7), callers outside India, pleasedial 91-40-30301111 or 1800 300 11111.

e) Publication o Abridged Hal-yearly Unaudited / Audited Financial Results in the newspapers or as may be prescribed under the Regulationsrom time to time.

) Communication o Portolio on a hal-yearly basis to the Unit holders directly or through the Publications or as may be prescribed underthe Regulations rom time to time.

g) Despatch o the Annual Reports o the respective Schemes within the stipulated period as required under the Regulations.

5. LOADS

a) Entry Load

Retail Plan: Nil

Institutional Plan: Nil

In accordance with the requirements specied by the SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009 no entryload will be charged or purchase / additional purchase / switch-in accepted by RMF with eect rom August 01, 2009. Similarly, no entryload will be charged with respect to applications or registrations under Systematic Investment Plans / Systematic Transer Plans (includingReliance SIP Insure, Salary AddVantage, Recurring Investment Plan or Corporate Employees and Dividend Transer Plan) accepted by RMFwith eect rom August 01, 2009.

The upront commission on investment made by the investor, i any, will be paid to the ARN Holder (AMFI registered Distributor) directlyby the investor, based on the investors assessment o various actors including service rendered by the ARN Holder.

b) Exit Load:

Retail Plan & Institutional Plan:

1% i redeemed or switched out on or beore completion o 1 year rom the date o allotment o units.

Nil i redeemed or switched out ater the completion o 1 year rom the date o allotment o units

With eect rom August 01, 2009, exit load/ CDSC (i any) up to 1% o the redemption value charged to the unit holder by RMF onredemption o units will be retained by each o the schemes in a separate account and will be utilized or payment o commissions to theARN Holder and to meet other marketing and selling expenses.

Any amount in excess o 1% o the redemption value charged to the unit holder as exit load/ CDSC will be credited to the respectivescheme immediately.


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Pursuant to SEBI circular No. SEBI/IMD/CIR No. 14/120784/08 dated March 18, 2008, with eect rom April 1, 2008, no entry load oexit load shall be charged in respect o bonus units and o units allotted on reinvestment o dividend.

c) Inter Scheme Switch:

At the applicable loads in the respective schemes.

d) Inter Plan/Inter Option Switch:

No load applicable or Inter Plan/Inter Option Switch.

e) Contingent Deerred Sales Charge:

Nil

6. MINIMUM APPLICATION AMOUNT

Retail Plan Rs. 5000 and in multiples o Re.1 thereater under each option

Institutional Plan Rs. 5 crore and in multiples o Re.1 thereater under each option

Minimum Additional Investment

Retail Plan Rs. 1,000 (plus in the multiple o Re.1)

Institutional Plan Rs. 1, 00,000 (plus in the multiple o Re.1)

7. CHOICE OF INVESTMENT PLANS:

The Scheme oers two Plans, Retail Plan and Institutional Plan. Each Plan has the ollowing Plans/Options:

a) Growth Plan

(i) Growth Option

(ii) Bonus Option

b) Dividend Plan

(i) Dividend Payout Option

(ii) Dividend Re-investment Option

8. FLEXIBILITY

Unit holders will have the lexibility to alter the allocation o their investments among the scheme(s) oered by the Mutual Fund, in order tosuit their changing investment needs, by easily switching between the various scheme(s) / plans o the Mutual Fund.

9. REPATRIATION

Full Repatriation beneits would be available to NRIs and FIIs, subject to applicable conditions/regulations.


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I INTRODUCTION

A. RISK FACTORS

1. STANDARD RISK FACTORS:

a) Mutual Funds and securities investments are subject to market risks such as trading volumes, settlement risk, liquidity risk and deaultrisk including the possible loss o principal and there is no assurance or guarantee that the objectives o the Scheme will be achieved

b) As the price / value / interest rates o the securities in which the scheme invests fuctuates, the value o your investment in thescheme may go up or down

c) Past perormance o the Sponsor/AMC/Mutual Fund does not guarantee uture perormance o the scheme.

d) Reliance Equity Fund is only the name o the Scheme and does not in any manner indicate either the quality o the scheme or itsuture prospects and returns.

e) The Sponsor is not responsible or liable or any loss resulting rom the operation o the Scheme beyond their initial contribution oRs.1 lakh towards the setting up o the Mutual Fund and such other accretions and additions to the corpus.

) The present scheme is not a guaranteed or assured return scheme. The Mutual Fund is not guaranteeing or assuring any dividend/bonus. The Mutual Fund is also not assuring that it will make periodical dividend/bonus distributions, though it has every intention odoing so. All dividend/bonus distributions are subject to the availability o distributable surplus o the Scheme.

2. SCHEME SPECIFIC RISK FACTORS

a) Risks associated with investing in Equities

The Scheme being an equity scheme will be aected by the risks associated with the equity market.

Equity and Equity related instruments on account o its volatile nature are subject to price luctuations on daily basis. The volatilityin the value o the equity and equity related instruments is due to various micro and macro economic actors aecting the securitiesmarkets. This may have adverse impact on individual securities /sector and consequently on the NAV o Scheme.

The inability o the Scheme to make intended securities purchases due to settlement problems, could cause the Scheme to misscertain investment opportunities as in certain cases, settlement periods may be extended signiicantly by unoreseen circumstancesSimilarly, the inability to sell securities held in the schemes portolio may result, at times, in potential losses to the scheme, shouldthere be a subsequent decline in the value o the securities held in the schemes portolio.

Trading volumes, settlement periods and transer procedures may restrict the liquidity o the investments. This may impact the abilityo the unit holders to redeem their units. In view o this, the Trustee has the right, in its sole discretion to limit redemptions (includingsuspending redemptions) under certain circumstances.

The AMC may invest in unlisted securities that oer attractive yields within the regulatory limit. This may however increase the risko the portolio as these unlisted securities are inherently illiquid in nature and carry larger liquidity risk as compared to the listedsecurities or those that oer other exit options to the investors.

Investments in equity and equity related securities involve high degree o risks and investors should not invest in the Scheme unlessthey can aord to take the risk o losing their investment.

b) Risks associated with investing in Bonds

Investment in Debt is subject to price, credit, and interest rate risk.

The NAV o the Scheme may be aected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlementperiods and transer procedures.

Corporate debt securities are subject to the risk o an issuers inability to meet interest and principal payments on its debt obligations(credit risk). Debt securities may also be subject to price volatility due to actors such as changes in interest rates, general level omarket liquidity and market perception o the creditworthiness o the issuer, among others (market risk). The Investment Managerwill endeavor to manage credit risk through in-house credit analysis. The Scheme may also use various hedging products rom time totime, as are available and permitted by SEBI, to attempt to reduce the impact o undue market volatility on the Schemes portolio

The NAV o the Schemes Units, to the extent that the Scheme is invested in ixed income securities, will be aected by changes inthe general level o interest rates. When interest rates decline, the value o a portolio o ixed income securities can be expected torise. Conversely, when interest rates rise, the value o a portolio o ixed income securities can be expected to decline

Investing in Bonds and Fixed Income securities are subject to the risk o an Issuers inability to meet principal and interest paymentsobligation (credit risk) and may also be subject to price volatility due to such actors as interest rate sensitivity, market perception othe creditworthiness o the issuer and general market liquidity (market risk).

The timing o transactions in debt obligations, which will oten depend on the timing o the Purchases and Redemptions in theScheme, may result in capital appreciation or depreciation because the value o debt obligations generally varies inversely with theprevailing interest rates.

Interest Rate Risk: As with all debt securities, changes in interest rates will aect the Schemes Net Asset Value as the prices osecurities generally increase as interest rates decline and generally decrease as interest rates rise. Prices o longer-term securitiesgenerally luctuate more in response to interest rate changes than do shorter-term securities. Interest rate movements in the Indiandebt markets can be volatile leading to the possibility o large price movements up or down in debt and money market securities and


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thereby to possibly large movements in the NAV.

Liquidity or Marketability Risk: This reers to the ease at which a security can be sold at or near its true value. The primary measureo liquidity risk is the spread between the bid price and the oer price quoted by a dealer. Liquidity risk is characteristic o the Indianixed income market.

Credit Risk: Credit risk or deault risk reers to the risk which may arise due to deault on the part o the issuer o the ixed incomesecurity (i.e. will be unable to make timely principal and interest payments on the security). Because o this risk debentures are soldat a yield spread above those oered on Treasury securities, which are sovereign obligations and generally considered to be ree ocredit risk. Normally, the value o a ixed income security will luctuate depending upon the actual changes in the perceived level ocredit risk as well as the actual event o deault.

Reinvestment Risk: This risk reers to the interest rate levels at which cash lows received rom the securities in the Scheme or rom

maturities in the Scheme are reinvested. The additional income rom reinvestment is the interest on interest component. The riskreers to the all in the rate or reinvestment o interim cashlows.

Risks associated with various types o securities

CREDIT RISK LIQUIDITY RISK PRICE RISK

Listed Depends on credit quality Relatively Low Depends on duration o instrument

Unlisted Depends on credit quality Relatively High Depends on duration o instrument

Secured Relatively low Relatively Low Depends on duration o instrument

Unsecured Relatively high Relatively High Depends on duration o instrument

Rated Relatively low and depends on the rating Relatively Low Depends on duration o instrument

Unrated Relatively high Relatively High Depends on duration o instrument

Dierent types o securities in which the scheme would invest as given in the Scheme Inormation Document carry dierent levelsand types o risk. Accordingly, the schemes risk may increase or decrease depending upon its investment pattern e.g. corporatebonds, carry a higher level o risk than Government securities. Further even among corporate bonds, bonds which are AAA rated arecomparatively less risky than bonds which are AA rated.

c) Risks associated with investing in oreign Securities

The Fund may invest in overseas debt / equities / ADRs / GDRs with the approval o RBI/SEBI, subject to such guidelines as maybe issued by RBI/SEBI. The net assets, distributions and income o the scheme may be aected adversely by luctuations in thevalue o certain oreign currencies relative to the Indian Rupee to the extent o investments in these securities. Repatriation o suchinvestment may also be aected by changes in the regulatory and political environments. The schemes NAV may also be aectedby a luctuation in the general and speciic level o interest rates internationally, or the change in the credit proiles o the issuers.

d) Risk associated with investing in Derivatives

Valuation Risk

The risk in valuing the Debt & Equity derivative products due to inadequate trading data with good volumes. Derivatives with longeduration would have higher risk viz a viz the shorter duration derivatives.

Mark to Market Risk

The day-to-day potential or an investor to experience losses rom luctuations in underlying stock prices and derivatives prices.

Systematic Risk

The risk inherent in the capital market due to macro economic actors like Inlation, GDP, Global events.

Liquidity Risk

The risk stemming rom the lack o availability o derivatives products across dierent maturities and with dierent risk appetite.

Implied Volatitly

The estimated volatility o an underlying securitys price and derivatives price.

Interest Rate Risk

The risk stemming rom the movement o Interest rates in adverse direction. As with all the debt securities, changes in the interestrates will aect the valuation o the portolios.

Counterparty Risk (Deault Risk)

Deault risk is the risk that losses will be incurred due to the deault by the counterparty or over the counter derivatives.

System Risk

The risk arising due to ailure o operational processes ollowed by the exchanges and OTC participants or the derivatives trading.

Risk attached with the use o derivatives


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Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investorExecution o such strategies depends upon the ability o the und manager to identiy such opportunities. Identiication and executiono the strategies to be pursued by the und manager involve uncertainty and decision o und manager may not always be proitableNo assurance can be given that the und manager will be able to identiy or execute such strategies.

The risks associated with the use o derivatives are dierent rom or possibly greater than, the risks associated with investing directlyin securities and other traditional investments. RCAM may use various derivative products, rom time to time, or purposes o hedgingand portolio rebalancing in an attempt to protect the value o the portolio and enhance Unit holders interest o the Scheme. Asand when the schemes trade in the derivatives market there are risk actors and issues concerning the use o derivatives that investorsshould understand derivative products are specialized instruments that require investment techniques and risk analyses dierent romthose associated with stocks and bonds. The use o a derivative requires an understanding not only o the underlying instrument butalso o the derivative itsel. Derivatives require the maintenance o adequate controls to monitor the transactions entered into, the

ability to assess the risk that a derivative adds to the portolio and the ability to orecast price or interest rate movements correctlyThere is the possibility that a loss may be sustained by the portolio as a result o the ailure o another party (usually reerred to asthe counter party) to comply with the terms o the derivatives contract. Other risks in using derivatives include the risk o mispricingor improper valuation o derivatives and the inability o derivatives to correlate perectly with underlying assets, rates and indices.Thus, derivatives are highly leveraged instruments. Even a small price movement in the underlying security could have a large impacton their value. Also, the market or derivative instruments is nascent in India.

e) Risk Associated with Securitised Debt

The Scheme may invest in Securitised debt.

As with any other debt instrument, the ollowing risk actors have to be taken into consideration while investing in PTCs:

(i) Credit Risk : Since most o the PTCs are drawn rom a cherry picked pool o underlying assets, the risk o delay / deault due topoor credit quality is low. Further more most o the PTCs enjoy additional cashfow coverage in terms o subordination by anotherlower class o PTCs or in terms o excess cash collateralisation.

(ii) Liquidity Risk: Since the maturity o the PTCs will be in line with the maturity o the FMP, the risk arsing rom low secondarymarket liquidity o such instruments is low.

(iii) Price Risk / Interest Rate Risk : The price risk o these instruments shall be in line with the maturity / duration o suchinstruments. However given the act that these instruments will have a maturity proile upto 2 years, the duration risk is relativelyless.

(iv) Domestic Securitised debt can have dierent underlying assets and these assets have dierent risk characteristics. These may beas given in the ollowing example:

Security 1 -Backed by receivables o personal loans originated by XYZ Bank

Speciic Risk Factors: Loss due to deault and/or payment delay on Receivables, Premature Termination o Facility AgreementsLimited loss cover, Delinquency and Credit Risk, Limited Liquidity and Price Risk, Originator/Collection Agent Risk, Bankruptcy othe Originator, Co-mingling o unds

Security2 - Senior Series Pass Through Certiicates backed by commercial vehicles and two-wheeler loan and loan receivables

rom ABC Bank Limited

) Risk associated with Short Selling & Securities Lending

Securities Lending is a lending o securities through an approved intermediary to a borrower under an agreement or a speciied periodwith the condition that the borrower will return equivalent securities o the same type or class at the end o the speciied period alongwith the corporate beneits accruing on the securities borrowed. In case the Scheme undertakes stock lending under the Regulationsit may, at times be exposed to counter party risk and other risks associated with the securities lending. Unitholders o the Schemeshould note that there are risks inherent to securities lending, including the risk o ailure o the other par ty, in this case the approvedintermediary, to comply with the terms o the agreement entered into between the lender o securities i.e. the Scheme and theapproved intermediary. Such ailure can result in the possible loss o rights to the collateral put up by the borrower o the securitiesthe inability o the approved intermediary to return the securities deposited by the lender and the possible loss o any corporatebeneits accruing to the lender rom the securities deposited with the approved intermediary.

Short-selling is the sale o shares that the seller does not own at the time o trading. Instead, he borrows it rom someone whoalready owns it. Later, the short seller buys back the stock he shorted and returns the stock to close out the loan. I the price o the

stock has allen, he can buy the stock back or less than he received or selling it and proits rom it (the dierence between higheshort sale price and the lower purchase price). However, Short positions carry the risk o losing money and these losses may growtheoretically unlimited i the price increases without limit and shall result into major losses in the por tolio.

g) Other Scheme Speciic Risk actors

(i) The liquidity o the Scheme's investments may be inherently restricted by trading volumes, settlement periods and transeprocedures. In the event o an inordinately large number o redemption requests, or o a re-structuring o the Scheme'sinvestment portolio, these periods may become signicant. Please read the Sections o this Scheme Inormation Documententitled Special Considerations and Right to Limit Redemptions thereunder.

(ii) Although, the objective o the Fund is to generate optimal returns, the objective may or may not be achieved. The investors may


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note that i the AMC/Investment Manager is not able to make right decision regarding the timing o increasing exposure in debtsecurities in times o alling equity market, it may result in negative returns. Given the nature o scheme, the portolio turnoveratio may be on the higher side and the AMC may change the ull portolio commensurate with the investment decisionsand Asset Allocation o the Scheme. At times, such churning o portolio may lead to losses due to subsequent negative orunavorable market movements.

(iii) The tax beneits described in this Scheme Inormation Document are as available under the present taxation laws and areavailable subject to relevant conditions. The inormation given is included only or general purpose and is based on advise receivedby the AMC regarding the law and practice currently in orce in India and the Unit holders should be aware that the relevant iscarules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position othe proposed tax position prevailing at the time o an investment in the Scheme will endure indeinitely. In view o the individuanature o tax consequences, each Unit holder is advised to consult his / her own proessional tax advisor.

(iv) Risk actor associated with overseas investment:

Subject to necessary approvals and within the investment objectives o the Scheme, the Scheme may invest in overseas marketswhich carry a risk on account o luctuations in oreign exchange rates, nature o securities market o the country concernedrepatriation o capital due to exchange controls and political circumstances.

(v) To the extent that the assets o the schemes will be invested in securities denominated in oreign currencies, the Indian rupeeequivalent o the net assets, distributions and income may be adversely aected by changes in the value o certain oreigncurrencies relative to the Indian rupee (i Indian rupee appreciates against these oreign currencies). The repatriation o capitato India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well asthe application to it o other restrictions on investment. The scheme may have to pay applicable taxes on gains rom suchinvestment.

(vi) As regards oreign equity securities that are traded on exchanges that are not located in India basis o valuation will depend onthe time zone o the respective country. For exchanges located in countries, with time zone earlier than India, the NAV will becalculated based on the closing price o the oreign equity security and the prevailing exchange rate on that date. For exchanges

located in countries, with time zone later than India, the NAV will be calculated based on the closing price o the oreign equitysecurity and the prevailing exchange rate o the previous date.

(vii) Subject to the Regulations, the investments may be in securities which are listed or unlisted, secured or unsecured, rated ounrated, and acquired through secondary market purchases, RBI auctions, open market sales conducted by RBI etc., Initial PublicOers (IPOs), other public oers, placements, rights, oers, negotiated deals, etc

(viii) To avoid duplication o portolios and to reduce expenses, the Scheme may invest in any other schemes o the Fund to theextent permitted by the Regulations. In such an event, RCAM will not charge management ees on the amounts o the Schemesso invested, unless permitted by the Regulations.

(ix) Additional Risk Factors : The risk associated with underlying stocks remain the same except or the additional risk o luctuationin the exchange rate o the Indian Rupee vis-- vis US Dollar the currency in which GDRs / ADRs are denominated. To managerisks associated with the portolio, oreign currency and interest rate exposure, the Fund may use / invest in derivatives oreicient portolio management including hedging and in accordance with the conditions as may be stipulated by SEBI / RBI. TheFund also hereby avers that oshore investments shall be made subject to any / all approvals, as well as the conditions thereo asmay be stipulated by SEBI / RBI and provided such investments do not result in expenses to the und in excess o the ceiling, i

any, on the expenses prescribed by SEBI. The expenses to the und shall be limited to the level which, in the opinion o the Fundis reasonable and consistent with the costs and expenses attendant to international investing. The Fund may, where necessaryappoint other intermediaries o repute such as advisors, sub-managers, sub-custodian etc. or managing and administering suchinvestments. The appointment o such intermediaries shall be in accordance with the applicable requirements o SEBI and withinthe permissible ceilings o expenses. The ees and expenses would illustratively include, besides the investment managementee, custody ees and costs, ees o appointed overseas advisors and sub-managers, transaction costs, and overseas regulatorycosts.

(x) Speciic Risk Factors - Credit And Rating Downgrade Risk, Prepayment And Foreclosures Risk or Senior PTC Series, PrepaymentAnd Foreclosures Risk or Senior PTC Series, Servicing Agent Risk, Co-mingling Risk, Bankruptcy o the Seller.

(xi) The NAV o the scheme to the extent invested in Debt and Money market securities are likely to be aected by changes in theprevailing rates o interest and are likely to aect the value o the Schemes holdings and thus the value o the Schemes Units

(xii) The AMC may, considering the overall level o risk o the portolio, invest in lower rated/ unrated securities oering higher yieldsThis may increase the risk o the por tolio.

(xiii) Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger amount o liquidity riskin comparison to securities that are listed on the exchanges or oer other exit options to the investor, including a put option. TheAMC may choose to invest in unlisted securities that oer attractive yields. This may increase the risk o the portolio.

(xiv) While securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited bythe overall trading volume on the stock exchanges. Money market securities, while airly liquid, lack a well-developed secondarymarket, which may restrict the selling ability o the Scheme and may lead to the Scheme incurring losses till the security is inallysold.

(xv) Investment decisions made by the AMC may not always be proitable, even though it is intended to generate capital appreciationand maximize the returns by actively investing in equity and equity related securities.


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B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME

The Scheme/Plan shall have a minimum o 20 investors and no single investor shall account or more than 25% o the corpus o the Scheme/

Plan(s). However, i such limit is breached during the NFO o the Scheme, the Fund will endeavor to ensure that within a period o three months

or the end o the succeeding calendar quarter rom the close o the NFO o the Scheme, whichever is earlier, the Scheme complies with these

two conditions. In case the Scheme / Plan(s) does not have a minimum o 20 investors in the stipulated period, the provisions o Regulation

39(2)(c) o the SEBI (MF) Regulations would become applicable automatically without any reerence rom SEBI and accordingly the Scheme

/ Plan(s) shall be wound up and the units would be redeemed at applicable NAV. The two conditions mentioned above shall also be complied

within each subsequent calendar quarter thereater, on an average basis, as speciied by SEBI. I there is a breach o the 25% limit by any

investor over the quarter, a rebalancing period o one month would be allowed and thereater the investor who is in breach o the rule shall be

given 15 days notice to redeem his exposure over the 25 % limit. Failure on the par t o the said investor to redeem his exposure over the 25

% limit within the aoresaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15thday o the notice period. The Fund shall adhere to the requirements prescribed by SEBI rom time to time in this regard.

C. SPECIAL CONSIDERATIONS, IF ANY

1. Income Distribution

The Mutual Fund is not assuring or guaranteeing that it will be able to make regular periodical distributions/distribute bonus units to its

Unit holders though it has every intention to manage the portolio so as to make periodical income/bonus distributions to Unit holders.

Periodical distributions will be dependent on the returns achieved by the Asset Management Company through the active management o

the portolio. Periodical distributions may thereore vary rom period to period, based on investment results o the por tolio.

2. Right to limit Purchase o units and/or Right to limit Redemption o units

The Trustee may, in the general interest o the Unitholders o the scheme under this Scheme Inormation Document and keeping in viewthe unoreseen circumstances/unusual market conditions, limit the total number o Units which may be redeemed on any Working Day

to 5% o the total number o Units then issued and outstanding under any Scheme/Plan or such other percentage as the Trustee maydetermine.

The Trustee may, at its sole discretion in response to unoreseen circumstances or unusual market conditions including, but not limited to

extreme volatility o the stock, ixed income and money markets, extended suspension o trading on the stock exchanges, natural calamities

communication breakdowns, internal system breakdowns, strikes, bandhs, riots or other situations where the Trustee in consultation with

RCAM, considers that such suspension is necessary, limit the total number o Units which may be redeemed on any working day to 5%

o the total number o Units then in issue or such higher percentage as the Trustee may determine in any particular case

Any Units, which by virtue o these limitations are not redeemed on a particular Working Day, will be carried orward or redemption to

the next Working Day, in the order o receipt. Redemptions so carried orward will be priced on the basis o the Redemption Price o

the Working Day on which redemption is made. Under such circumstances, to the extent multiple redemption requests are received at

the same time on a single Working Day, redemptions will be made on pro-rata basis, based on the size o each redemption request, the

balance amount being carried orward or redemption to the next Working Day(s).

3. Suspension o Purchase and Redemption o Units

The purchase and/or redemption o Units may be suspended with prior approval o Trustees and Asset Management Company giving the

details o circumstances and justiication or the proposed action shall also be inormed to SEBI in advance, temporarily or indeinitely when

any o the ollowing conditions exist at one/more Designated Investor Service Centers:

a) The stock market stops unctioning or trading is restricted;

b) Periods o extreme volatility in the stock market, ixed income or money market, which, in the opinion o the Investment Manager

are prejudicial or detrimental to the interest o the investors;

c) Natural calamity; or

d) For any bulk processing like dividend, etc.

e) I banks do not carry-out any o the normal Banking activities at one or more Designated Investor Service Centers

) In the event o breakdown in the means o communication used or the valuation o investments o the Scheme, without which the

value o the securities cannot be accurately calculated.

g) In the event o any orce majeure or disaster that aects the normal unctioning o the AMC or the designated investor service

centers.

h) SEBI, by order, so directs.

i) RMF also reserves the right at its sole discretion to withdraw sale o Units in the Scheme temporarily or indeinitely, i the AMC views

that increasing the Schemes size urther may prove detrimental to the existing unit holders o the Scheme. An order/ request to

purchase Units is not binding on and may be rejected by the Trustee, the AMC or their respective agents, unless it has been conirmed

in writing by the AMC or its agents and (or) payment has been received.


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D. DEFINITIONS AND ABBREVIATIONS

In this Scheme Inormation Document, the ollowing words and expressions shall have the meaning speciied below, unless the contextotherwise requires:

Applicable NAV : Applicable NAV is the Net Asset Value per Unit at the close o the Business Day on which theapplication or purchase or redemption/switch is received at the designated investor servicecentre and is considered accepted on that day. An application is considered accepted on thatday, subject to it being complete in all respects and received prior to the cut-o time on thatBusiness Day.

Asset Management Company/ AMC/Investment Manager/RCAM

: Reliance Capital Asset Management Limited, the Asset Management Company incorporatedunder the Companies Act,1956, and authorized by SEBI to act as the Investment Manager tothe Schemes o Reliance Mutual Fund (RMF)

Bonus Unit : Bonus Unit means and includes, where the context so requires, a unit issued as ully paid-upbonus unit by capitalizing a part o the amount standing to the credit o the account o thereserves ormed or otherwise in respect o this scheme.

Business Day / Working Day : A business day means any day other than (1) Saturday (2) Sunday or (3) a day on which TheStock Exchange, Mumbai or National Stock Exchange Limited or Reserve Bank o India or Banksin Mumbai are closed or (4) a day on which there is no RBI clearing/settlement o securities or(5) a day on which the sale and/or redemption and /or switches o Units is suspended by theTrustees /AMC or (7) a day on which normal business could not be transacted due to storms,loods, bandhs, strikes or any other events as the AMC may speciy rom time to time.The AMC reserves the right to declare any day as a Business Day / Working Day or otherwiseat any or all DISC rom timt to time.

CDSC : Contingent Deerred Sales Charge, a charge imposed when the units are redeemed within theirst our years o unit ownership. The SEBI (Mutual Fund) Regulations, 1996 provides that aCDSC may be charged only or the irst our years ater purchase and mandates the maximumamount that can be charged in each year.

Continuous Oer : Oer o the Units when the scheme becomes open ended ater the closure o the New FundOer.

Custodian : Deutsche Bank, NV Mumbai, acting as Custodian to the Scheme, or any other custodian whois appointed by the Trustee.

Designated Investor Service Centres(DISC / Oicial point o acceptanceor transaction)

: Any location as may be deined by the Asset Management Company rom time to time, whereinvestors can tender the request or subscription, redemption or switching o units, etc.

Entry Load : Load on subscriptions / switch in.

Exit Load : Load on redemptions / switch out.

Equity related instruments : Such instruments like Convertible bonds and debentures and warrants carrying the right toobtain equity shares and derivative instruments.

FII : Foreign Institutional Investors, registered with SEBI under the Securities and Exchange Board oIndia (Foreign Institutional Investors) Regulations, 1995.

Investment Management Agreement(IMA)

: The Agreement entered into between Reliance Capital Trustee Co. Limited and Reliance CapitalAsset Management Limited by which RCAM has been appointed the Investment Manager ormanaging the unds raised by RMF under the various Schemes and all amendments thereo.

Load : A charge that may be levied as a percentage o NAV at the time o entry into the scheme/plansor at the time o exiting rom the scheme/ plans.

Local Cheque : A Cheque handled locally and drawn on any bank, which is a member o the bankers clearinghouse located at the place where the application orm is submitted.

Market Capitalisation or MarketCap

The market value o a quoted company, which is calculated by multiplying its current shareprice by the number o shares outstanding. This will be monitored based on NSE stockexchange

Mutual Fund Regulations/Regulations

: Securities and Exchange Board o India (Mutual Funds) Regulations as amended rom time totime and such other regulations as may be in orce rom time to time to regulate the activitieso Mutual Funds.

Net Asset Value/NAV : Net Asset Value / NAV o the Units in each plan o the Scheme is calculated in the mannerprovided in this Scheme Inormation Document or as may be prescribed by Regulations romtime to time. The NAV will be computed upto our decimal places.

NRI : Non-Resident Indian.

PIO : Person o Indian Origin


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Plans/Options : The Scheme oers two Plans, Retail Plan and Institutional Plan. Each Plan has the ollowing:

Growth Plan

Growth Option

Bonus Option

Dividend Plan

Dividend Payout Option

Dividend Reinvestment Option

Purchase Price : Purchase Price to the investor o Units o any o the plans computed in the manner indicatedin this Scheme Inormation Document.

RBI / Reserve Bank o India : Reserve Bank o India, established under the Reserve Bank o India Act, 1934..

RMF/Mutual Fund/the Fund : Reliance Mutual Fund (ormerly known as Reliance Capital Mutual Fund), a Trust under IndianTrust Act, 1882 and registered with SEBI vide registration number MF/022/95/1 dated June30, 1995.

RCTC/Trustee/Trustee Company : Reliance Capital Trustee Co. Limited, a Company incorporated under the Companies Act, 1956,and authorized by SEBI and by the Trust Deed to act as the Trustee o Reliance Mutual Fund.

RCL/Sponsor/Settlor : Reliance Capital Limited

Redemption Price : Redemption Price to the investor o Units o any o the plans computed in the manner indicatedin this Scheme Inormation Document.

Registrar /Karvy : Karvy Computershare Pvt. Ltd., who have been appointed as the Registrar or any other Registrarwho is appointed by RCAM.

SAI : Statement o Additional Inormation, the document issued by Reliance Mutual Fund containing

details o Reliance Mutual Fund, its constitution, and certain tax, legal and general inormation.SAI is legally a part o the Scheme Inormation Document.

Scheme : Reliance Equity Fund,an open ended Diversiied Equity Scheme.

SID : Scheme Inormation Document issued by Reliance Mutual Fund, oering units o RelianceEquity Fund or Subscription.

SEBI : The Securities and Exchange Board o India.

Trust Deed : The Trust Deed entered into on April 24, 1995 between the Sponsor and the Trustee, and allamendments thereo.

Trust Fund : The corpus o the Trust, unit capital and all property belonging to and/or vested in theTrustee.

Unit : The interest o the investors in any o the plans, o the scheme which consists o each Unitrepresenting one undivided share in the assets o the corresponding plan o the scheme.

Unitholder : A person who holds Unit(s) under the scheme.Unitholders Record : Unitholders whose names appear on the unitholders register o the concerned plan/(s) on the

date o determination o Dividend/Bonus, subject to realisation o the cheque.

Words and Expressions used in this Scheme Inormation Document and not deined shall have the same meaning as in the Regulations.

E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY

It is conirmed that:

1. The Scheme Inormation Document o Reliance Equity Fund, orwarded to SEBI, is in accordance with the SEBI (Mutual Funds) Regulations1996 and the guidelines and directives issued by SEBI rom time to time.

2. All legal requirements connected with the launching o the Scheme as also the guidelines, instructions etc., issued by the Government andany other competent authority in this behal, have been duly complied with.

3. The disclosures made in the Scheme Inormation Document are true, air and adequate to enable the investors to make a well inormed

decision regarding investment in the proposed Scheme.

4. The intermediaries named in the Scheme Inormation Document and Statement o Additional Inormation are registered with SEBI andtheir registrations are valid, as on date, to the best o our knowledge and belie.

Mumbai Name: Muneesh Sud

September 29, 2010 Designation: Head - Legal, Secretarial & Compliance

Note: The Due Diligence Certiicate as stated above was submitted to the Securities and Exchange Board o India on October 04, 2010.


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II. INFORMATION ABOUT THE SCHEME Reliance Equity Fund

A. TYPE OF THE SCHEME

An Open Ended Diversiied Equity Scheme

B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME?

The primary investment objective o the scheme is to seek to generate capital appreciation & provide long-term growth opportunities byinvesting in a portolio constituted o equity & equity related securities o top 100 companies by market capitalization & o companies whichare available in the derivatives segment rom time to time and the secondary objective is to generate consistent returns by investing in debt andmoney market securities.

The und will have the lexibility to invest in a range o companies as mentioned above with an objective to maximize the returns, at the sametime trying to minimize the risk by reasonable diversiication. However there can be no assurance that the investment objective o the schemewill be realized, as actual market movements may be at variance with anticipated trends.

C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS?

Instruments Indicative asset allocation (% o total assets) Risk Proile

Maximum Minimum

Equity and Equity related Instruments 100% 75% Medium to High

Debt Instruments & Money Market Instruments(including investments in securitised debt)

25% 0% Low to Medium

An overall limit o 100% o the portolio value (i.e. net assets including cash) has been introduced or the purpose o equity derivatives in thescheme.

The above Asset Allocation Pattern is only indicative. The investment manager in line with the investment objective as may alter the abovepattern or short term and on deensive consideration. The allocation between debt and equity will be decided based upon the prevailing market

conditions, macro economic environment and the perormance o corporate sector, the equity market and other considerations.

D. WHERE WILL THE SCHEME INVEST?

The Broad Investment strategy o the und will be to invest in equity & equity related securities o the Top 100 companies by market cap &also in companies in the derivatives segment.

The und will also use the derivatives route to hedge the equity portolio & the extent to which the portolio will be hedged will be linked tothe P/E o the Index as given in the indicative table below:

The extent o hedging o the portolio is determined based on the month-end weighted average PE ratio o the Index, which in this case wilbe the S&P CNX Nity.

Weighted average PE ratio o S&P CNX Nity Portolio Hedge as a % o Equity portolio

Upto 12 0-10

12-16 10-30

16-20 30-50

20-24 50-70

24-28 70-90

Above 28 90-100

This hedging would involve complete portolio hedging as well as hedging o individual stocks depending upon the und managers perceptiono the markets. Hedging would also include but not only limited to selling o stocks that are not owned by the Fund but are available underderivative (Futures & Options) segment in the market or trading rom time to time as permitted by the Regulations/ guidelines.

Price to Earnings Ratio (PE ratio) is the ratio o the stock price o a company to its earnings per share. In other words, it is the price one paysor every rupee o earnings. The higher the PE ratio, the more expensive the stock or market is, because one is paying more or the same leveo earnings.

The PE ratio o the index is the weighted average PE ratio o the constituent stocks o the index, which in this case is the S&P CNX Nity.

Thus, by ollowing such an allocation strategy, the und manager decreases the % o exposure in derivatives when markets are down, i.e. whenPE ratio alls to help you capitalise on the upside potential, and increases the % o exposure to derivatives when markets are high, i.e when PE

ratio is high to limit the downside risk.

Thus the rebalancing o the por tolio will be done on a monthly basis based on last month ends weighted average P/E.

The und will, in general invest a signicant part o its corpus in equities however pending investments in equities; the surplus amount o the undshould be invested in debt and money market instruments. Also whenever good investment opportunity are not available, or the equity marketis not likely to perorm in the view o the Fund manager the Fund will reduce its exposure to equity and during that period the surplus asset othe Fund shall be invested in debt and money market instruments. However there is no assurance that all such buying and selling activities wouldnecessarily result in benet or the Fund. The allocation between debt and equity will be decided based upon the prevailing market conditionsmacro economic environment, and the perormance o the corporate sector, the equity market and other considerations. At time such churningcould lead to higher brokerage and transaction costs.


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To achieve its primary objective as mentioned above, the Fund would invest in equity and equity related securities. To achieve its secondaryobjective, the und would invest in debt and money market securities. These securities could include:

- Equity and equity related securities are such instruments like Convertible bonds and debentures and warrants carrying the right to obtainequity shares and derivative instruments.

- Obligations o Indian Companies (both public and private sector) including term deposits with the banks as permitted by SEBI/ RBI romtime to time and developmental nancial institutions

- Certicate o Deposits (CDs)

- Commercial paper (CPs)

- In Securitized Debt upto 25% o the corpus. No investments shall be made in oreign securitised debt.

- The non-convertible part o convertible securities

- Any other domestic xed income securities

- ADRs / GDRs issued by Indian companies, subject to guidelines issued by RBI / SEBI

- Foreign equity securities in accordance with SEBI Guidelines

- Money market instruments permitted by SEBI/ RBI, having maturities upto 1 year in call money market instruments as may be providedby the RBI to meet the liquidity requirements

- Derivatives like Interest rate swaps, Forward Rate agreements, stock utures, index utures, and other such instruments as permitted by RB/SEBI

- Any other instruments as allowed by the Regulations rom time to time.

- The Fund may also enter into Repo, or such other transactions as may be allowed to Mutual Funds rom time to time.

Subject to the Regulations, the investments may be in securities which are listed or unlisted, secured or unsecured, rated or unrated, havingvariable maturities, and acquired through secondary market purchases, RBI auctions, open market sales conducted by RBI etc., Initial PublicOers (IPOs), other public oers, placements, rights, oers, negotiated deals, etc

The Scheme may also enter into repurchase and reverse repurchase obligations in all securities held by it as per the guidelines and Regulationsapplicable to such transactions.

An overall limit o 100% o the portolio value (i.e. net assets including cash) has been introduced or the purpose o equity derivatives in thescheme.

E. WHAT ARE THE INVESTMENT STRATEGIES?

INVESTMENT APPROACH & RISK CONTROL

India today is the worlds largest democracy with a vibrant electorate, active Judiciary and civil society groups, and a fercely independentmedia.

It is the Funds view that Indias growth model promises more stable, sustainable expansion and bigger returns or the investors. There exists avery positive view on the sectors like Agriculture, Manuacturing and Service, which contribute, substantially to our GDP. In our view all thesethree sectors simultaneously are looking quite attractive and bullish.

The Indian economy has perormed impressively over the past two decades. A major scal and balance o payment crisis led to a package oradical economic reorms in 1991. Since then, India has undertaken ar-reaching economic reorms o deregulation and liberalization, whichhas unleashed the enormous growth potential o the economy and a powerul entrepreneurial orce. The reorm measures included a greateprivate sector role in Indias development by improving the investment and tax regimes, dismantling industrial licensing, opening inrastructure toprivate investment, reorming public enterprises and the nancial sector, and reducing price controls. The package also initiated the liberalisationo oreign trade and exchange regimes.

The consumers and public have realized the benets o liberalization through increase in the choice and quality o products and decrease inprices. The business and industry have also adjusted themselves with the liberalization and globalization. The unprecedented high level o oreignexchange reserves, upward trend in FDI infows and the general growth o the economy has given more condence and encouragement tothe policy-makers to urther accelerate its economic reorms and liberalization process. Both at the central and state levels and across politicaparties, in general, there is consensus on urther economic liberalization.

The Fund is o the view that the reorms program and the market-oriented policies o the Government are irreversible. The government iscommitted to economic reorms with a human ace that stimulates growth, investment and employment. The government has recognized thaturther reorms are needed in agriculture, industry, services and inrastructure.

Government has divested its stake in public sector undertakings in the light o the redenition o its role rom being a provider o goods andservices to that o a policy-maker and acilitator. Between 1991 and 2003, the Government has privatized assets worth US$ 10 billionincluding $ 3.5 billion in scal 2003-2004. The economic reorm process involves structural changes in various sectors and companies like:

1. Encouraging private participation and changing the ownership model in avour o private participants

2. De-regulation o pricing

3. Increased spending by government on the inrastructural projects

4. Reorming public enterprises and the inancial sector


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These planned steps will accelerate the pace o GDP growth and would encourage investments in orm o increased FDIs/ and privateinvestments. This will result in increase in investment capital and would inally result in the overall value creation in the economy. This will berelected in increased valuations o the individual companies, increased corporate proitability and better market capitalization. These changeswill implant greater conidence in the minds o the domestic and oreign investors.

Exposure to oreign equity securities:

The scheme, subject to SEBI guidelines issued rom time to time, may have an exposure in oreign equity securities within the permissible limitsHowever, the exposure in such oreign equity securities would not exceed the maximum amount permitted rom time to time. Boards o assetmanagement companies (AMCs) and trustees shall exercise due diligence in making investment decisions as required under Regulation 25 (2)They shall make a detailed analysis o risks and returns o investment in oreign equity securities, comparing them with likely yields o thesecurities available in domestic markets and how these investments would be in the interest o investors. Investment must be made in liquidactively traded securities. Boards o AMCs and trustees may prescribe detailed parameters or making such investments, which may include

identiication o countries, country rating, country limits, etc. They shall satisy themselves that the AMC has experienced key personnelresearch acilities and inrastructure or making such investments. Other specialized agencies and service providers associated with suchinvestments e.g. custodian, bank, advisors, etc should also have adequate expertise and inrastructure acilities. Their past track record operormance and regulatory compliance record, i they are registered with oreign regulators, may also be considered. Necessary agreementsmay be entered into with them as considered necessary. All investment decisions shall be recorded in accordance with SEBI circular dated July27, 2000.

Investment in overseas inancial assets: SEBI vide its circular no. SEBI/IMD/CIR No. 7/104753/07 dated September 26, 2007 and CirculaNo. SEBI/IMD/CIR No.2/122577/08 dated April 08, 2008 has issued guidelines pertaining to investments in overseas inancial assets.Accordingly all the investments in ADR/GDR and oreign securities shall be made in compliance with the above reerred circular. It is theinvestment managers belie that overseas securities oer new investment and portolio diversiication opportunities into multi-market andmulti-currency products. However, such investments also entail additional risks. Oshore investment will be made subject to any/ all approvals/ conditions thereo as may be stipulated by SEBI/ RBI/ other regulatory authorities. The Fund shall appoint a dedicated und manager or thepurpose o investment in overseas inancial assets as prescribed in the aoresaid SEBI circular. The und may, where necessary, appoint otherintermediaries o repute as advisors, subcustodians, etc. or managing and administering such investments. The ees and expenses o suchappointment would be part o the recurring expenses o the scheme. The appointment o such intermediaries shall be in accordance with theapplicable requirements o SEBI and within the permissible ceilings o expenses. The ees and expenses would include, besides the investmentsmanagement ees, custody ees and costs, ees o appointed advisors and sub managers, transaction costs and overseas regulatory costs.Investment in oreign securities oers more opportunities and diversiication or investments. Investors may note that the scheme shall notinvest in oreign debt securities.

Advantages and Risks attached with investments in ADRs/GDRs:

It is AMCs belie that the investment in ADRs/GDRs/overseas securities oer new investment and portolio diversiication opportunities intomulti-market and multi-currency products. However, such investments also entail additional risks. Such investment opportunities may bepursued by the AMC provided they are considered appropriate in terms o the overall investment objectives o the schemes. Since the Schemewould invest only partially in ADRs/ GDRs/overseas securities, there may not be readily available and widely accepted benchmarks to measureperormance o the Scheme.

1. To manage risks associated with oreign currency and interest rate exposure, the Fund may use derivatives or ecient portolio managementincluding hedging and in accordance with conditions as may be stipulated by SEBI/RBI rom time to time.

2. To the extent that the assets o the Schemes will be invested in securities denominated in oreign currencies, the Indian Rupee equivalento the net assets, distributions and income may be adversely aected by the changes in the value o certain oreign currencies relative tothe Indian Rupee. The repatriation o capital also may be hampered by changes in regulations concerning exchange controls or politicacircumstances as well as the application to it o the other restrictions on investment.

3. Oshore investments will be made subject to any/all approvals, conditions thereo as may be stipulated by SEBI/RBI and provided suchinvestments do not result in expenses to the Fund in excess o the ceiling on expenses prescribed by and consistent with costs andexpenses attendant to international investing. The Fund may, wherever necessary, appoint other intermediaries o repute as advisors,custodian/sub-custodians etc. or managing and administering such investments.

4. The appointment o such intermediaries shall be in accordance with the applicable requirements o SEBI and within the permissible ceilingso expenses. The ees and expenses would illustratively include, besides the investment management ees, custody ees and costs, ees oappointed advisors and sub-managers, transaction costs, and overseas regulatory costs.

Risk actors o investment in overseas inancial assets: To the extent that the assets o the schemes will be invested in securities denominatedin oreign currencies, the Indian rupee equivalent o the net assets, distributions and income may be adversely aected by changes in the valueo certain oreign currencies relative to the Indian rupee (i Indian rupee appreciates against these oreign currencies). The repatriation o capita

to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application toit o other restrictions on investment. The scheme may have to pay applicable taxes on gains rom such investment.

As regards oreign equity securities that are traded on exchanges that are not located in India basis o valuation will depend on the time zoneo the respective country. For exchanges located in countries, with time zone earlier than India, the NAV will be calculated based on the closingprice o the oreign equity security and the prevailing exchange rate on that date. For exchanges located in countries, with time zone later thanIndia, the NAV will be calculated based on the closing price o the oreign equity security and the prevailing exchange rate o the previous date

Subject to the Regulations, the investments may be in securities which are listed or unlisted, secured or unsecured, rated or unrated, andacquired through secondary market purchases, RBI auctions, open market sales conducted by RBI etc., Initial Public Oers (IPOs), other publicoers, placements, rights, oers, negotiated deals, etc


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To avoid duplication o portolios and to reduce expenses, the Scheme may invest in any other schemes o the Fund to the extent permittedby the Regulations. In such an event, RCAM will not charge management ees on the amounts o the Schemes so invested, unless permittedby the Regulations.

Debt Market In India

The Indian Debt market is acing major shit in the recent times. The substantial growth in Mutual Fund collections in the past ew years haveprovided an easy route or the investors to channelise their savings into the debt market, which otherwise is largely dominated by Banks andother Institutional investors.

At present, the Indian debt market is dominated by issues o Central Government bonds, Coporate Debentures and PSU Bonds. The newSecuritised instruments are also very attractive in the primary market. Risk associated with securitized Debt or PTCs are credit risk, liquidity riskand price risk/interest rate risk. The other instruments available or investment are Commercial Papers, Certiicate o Deposits, Government

guaranteed bonds, etc.

Brie details about the instruments are given below as on September 06, 2010.

Instruments Listed/ Unlisted Current Yield RangeAs on September 06, 2010.

Liquidity Risk proile

Central Government Securities Listed 6.35%- 8.40% High Low

Corporate Debentures / PSU Bonds Listed 7.85%-8.75% Moderate Low

CDs (short term) Unlisted 6.95%-7.85% High Low

Call Money Unlisted 2.90%-5.10% High Low

Mibor linked Papers Listed 140-155 bps Low Low

A brie description about yields presently available on Central Govt. Securities /Bonds & Debentures o various maturities is as ollows:Annualised yields (as on September 06, 2010) are:

Yrs =< 1yr 2-6yrs 7-10yrs 11-20 yrs

Central Government securities 6.40%-6.45% 6.96%-8.15% 8.15%-8.32% 8.21%-8.55%

Debentures / Bonds (AAA rated) 7.75%-7.85% 7.89%-8.52% 8.60%-8.75% -

THE PRICE AND YIELD ON VARIOUS DEBT INSTRUMENTS FLUCTUATE FROM TIME TO TIME DEPENDING UPON THE MACRO ECONOMICSITUATION, INFLATION RATE, OVERALL LIQUIDITY POSITION, FOREIGN EXCHANGE SCENARIO, ETC. ALSO, THE PRICE AND YIELD VARIESACCORDING TO MATURITY PROFILE, CREDIT RISK ETC

Securities Lending by the Fund:

In accordance with the Mutual Fund Regulations the Fund may engage in stock lending activities. Accordingly, the Scheme may lend securitiesto the extent o its entire portolio o the Scheme to any borrower through an approved intermediary. The Securities will be lent by the approvedintermediary against collaterals received rom the borrower, or a ixed period o time, on expiry o which the securities lent will be returned bythe borrower.

It may be noted that this activity would have the inherent probability o collateral value drastically alling in times o strong downward market

trends, resulting in inadequate value o collateral until such time as that diminution in value is replenished by additional security. It is also possiblethat the borrowing party and /or the approved intermediary may suddenly suer severe business setback and become unable to honour itscommitments. This along with a simultaneous all in value o collateral would render potential loss to the Scheme. Besides, there can also betemporary illiquidity o the securities that are lent out and the scheme may not be able to sell such lent out securities.

TRADING IN DERIVATIVES

The scheme intends to use derivatives or purposes that may be permitted by SEBI Mutual Fund regulations rom time to time. Derivativetransactions that can be undertaken by the Scheme include a wide range o instruments, including, but not limited to

Futures

Options

Swaps

Anyotherinstrument,asmaybepermittedbystatutoryauthoritiesfromtimetotime.

Derivatives can be either exchange traded or can be over the counter (OTC).

Exchange traded derivatives are listed and traded on Stock Exchanges whereas OTC derivative transactions are generally structured between twocounterparties.

SEBI has vide its circular DNPD/Cir-29/2005 dated September 14, 2005 interalia speciied the guidelines pertaining to trading by MutualFunds in Exchange Traded derivatives.

All derivative position taken in the portolio would be guided by the ollowing principles.

i. Position limit or the Mutual Fund in index options contracts

a. The Mutual Fund position limit in all index options contracts on a particular underlying index shall be Rs. 250 crore or 15% o thetotal open interest o the market in index options, whichever is higher, per Stock Exchange.

b. This limit would be applicable on open positions in all options contracts on a particular underlying index.


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ii. Position limit or the Mutual Fund in index utures contracts:

a. The Mutual Fund position limit in all index utures contracts on a particular underlying index shall be Rs. 250 crore or 15% o thetotal open interest o the market in index utures, whichever is higher, per Stock Exchange.

b. This limit would be applicable on open positions in all utures contracts on a particular underlying index.

iii. Additional position limit or hedging

In addition to the position limits at point (i) and (ii) above, the Mutual Fund may take exposure in equity index derivatives subject to theollowing limits:

1. Short positions in index derivatives (short utures, short calls and long puts) shall not exceed (in notional value) the Mutual Fund'sholding o stocks.

2. Long positions in index derivatives (long utures, long calls and short puts) shall not exceed (in notional value) the Mutual Fund'sholding o cash, government securities, T-Bills and similar instruments.

iv. Position limit or Mutual Fund or stock based derivative contracts. The Mutual Fund position limit in a derivative contract on a particulaunderlying stock, i.e. stock option contracts and stock utures contracts, is dened in the ollowing manner:-

1. For stocks in which the market wide position limit is less than or equal to Rs. 250 crore, the Mutual Fund position limit in such stockshall be 20% o the market wide position limit.

2. For stocks in which the market wide position limit is greater than Rs. 250 crore, the Mutual Fund position limit in such stock shall beRs. 50 crore.

v. Position limit or each scheme o a Mutual Fund or stock based derivative contracts.

The scheme-wise position limit / disclosure requirements shall be

1. For stock option and stock utures contracts, the gross open position across all derivative contracts on a particular underlying stock

o a scheme o a mutual und shall not exceed the higher o:

1% o the ree foat market capitalization (in terms o number o shares) or 5% o the open interest in the derivative contracts on aparticular underlying stock (in terms o number o contracts).

2. This position limits shall be applicable on the combined position in all derivative contracts on an underlying stock at a Stock Exchange

3. For index based contracts, Mutual Funds shall disclose the total open interest held by its scheme or all schemes put together in aparticular underlying index, i such open interest equals to or exceeds 15% o the open interest o all derivative contracts on thatunderlying index.

Illustrations

INDEX FUTURES

Index Futures have been introduced by BSE and NSE. Generally three utures o 1 month 2 months and 3 months are presently traded onthese exchanges. These utures expire on the last working Thursday o the respective months.

I the Nity (Index) was 1875 at the beginning o a month and the quotes or the three utures were as under:

MONTH BID PRICE OFFER PRICE

1 1880 1885

2 1900 1915

3 1910 1930

The Fund can buy an Index o month 1 on the last day o the month prior to month 1 in the illustration above at an oer price o 1885

Numerical example o utures trade

Following table will give an overview o the new derivative policy permitted by SEBI:

Limit Deinition

Sl. No Derivative Type Limit applicable on Limit deined Basis

1 Index Options Mutual Fund Level Higher o 250crores

15%ofopeninterestpositionon(Indexputs+indexcalls)

Per stockExchange

2 Index Future Mutual Fund Level Higher o

250crores

15%ofopeninterestpositionon(Indexshort+indexlong)

Per stockExchange

3 Short Position Scheme Notgreaterthanholdingofstocks

Subjectto1&2above

4 Long Position Scheme Notgreaterthancash

Subjectto1&2above


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Limit Deinition

Sl. No Derivative Type Limit applicable on Limit deined Basis

5 Stock derivatives Mutual Fund 1. Market wide position limit less than 250 crores

20%ofmarketwidepositions

All stockexchanges

2. Market wide position limit more than 250 crore

Rs50Crores

All stockexchanges

6 Stock derivatives Scheme 1. Grossopen(StockOption+StockFutures)higherof

1%offreefloatmarketcap

5%ofopeninterestinthederivativescontracts

2. Subject to 5 above

All stockexchanges

The ollowing is a hypothetical example o a typical likely index uture trade and the associated costs.

Particulars Index Future Actual Purchaseo Stocks

Index at the beginning o the month 1875 1875

Price o 1 Month Future 1885

A. Execution Cost: Carry and other Index Future Costs

(1885-1875)

10 Nil

B. Brokerage Cost: Assumed at 0.30% or Index Future and 0.50% or spot Stocks

(0.30% o 1885)

(0.50% o 1875)

5.66 9.38

C. Gains on Surplus Funds:(assumed 10% return on 90% o the money let ater paying 10% margin)

(10%*1875*90%*30days/365)

13.87 Nil

Total Cost (A+B-C) 1.79 9.38

In this example, the Index Future trade has resulted in proitability compared to actual purchase o the underlying index stocks. Theproitability o Index Future as compared to an individual security will interalia depend upon the carrying cost, the interest available onsurplus unds and the transaction cost.

There are utures based on stock indices as mentioned above as also utures based on individual stocks. Illustrative list o strategies thatcan employ utures

Strategies that employ index utures:

(a) The und has an existing equity portion invested in a basket o stocks. In case the und manager has a view that the equity marketsare headed downwards, the und can then hedge the exposure to equity either ully or partially by initiating short utures positionsin the index. A similar position in the long direction can also be initiated by the und to hedge its position o cash and permissibleequivalents.

The extent to which this can be done is determined by existing guidelines.

(b) To the extent permissible by extant regulations the scheme can initiate a naked short position in an underlying index uture traded ona recognized stock exchange.

In case the nity near month uture contract trading at say, 1850, and the und manager has a view that it will depreciate goingorward, the und can initiate a sale transaction o nity utures at 1850 without holding a portolio o equity stocks or any otherunderlying long equity position. Once the price alls to 1800 ater say, 20 days the und can initiate a square-up transaction bybuying the said utures and book a prot o 50. Correspondingly the und can take a long position without an underlying cash/ cashequivalent subject to the extant regulations.

STRATEGIES THAT EMPLOY STOCK SPECIFIC FUTURES:

Individual stock utures are also available in the Indian Equity Markets. Stock utures trade either at a premium or at discount to the spotprices, the level o premium generally refects the cost o carry. Stock specic issues may have a bearing on utures as speculators may nd

utures as a cost-eective way o executing their view on the stock. However such executions usually increase the premium/discount tothe spot signicantly, thereby giving rise to arbitrage opportunities or a und.

(a) Selling spot and buying uture : In case the und holds the stock o a company at say Rs. 1000 while in the utures market it tradesat a discount to the spot price say at Rs. 980 then the und may sell the stock and buy the utures. On the date o expiry o thestock uture, the und may reverse the transactions (i.e. Buying at Spot & Selling utures) and earn a risk-ree Rs. 20/- (2% absolute)on its holdings. As this can be without any dilution o the view o the und on the underlying stock the und can still beneit romany movement o the price in the northward direction, i.e. i on the date o expiry o the utures, i the stock trades at 1100 whichwould be the price o the utures too, the und will have a beneit o Rs. 100/- whereby the und gets the 10% upside movementtogether with the 2% beneit on the arbitrage, and thus getting a total return o 12%.

(b) Buying spot and selling uture :Where the und holds the stock o a company trading in the spot market at Rs 1000 while it tradesat Rs. 1020/- in the utures market then und may buy the stock at spot and sell in the utures market thereby earning Rs 20.


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In case o adequacy o cash with the und, this strategy may be used to enhance returns o the Scheme which was otherwise sittingon cash.

(c) Buying stock uture: Where the scheme wants to initiate a long positon in a stock whose spot price is at say, Rs.1000 and utures isat 980, then the und may just buy the utures contract instead o the spot thereby beneiting rom a lower cost option.

(d) In case the und has a bearish view on a stock which is trading in the spot market at Rs.1000/- and the utures market at sayRs.980/-. The und can express such a view subject to extant SEBI regulations by initiating a short postion in the utures contractIn case the view is right and the utures price depreciates to say 900/- the und can square up the short position thereby earning aproit o Rs. 80/-

OPTIONS:

Option contracts are o two types - Call and Put; the ormer being the right, but not obligation, to purchase a prescribed number o shares

at a specied price beore or on a specic expiration date and the latter being the right, but not obligation, to sell a prescribed number oshares at a specied price beore or on a specic expiration date. The price at which the shares are contracted to be purchased or sold iscalled the strike price. Options that can be exercised on or beore the expiration date are called American Options, while those that canbe exercised only on the expiration date are called European Options. Option contracts are designated by the type o option, name o theunderlying, expiry month and the strike price. Numerical examples o Options Call Option (Buy): The und buys a call option at the strikeprice o say Rs.1000 and pays a premium o say Rs. 50, the und would earn prots i the market price o the stock at the time o expiryo the option is more than 1050 being the total o the strike price and the premium thereon. I on the date o expiry o the option thestock price is below Rs 1000, the und will not exercise the option while it loses the premium o Rs 50.

Put Option (Buy): The und buys a Put Option at Rs 1000 by paying a premium o say Rs 50. I the stock price goes down to Rs. 900, theund would protect its downside and would only have to bear the premium o Rs 50 instead o a loss o Rs 100 whereas i the stock pricemoves up to say Rs. 1100 the und may let the Option expire and orego the premium thereby capturing Rs. 100 upside ater bearing thepremium o Rs50.

The above option positions can be initiated in both index based options as well as stock speciic options. Permissible strategies involvingindex options and stock speciic options would be the same as that o index utures and stock speciic utures respectively.

In terms o SEBI Circular Cir/IMD/DF/11/2010 dated August 18, 2010, ollowing shall be applicable with eect rom October 01, 2010

(i) The cumulative gross exposure through equity, debt and derivative positions should not exceed 100% o the net assets o the scheme.

(ii) Mutual Funds shall not write options or purchase instruments with embedded written options.

(iii) The total exposure related to option premium paid must not exceed 20% o the net assets o the scheme.

(iv) Cash or cash equivalents with residual maturity o less than 91 days may be treated as not creating any exposure.

(v) Exposure due to hedging positions may not be included in the above mentioned limits subject to the ollowing:

a. Hedging positions are the derivative positions that reduce possible losses on an existing position in securities and till the existingposition remains.

b. Hedging positions cannot be taken or existing derivative positions. Exposure due to such positions shall have to be added andtreated under limits mentioned in Point (i).

c. Any derivative instrument used to hedge has the same underlying security as the existing position being hedged.

d. The quantity o underlying associated with the derivative position taken or hedging purposes does not exceed the quantity o

the existing position against which hedge has been taken.(vi) Exposure due to derivative positions taken or hedging purposes in excess o the underlying position against which the hedging osition has

been taken, shall be treated under the limits mentioned in point (i).

(vii) Denition o Exposure in case o Derivative Positions: Each position taken in derivatives shall have an associated exposure as dened underExposure is the maximum possible loss that may occur on a position. However, certain derivative positions may theoretically have unlimitedpossible loss. Exposure in derivative positions shall be computed as ollows:

Position Exposure

Long Future Futures Price * Lot Size * Number o Contracts

Short Future Futures Price * Lot Size * Number o Contracts

Option bought Option Premium Paid * Lot Size * Number o Contracts.

(viii) Mutual Funds may enter into plain vanilla interest rate swaps or hedging purposes. The counter party in such transactions has to be anentity recognized as a market maker by RBI. Further, the value o the notional principal in such cases must not exceed the value o

respective existing assets being hedged by the scheme. Exposure to a single counterparty in such transactions should not exceed 10% othe net assets o the scheme.

The AMC retains the right to enter into such derivative transactions as may be permitted by the Regulations rom

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