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Reliance Tax Saver (ELSS) Fundan opn-ndd equity linkd sving schm)
Scheme Information Document
The particulars o the Scheme have been prepared in accordance with Equity Linked
Savings Scheme, 2005 announced by the Government o India vide the Notifcation
No. 226/2005 dated 3-11-2005 and 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 Dil igence
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.
As per the Equity Linked Savings Scheme, 2005, investment made under the scheme
shall be locked-in or a period o 3 years rom the date o allotment o units.
The Scheme Inormation Document sets orth concisely the inormation aboutthe 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 Information Document is dated October 01, 2009.
NaMe oF MUTUal FUND
Rinc Mutu Fund11th r & 12th r, on Indibu Cntr, Twr 1
Jupitr Mi Cmpund, 841, snpti Bpt Mrg,ephintn Rd, Mumbi - 400 013T N. - 022-30994600Fx N. - 022-30994699
NaMe oF sPoNsoR CoMPaNY
Rinc Cpit limitdRgitrd ofc:H Bck, 1t Fr, Dhirubhi ambni Knwdg City,Kprkhirn, Nvi Mumbi - 400 710.
T. 022 - 30327000, Fx. 022 - 30327202Wbit : www.rinccpit.c.in
NaMe oF asseT MaNaGeMeNT CoMPaNY
Rinc Cpit at Mngmnt limitdCrprt ofc:11th r & 12th r, on Indibu Cntr, Twr 1
Jupitr Mi Cmpund, 841, snpti Bpt Mrg,ephintn Rd, Mumbi - 400 013T N. - 022-30994600Fx N. - 022-30994699
NaMe oF TRUsTee CoMPaNY
Rinc Cpit Trut C. limitdCrprt ofc:11th r & 12th r, on Indibu Cntr, Twr 1
Jupitr Mi Cmpund, 841, snpti Bpt Mrg,ephintn Rd, Mumbi - 400 013T N. - 022-30994600Fx N. - 022-30994699
Continuous offer of the Units of the face value of Rs. 10 each for 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 .............................................................. ............................... 6
C. SPECIAL CONSIDERATIONS ....................................................... .............................................................. ............................... 6
D. DEFINITIONS & ABBREVIATIONS ........................................................ .............................................................. ..................... 7
E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY ...................................................... ......................................... 8
II. INFORMATION ABOUT THE SCHEME ..................................................................................................................9
Reliance Tax Saver (ELSS) Fund ............................................................................................................................9
A. TYPE OF THE SCHEME ..................................................... ............................................................. .......................................... 9
B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME? ...................................................... .......................................... 9
C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS? .......................................................... .................................................... 9
D. WHERE WILL THE SCHEME INVEST? ............................................................ ............................................................. ........... 9
E. WHAT ARE THE INVESTMENT STRATEGIES? .......................................................... .............................................................. 9
F. FUNDAMENTAL ATTRIBUTES ..................................................... .............................................................. .............................15
G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE? ........................................................... .............................17
H. WHO MANAGES THE SCHEME? ......................................................... .............................................................. ...................17
I. WHAT ARE THE INVESTMENT RESTRICTIONS? ..................................................... ............................................................17
J. HOW HAS THE SCHEME PERFORMED? ....................................................... ............................................................. .........19
III. UNITS AND OFFER .............................................................................................................................................20
A. NEW FUND OFFER (NFO) .......................................................... .............................................................. .............................20
B. ONGOING OFFER DETAILS ......................................................... .............................................................. .............................21
C. PERIODIC DISCLOSURES ............................................................ .............................................................. .............................32
D. COMPUTATION OF NAV ............................................................. .............................................................. .............................33
IV. FEES AND EXPENSES .........................................................................................................................................34
A. NEW FUND OFFER (NFO) EXPENSES ........................................................... ............................................................. .........34
B. ANNUAL SCHEME RECURRING EXPENSES ............................................................ ............................................................34
C. LOAD STRUCTURE....................................................................... .............................................................. .............................34
D. WAIVER OF LOAD FOR DIRECT APPLICATIONS ..................................................... ............................................................34
V. RIGHTS OF UNITHOLDERS .................................................................................................................................35
VI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FORWHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORYAUTHORITY ......................................................................................................................................................36
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HIGHLIGHTS/SUMMARY OF THE SCHEME
1. INVESTMENT OBJECTIVE
Theprimaryobjectiveotheschemeistogeneratelong-termcapitalappreciationromaportoliothatisinvestedpredominantlyinequityandequityrelatedinstruments.
However,therecanbenoassurancethattheschemesinvestmentobjectiveshallbeachieved.
2. LIQUIDITY
T / B D NAV T / B D NAV .
AsperSEBIRegulations,theMutualFundshalldespatchRedemptionproceedswithin10WorkingDaysoreceivingavalidRedemptionrequest.Apenalinteresto15%perannumorsuchotherrateasmaybeprescribedbySEBIromtimetotime,willbepaidincasetheRedemptionproceedsarenotmadewithin10WorkingDaysothedateoreceiptoavalidRedemptionrequest.However,undernormalcircumstances,theMutualFundwillendeavortodespatchtheRedemptionchequewithin34WorkingDaysromthereceiptoavalidRedemptionrequest.
3. BENCHMARK
BSE100Index
4. TRANSPARENCY/NAV DISCLOSURE
a) TheNAVwillbecalculatedanddisclosedatthecloseoeveryworkingdaywhichshallbepublishedinatleasttwodailynewspapersandalsouploadedontheAMFIwebsiteandRelianceMutualFundwebsitei.e.www.reliancemutual.com.
b) TheNAVotheSchemewillbecalculatedanddeclaredbytheFundoneveryWorkingDay.TheinormationonNAVmaybeobtainedbytheUnitholders,onanydayromtheoiceotheAMC/theoiceotheRegistrarinHyderabadoranyotheotherDesignatedInvestorServiceCentres.
c) Investorsmayalsoobtaininormationonthepurchase/salepriceoragivendayonanyWorkingDayromtheoiceotheAMC/theoiceotheRegistrarinHyderabad/anyotheotherDesignatedInvestorServiceCentres.
d) ForanyNAVinormation,investormayalsocallourTouchbasecustomerservicecentreat30301111(24X7),callersoutsideIndia,pleasedial91-40-30301111or180030011111.
e) PublicationoAbridgedHal-yearlyUnaudited/AuditedFinancialResultsinthenewspapersorasmaybeprescribedundertheRegulationsromtimetotime.
) CommunicationoPortolioonahal-yearlybasistotheUnitholdersdirectlyorthroughthePublicationsorasmaybeprescribedundertheRegulationsromtimetotime.
g) DespatchotheAnnualReportsotherespectiveSchemeswithinthestipulatedperiodasrequiredundertheRegulations.
5. LOADS
1. E L
Nil
In accordance with the requirements speciied by the SEBI circular no. SEBI/IMD/CIR No.4/18230/09 dated une 30, 2009 no entryInaccordancewiththerequirementsspeciiedbytheSEBIcircularno.SEBI/IMD/CIRNo.4/18230/09datedune30,2009noentryloadwillbechargedorpurchase/additionalpurchase/switch-inacceptedbyRMFwitheectromAugust01,2009.Similarly,noentryloadwillbechargedwithrespecttoapplicationsorregistrationsunderSystematicInvestmentPlans/SystematicTranserPlans(includingRelianceSIPInsure,SalaryAddVantage,RecurringInvestmentPlanorCorporateEmployeesandDividendTranserPlan)acceptedbyRMFwitheectromAugust01,2009.
Theuprontcommissiononinvestmentmadebytheinvestor,iany,willbepaidtotheARNHolder(AMFIregisteredDistributor)directlybytheinvestor,basedontheinvestorsassessmentovariousactorsincludingservicerenderedbytheARNHolder.
2. Ex L
Nil
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 onWitheectromAugust01,2009,exitload/CDSC(iany)upto1%otheredemptionvaluechargedtotheunitholderbyRMFonredemptionounitswillberetainedbyeachotheschemesinaseparateaccountandwillbeutilizedorpaymentocommissionstotheARNHolderandtomeetothermarketingandsellingexpenses.
Anyamountinexcesso1%otheredemptionvaluechargedtotheunitholderasexitload/CDSCwillbecreditedtotherespectiveschemeimmediately.
PursuanttoSEBIcircularNo.SEBI/IMD/CIRNo.14/120784/08datedMarch18,2008,witheectromApril1,2008,noentryloadorexitloadshallbechargedinrespectobonusunitsandounitsallottedonreinvestmentodividend.
3. I S S
SwitchIntotheundromotherschemesispossibleonallbusinessdays.However,SwitchOutacilityisavailableonlyaterexpiryolock-in-periodo3years.Attheapplicableloadsintherespectiveschemes.
4. I P/I O S
NoloadapplicableorInterPlan/InterOptionSwitch.
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5. Cg D S Cg
Nil
6. MINIMUM APPLICATION AMOUNT
Rs.500/-andinmultiplesoRe.500/-thereater
M A I
Rs.500/-andinmultiplesoRe.500/-thereater
7. CHOICE OF INVESTMENT PLANS:
RelianceTaxSaver(ELSS)FundhasaGrowthPlanandDividendPlan.GrowthPlanhasGrowthOptionandDividendPlanhasDividendPayoutOptionandDividendRe-investmentOption.
DetailsotheabovePlans/optionsareasunder:
1. G P
(i) G O
2. D P2. D P
(i) D P O
(ii) D R O
. FLEIBILITY. FLEIBILITY
Unitholderswillhavetheexibilitytoaltertheallocationotheirinvestmentsamongthescheme(s)oeredbytheMutualFund,inordertosuittheirchanginginvestmentneeds,byswitchingtheirunitsbetweenpermissiblescheme(s)/plans/optionsotheMutualFund,ater
thestatutorylock-inperiodo3Years. 9. TA BENEFITS
(Asperpresenttaxlaws)
TheinvestmentundertheRelianceTaxSaver(ELSS)FundiseligibleordeductionunderSection80CotheIncomeTaxAct,191(theAct)
Section80C(2)(xiii)interalia,providesasollows:
xiii) as subscription to any units o any Mutual Fund notifed under clause (23D) o section 10 or rom the Administrator or thespecifed company under any plan ormulated in accordance with such scheme as the Central Government may, by notifcationin the Ofcial Gazette, speciy in this behal
TheollowingtaxbeneftswouldbeavailabletotheeligibleinvestorbeinganIndividualoraHinduUndividedFamily(HUF),subjecttotheulfllmentotherelevantconditionsoSection80CotheAct.
InvestmentmadebytheeligibleinvestorbeinganIndividualoraHinduUndividedFamilyintheschemewillqualiyordeductionunderSection80CoIncomeTaxAct,191uptoRupeesOneLakh.
LongTermCapitalgainsbenefts,subjecttoprovisionsotheAct.
UnitsheldundertheSchemeotheFundarenottreatedasassetswithinthemeaningosection2(ea)otheWealth-taxAct,1957andare,thereore,notliabletoWealth-tax.
TheaboveshouldnotbeconstruedtobetaxadviceandthesameissubjecttoanychangethatmaybeaectedintheActoranyguidelines/amendments/rules/clariicationsissuedinrespectthereoromtimetotime.
10. REPATRIATION
NRIs/FIIsmayinvestonarepatriablebasisasperRBIrulesandregulations.InvestorsintheSchemearenotbeingoeredanyguaranteed/assuredreturns.
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I INTRODUCTION
A. RISK FACTORS
1. S R F
a) MutualFundsandsecuritiesinvestmentsaresubjecttomarketriskssuchastradingvolumes,settlementrisk,liquidityriskanddeaultriskincludingthepossiblelossoprincipalandthereisnoassuranceorguaranteethattheobjectivesotheSchemewillbeachieved.
b) Astheprice/value/interestratesothesecuritiesinwhichtheschemeinvestsluctuates,thevalueoyourinvestmentintheschememaygoupordown
c) PastperormanceotheSponsor/AMC/MutualFunddoesnotguaranteeutureperormanceothescheme.
d) RelianceTaxSaver(ELSS)FundisonlythenameotheSchemeanddoesnotinanymannerindicateeitherthequalityotheschemeoritsutureprospectsandreturns.
e) TheSponsorisnotresponsibleorliableoranylossresultingromtheoperationotheSchemebeyondtheirinitialcontributionoRs.1lakhtowardsthesettingupotheMutualFundandsuchotheraccretionsandadditionstothecorpus.
) Thepresentschemeisnotaguaranteedorassuredreturnscheme.TheMutualFundisnotguaranteeingorassuringanydividend/bonus.TheMutualFundisalsonotassuringthatitwillmakeperiodicaldividend/bonusdistributions,thoughithaseveryintentionodoingso.Alldividend/bonusdistributionsaresubjecttotheavailabilityodistributablesurplusotheScheme.
2. SCHEME SPECIFIC RISK FACTORS
a) R g Eq
TheSchemebeinganequityschemewillbeaectedbytherisksassociatedwiththeequitymarket.
EquityandEquityrelatedinstrumentsonaccountoitsvolatilenaturearesubjecttopriceluctuationsondailybasis.Thevolatilityinthevalueotheequityandequityrelatedinstrumentsisduetovariousmicroandmacroeconomicactorsaectingthesecuritiesmarkets.
Thismayhaveadverseimpactonindividualsecurities/sectorandconsequentlyontheNAVoScheme. TheinabilityotheSchemetomakeintendedsecuritiespurchasesduetosettlementproblems,couldcausetheSchemetomisscertain
investmentopportunitiesasincertaincases,settlementperiodsmaybeextendedsigniicantlybyunoreseencircumstances.Similarly,theinabilitytosellsecuritiesheldintheschemesportoliomayresult,attimes,inpotentiallossestothescheme,shouldtherebeasubsequentdeclineinthevalueothesecuritiesheldintheschemesportolio.
Tradingvolumes,settlementperiodsandtranserproceduresmayrestricttheliquidityotheinvestments.Thismayimpacttheabilityotheunitholderstoredeemtheirunits.Inviewothis,theTrusteehastheright,initssolediscretiontolimitredemptions(includingsuspendingredemptions)undercertaincircumstances.
TheAMCmayinvestinunlistedsecuritiesthatoerattractiveyieldswithintheregulatorylimit.Thismayhoweverincreasetheriskotheportolioastheseunlistedsecuritiesareinherentlyilliquidinnatureandcarrylargerliquidityriskascomparedtothelistedsecuritiesorthosethatoerotherexitoptionstotheinvestors.
InvestmentsinequityandequityrelatedsecuritiesinvolvehighdegreeorisksandinvestorsshouldnotinvestintheSchemeunlesstheycanaordtotaketheriskolosingtheirinvestment.
b)b) R g B
InvestmentinDebtissubjecttoprice,credit,andinterestraterisk.
TheNAVotheSchememaybeaected,interalia,bychangesinthemarketconditions,interestrates,tradingvolumes,settlementperiodsandtranserprocedures.
Corporatedebtsecuritiesaresubjecttotheriskoanissuersinabilitytomeetinterestandprincipalpaymentsonitsdebtobligations(creditrisk).Debtsecuritiesmayalsobesubjecttopricevolatilityduetoactorssuchaschangesininterestrates,generallevelomarketliquidityandmarketperceptionothecreditworthinessotheissuer,amongothers(marketrisk).TheInvestmentManagerwillendeavortomanagecreditriskthroughin-housecreditanalysis.TheSchememayalsousevarioushedgingproductsromtimetotime,asareavailableandpermittedbySEBI,toattempttoreducetheimpactounduemarketvolatilityontheSchemesportolio.
TheNAVotheSchemesUnits,totheextentthattheSchemeisinvestedinixedincomesecurities,willbeaectedbychangesinthegenerallevelointerestrates.Wheninterestratesdecline,thevalueoaportoliooixedincomesecuritiescanbeexpectedtorise.Conversely,wheninterestratesrise,thevalueoaportoliooixedincomesecuritiescanbeexpectedtodecline
InvestinginBondsandFixedIncomesecuritiesaresubjecttotheriskoanIssuersinabilitytomeetprincipalandinterestpaymentsobligation(creditrisk)andmayalsobesubjecttopricevolatilityduetosuchactorsasinterestratesensitivity,marketperceptionothecreditworthinessotheissuerandgeneralmarketliquidity(marketrisk).
Thetimingotransactionsindebtobligations,whichwillotendependonthetimingothePurchasesandRedemptionsintheScheme,mayresultincapitalappreciationordepreciationbecausethevalueodebtobligationsgenerallyvariesinverselywiththeprevailinginterestrates.
I R R: Aswithalldebtsecurities,changesininterestrateswillaecttheSchemesNetAssetValueasthepricesosecuritiesgenerallyincreaseasinterestratesdeclineandgenerallydecreaseasinterestratesrise.Pricesolonger-termsecuritiesgenerallyluctuatemoreinresponsetointerestratechangesthandoshorter-termsecurities.InterestratemovementsintheIndiandebtmarketscanbevolatileleadingtothepossibilityolargepricemovementsupordownindebtandmoneymarketsecuritiesandtherebytopossiblylargemovementsintheNAV.
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Lq M R: Thisreerstotheeaseatwhichasecuritycanbesoldatornearitstruevalue.Theprimarymeasureoliquidityriskisthespreadbetweenthebidpriceandtheoerpricequotedbyadealer.LiquidityriskischaracteristicotheIndianixedincomemarket.
C R:Creditriskordeaultriskreerstotheriskwhichmayariseduetodeaultonthepartotheissuerotheixedincomesecurity(i.e.willbeunabletomaketimelyprincipalandinterestpaymentsonthesecurity).BecauseothisriskdebenturesaresoldatayieldspreadabovethoseoeredonTreasurysecurities,whicharesovereignobligationsandgenerallyconsideredtobereeocreditrisk.Normally,thevalueoaixedincomesecuritywillluctuatedependingupontheactualchangesintheperceivedlevelocreditriskaswellastheactualeventodeault.
R R: Thisriskreerstothe interestratelevelsatwhichcashlowsreceivedromthesecuritiesintheSchemeorrommaturitiesintheSchemearereinvested.Theadditionalincomeromreinvestmentistheinterestoninterestcomponent.Theriskreerstotheallintherateorreinvestmentointerimcashlows.
R
CREDITRISK LIQUIDITYRISK PRICERISK
Listed Dependsoncreditquality RelativelyLow Dependsondurationoinstrument
Unlisted Dependsoncreditquality RelativelyHigh Dependsondurationoinstrument
Secured Relativelylow RelativelyLow Dependsondurationoinstrument
Unsecured Relativelyhigh RelativelyHigh Dependsondurationoinstrument
Rated Relativelylowanddependsontherating RelativelyLow Dependsondurationoinstrument
Unrated Relativelyhigh RelativelyHigh Dependsondurationoinstrument
DierenttypesosecuritiesinwhichtheschemewouldinvestasgivenintheSchemeInormationDocumentcarrydierentlevelsandtypesorisk.Accordingly,theschemesriskmayincreaseordecreasedependinguponitsinvestmentpatterne.g.corporatebonds,carryahigherleveloriskthanGovernmentsecurities.Furtherevenamongcorporatebonds,bondswhichareAAAratedarecomparativelylessriskythanbondswhichareAArated.
c)c) R g g S
TheFundmayinvestinoverseasdebt/equities/ADRs/GDRswiththeapprovaloRBI/SEBI,subjecttosuchguidelinesasmaybeissuedbyRBI/SEBI.Thenetassets,distributionsandincomeotheschememaybeaectedadverselybyluctuationsinthevalueocertainoreigncurrenciesrelativetotheIndianRupeetotheextentoinvestmentsinthesesecurities.Repatriationosuchinvestmentmayalsobeaectedbychangesintheregulatoryandpoliticalenvironments.TheschemesNAVmayalsobeaectedbyaluctuationinthegeneralandspeciiclevelointerestratesinternationally,orthechangeinthecreditproilesotheissuers.
d)d) R g D
V RV R
TheriskinvaluingtheDebt&Equityderivativeproductsduetoinadequatetradingdatawithgoodvolumes.Derivativeswithlongerdurationwouldhavehigherriskvizaviztheshorterdurationderivatives.
M M R
Theday-to-daypotentialoraninvestortoexperiencelossesromluctuationsinunderlyingstockpricesandderivativesprices. S R
TheriskinherentinthecapitalmarketduetomacroeconomicactorslikeInlation,GDP,Globalevents.
Lq R
Theriskstemmingromthelackoavailabilityoderivativesproductsacrossdierentmaturitiesandwithdierentriskappetite.
I V
Theestimatedvolatilityoanunderlyingsecurityspriceandderivativesprice.
I R R
TheriskstemmingromthemovementoInterestratesinadversedirection.Aswithallthedebtsecurities,changesintheinterestrateswillaectthevaluationotheportolios.
C R (D R)
Deaultriskistheriskthatlosseswillbeincurredduetothedeaultbythecounterpartyoroverthecounterderivatives.
S R
TheriskarisingduetoailureooperationalprocessesollowedbytheexchangesandOTCparticipantsorthederivativestrading.
R
RCAMmayusevariousderivativeproducts,romtimetotime,inanattempttoprotectthevalueotheportolioandwithanintentiontoenhanceUnitholdersinterestotheScheme.
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a. AsandwhentheSchemetradesinthederivativesmarketthereareriskactorsandissuesconcerningtheuseoderivativesthatinvestors should understand. Derivative productsare specialized instruments thatrequire investment techniques andriskanalysisdierentromthoseassociatedwithstocksandbonds.Theuseoaderivativerequiresanunderstandingnotonlyotheunderlyinginstrumentbutothederivativeitsel.Derivativesrequirethemaintenanceoadequatecontrolstomonitorthetransactionsenteredinto,theabilitytoassesstheriskthataderivativeaddstotheportolioandtheabilitytoorecastpriceorinterestratemovementscorrectly.Thereisapossibilitythatalossmaybesustainedbytheportolioasaresultotheailureoanotherparty(usuallyreerredtoasthecounterparty)tocomplywiththetermsothe derivativescontract.Otherrisksinusingderivativesincludetheriskomispricingorimpropervaluationoderivativesandtheinabilityoderivativestocorrelateperectlywithunderlyingassets,ratesandindices.
b. Derivativeproductsareleveragedinstrumentsandcanprovidedisproportionategainsaswellasdisproportionatelossestotheinvestor.Executionosuchstrategiesdependsupontheabilityoheundmanagertoidentiysuchopportunities.Identiicationandexecution
othestrategiestobepursuedbytheundmanagerinvolveuncertaintyanddecisionoundmanagermaynotalwaysbeproitable.Noassurancecanbegiventhattheundmanagerwillbeabletoidentiyorexecutesuchstrategies.
c. Therisksassociatedwiththeuseoderivativesaredierentromorpossiblygreaterthan,therisksassociatedwithinvestingdirectlyinsecuritiesandothertraditionalinvestments.
e)e) R A S D
TheSchememayinvestinSecuritiseddebt.
Aswithanyotherdebtinstrument,theollowingriskactorshavetobetakenintoconsiderationwhileinvestinginPTCs:
a. CreditRisk:SincemostothePTCsaredrawnromacherrypickedpoolounderlyingassets,theriskodelay/deaultduetopoorcreditqualityislow.FurthermoremostothePTCsenjoyadditionalcashlowcoverageintermsosubordinationbyanotherlowerclassoPTCsorintermsoexcesscashcollateralisation.
b. LiquidityRisk:SincethematurityothePTCswillbeinlinewiththematurityotheFMP,theriskarsingromlowsecondarymarketliquidityosuchinstrumentsislow.
c. PriceRisk/InterestRateRisk:Thepriceriskotheseinstrumentsshallbeinlinewiththematurity/durationosuchinstruments.Howevergiventheactthattheseinstrumentswillhaveamaturityproileupto2years,thedurationriskisrelativelyless.
d. DomesticSecuritiseddebtcanhavedierentunderlyingassetsandtheseassetshavedierentriskcharacteristics.Thesemaybeasgivenintheollowingexample:
Security1-BackedbyreceivablesopersonalloansoriginatedbyXYZBank
Speciic Risk Factors:Loss duetodeaultand/or paymentdelay on Receivables, PrematureTermination o FacilityAgreements,Limitedlosscover,DelinquencyandCreditRisk,LimitedLiquidityandPriceRisk,Originator/CollectionAgentRisk,BankruptcyotheOriginator,Co-minglingounds
Security2-SeniorSeriesPassThroughCertiicatesbackedbycommercialvehiclesandtwo-wheelerloanandloanreceivablesromABCBankLimited
)) R S Sg & S Lg
SecuritiesLendingisalendingosecuritiesthroughanapprovedintermediarytoaborrowerunderanagreementoraspeciiedperiodwiththeconditionthattheborrowerwillreturnequivalentsecuritiesothesametypeorclassattheendothespeciiedperiodalongwiththecorporatebeneitsaccruingonthesecuritiesborrowed.IncasetheSchemeundertakesstocklendingundertheRegulations,itmay,attimesbeexposedtocounterpartyriskandotherrisksassociatedwiththesecuritieslending.UnitholdersotheSchemeshouldnotethattherearerisksinherenttosecuritieslending,includingtheriskoailureotheotherparty,inthiscasetheapprovedintermediary,tocomplywiththetermsotheagreemententeredintobetweenthelenderosecuritiesi.e.theSchemeandtheapprovedintermediary.Suchailurecanresultinthepossiblelossorightstothecollateralputupbytheborrowerothesecurities,theinabilityotheapprovedintermediarytoreturnthesecuritiesdepositedbythelenderandthepossiblelossoanycorporatebeneitsaccruingtothelenderromthesecuritiesdepositedwiththeapprovedintermediary.
Short-sellingisthesaleosharesthatthesellerdoesnotownatthetimeotrading.Instead,heborrowsitromsomeonewhoalreadyownsit.Later,theshortsellerbuysbackthestockheshortedandreturnsthestocktocloseouttheloan.Ithepriceothestockhasallen,hecanbuythestockbackorlessthanhereceivedorsellingitandproitsromit(thedierencebetweenhighershortsalepriceandthelowerpurchaseprice).However,Shortpositionscarrytheriskolosingmoneyandtheselossesmaygrowtheoreticallyunlimitedithepriceincreaseswithoutlimitandshallresultintomajorlossesintheportolio.
g)g) O S S R (i) Lq :Theamountinvestedinthescheme,includingdividendamountreinvestedunder
DividendPlanshallbesubjecttoalock-ino3years.
(ii) TheliquidityotheSchemesinvestmentsmaybeinherentlyrestrictedbytradingvolumes,settlementperiodsandtranserprocedures.Intheeventoaninordinatelylargenumberoredemptionrequests,oroare-structuringotheSchemesinvestmentportolio,theseperiodsmaybecomesignifcant.PleasereadtheSectionsothisSchemeInormationDocumententitledS CandRg L R .
(iii) Although,theobjectiveotheFundistogenerateoptimalreturns,theobjectivemayormaynotbeachieved.TheinvestorsmaynotethatitheAMC/InvestmentManagerisnotabletomakerightdecisionregardingthetimingoincreasingexposureindebtsecuritiesintimesoallingequitymarket,itmayresultinnegativereturns.Giventhenatureoscheme,theportolioturnoverratiomaybeon
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thehighersideandtheAMCmaychangetheullportoliocommensuratewiththeinvestmentdecisionsandAssetAllocationotheScheme.Attimes,suchchurningoportoliomayleadtolossesduetosubsequentnegativeorunavorablemarketmovements.
(iv) ThetaxbeneitsdescribedinthisSchemeInormationDocumentareasavailableunderthepresenttaxationlawsandareavailablesubjectto relevantconditions.Theinormationgivenisincludedonlyorgeneralpurposeand isbasedonadvisereceivedbytheAMCregardingthelawandpracticecurrentlyinorceinIndiaandtheUnitholdersshouldbeawarethattherelevantiscalrulesortheirinterpretationmaychange.Asisthecasewithanyinvestment,therecanbenoguaranteethatthetaxpositionortheproposedtaxpositionprevailingatthetimeoaninvestmentintheSchemewillendureindeinitely.Inviewotheindividualnatureotaxconsequences,eachUnitholderisadvisedtoconsulthis/herownproessionaltaxadvisor.
(v) S R F CreditAndRatingDowngradeRisk,PrepaymentAndForeclosuresRiskorSeniorPTCSeries,PrepaymentAndForeclosuresRiskorSeniorPTCSeries,ServicingAgentRisk,Co-minglingRisk,BankruptcyotheSeller.
(vi) TheNAVotheschemetotheextentinvestedinDebtandMoneymarketsecuritiesarelikelytobeaectedbychangesintheprevailingratesointerestandarelikelytoaectthevalueotheSchemesholdingsandthusthevalueotheSchemesUnits.
(vii) TheAMCmay,consideringtheoverallleveloriskotheportolio,investinlowerrated/unratedsecuritiesoeringhigheryields.Thismayincreasetheriskotheportolio.
(viii)Securitieswhicharenotquotedonthestockexchangesareinherentlyilliquidinnatureandcarryalargeramountoliquidityrisk,incomparisontosecuritiesthatarelistedontheexchangesoroerotherexitoptionstotheinvestor,includingaputoption.TheAMCmaychoosetoinvestinunlistedsecuritiesthatoerattractiveyields.Thismayincreasetheriskotheportolio.
(ix) Whilesecuritiesthatarelistedonthestockexchangecarrylowerliquidityrisk,theabilitytoselltheseinvestmentsislimitedbytheoveralltradingvolumeonthestockexchanges.Moneymarketsecurities,whileairlyliquid,lackawell-developedsecondarymarket,whichmayrestrictthesellingabilityotheSchemeandmayleadtotheSchemeincurringlossestillthesecurityisinallysold.
(x) InvestmentdecisionsmadebytheAMCmaynotalwaysbeproitable,eventhoughitisintendedtogeneratecapitalappreciationandmaximizethereturnsbyactivelyinvestinginequityandequityrelatedsecurities.
B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME
TheScheme/Planshallhaveaminimumo20investorsandnosingleinvestorshallaccountormorethan25%othecorpusotheScheme/Plan(s).However,isuchlimitisbreachedduringtheNFOotheScheme,theFundwillendeavortoensurethatwithinaperiodothreemonthsortheendothesucceedingcalendarquarterromthecloseotheNFOotheScheme,whicheverisearlier,theSchemecomplieswiththesetwoconditions.IncasetheScheme/Plan(s)doesnothaveaminimumo20investorsinthestipulatedperiod,theprovisionsoRegulation39(2)(c)otheSEBI(MF)RegulationswouldbecomeapplicableautomaticallywithoutanyreerenceromSEBIandaccordinglytheScheme/Plan(s)shallbewoundupandtheunitswouldberedeemedatapplicableNAV.Thetwoconditionsmentionedaboveshallalsobecompliedwithineachsubsequentcalendarquarterthereater,onanaveragebasis,asspecifedbySEBI.Ithereisabreachothe25%limitbyanyinvestoroverthequarter,arebalancingperiodoonemonthwouldbeallowedandthereatertheinvestorwhoisinbreachotheruleshallbegiven15daysnoticetoredeemhisexposureoverthe25%limit.Failureonthepartothesaidinvestortoredeemhisexposureoverthe25%limitwithintheaoresaid15dayswouldleadtoautomaticredemptionbytheMutualFundontheapplicableNetAssetValueonthe15thdayothenoticeperiod.TheFundshalladheretotherequirementsprescribedbySEBIromtimetotimeinthisregard.
C. SPECIAL CONSIDERATIONS, IF ANY
1. I D
TheMutualFundisnotassuringorguaranteeingthatitwillbeabletomakeregularperiodicaldistributions/distributebonusunitstoitsUnitholdersthoughithaseveryintentiontomanagetheportoliosoastomakeperiodicalincome/bonusdistributionstoUnitholders.PeriodicaldistributionswillbedependentonthereturnsachievedbytheAssetManagementCompanythroughtheactivemanagementotheportolio.Periodicaldistributionsmaythereorevaryromperiodtoperiod,basedoninvestmentresultsotheportolio.
2. Rg P / Rg R
TheTrusteemay,inthegeneralinterestotheUnitholdersotheschemeunderthisSchemeInormationDocumentandkeepinginviewtheunoreseencircumstances/unusualmarketconditions,limitthetotalnumberoUnitswhichmayberedeemedonanyWorkingDayto5%othetotalnumberoUnitsthenissuedandoutstandingunderanyScheme/PlanorsuchotherpercentageastheTrusteemaydetermine.
TheTrusteemay,atitssolediscretioninresponsetounoreseencircumstancesorunusualmarketconditionsincluding,butnotlimitedto,extremevolatilityothestock,ixedincomeandmoneymarkets,extendedsuspensionotradingonthestockexchanges,naturalcalamities,communicationbreakdowns,internalsystembreakdowns,strikes,bandhs,riotsorothersituationswheretheTrusteeinconsultationwithRCAM,considersthatsuchsuspensionisnecessary,limitthetotalnumberoUnitswhichmayberedeemedonanyworkingdayto5%
othetotalnumberoUnitstheninissueorsuchhigherpercentageastheTrusteemaydetermineinanyparticularcase
AnyUnits,whichbyvirtueotheselimitationsarenotredeemedonaparticularWorkingDay,willbecarriedorwardorredemptiontothenextWorkingDay,inthe ordero receipt.RedemptionssocarriedorwardwillbepricedonthebasisotheRedemptionPriceotheWorkingDayonwhichredemptionismade.Undersuchcircumstances,totheextentmultipleredemptionrequestsarereceivedatthesametimeonasingleWorkingDay,redemptionswillbemadeonpro-ratabasis,basedonthesizeoeachredemptionrequest,thebalanceamountbeingcarriedorwardorredemptiontothenextWorkingDay(s).
3. S P R U
Thepurchaseand/orredemptionoUnitsmaybesuspendedwithpriorapprovaloTrusteesandAssetManagementCompanygivingthedetailsocircumstancesandjustiicationortheproposedactionshallalsobeinormedtoSEBIinadvance,temporarilyorindeinitelywhenanyotheollowingconditionsexistatone/moreDesignatedInvestorServiceCenters:
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Thestockmarketstopsunctioningortradingisrestricted;
Periodsoextremevolatilityinthestockmarket,ixedincomeormoneymarket,which,intheopinionotheInvestmentManager,areprejudicialordetrimentaltotheinterestotheinvestors;
Naturalcalamity;or
Foranybulkprocessinglikedividend,etc.
Ibanksdonotcarry-outanyothenormalBankingactivitiesatoneormoreDesignatedInvestorServiceCenters
IntheeventobreakdowninthemeansocommunicationusedorthevaluationoinvestmentsotheScheme,withoutwhichthevalueothesecuritiescannotbeaccuratelycalculated.
IntheeventoanyorcemajeureordisasterthataectsthenormalunctioningotheAMCorthedesignatedinvestorservicecenters.
SEBI,byorder,sodirects.
RMFalsoreservestherightatitssolediscretiontowithdrawsaleoUnitsintheSchemetemporarilyorindeinitely,itheAMCviewsthatincreasingtheSchemessizeurthermayprovedetrimentaltotheexistingunitholdersotheScheme.Anorder/requesttopurchaseUnitsisnotbindingonandmayberejectedbytheTrustee,theAMCortheirrespectiveagents,unlessithasbeenconirmedinwritingbytheAMCoritsagentsand(or)paymenthasbeenreceived.
D. DEFINITIONS AND ABBREVIATIONS
InthisScheme InormationDocument, the ollowingwords and expressions shall havethemeaningspecifed below, unless the contextotherwiserequires:
A NAV : ApplicableNAVistheNetAssetValueperUnitatthecloseotheBusinessDayonwhichtheapplicationorpurchase orredemption/switchis received at thedesignatedinvestorservice
centreandisconsideredacceptedonthatday.Anapplicationisconsideredacceptedonthatday,subjecttoitbeingcompleteinallrespectsandreceivedpriortothecut-otimeonthatBusinessDay.
A Mg C/ AMC/I Mg/RCAM
: RelianceCapital AssetManagement Limited,the AssetManagementCompany incorporatedundertheCompaniesAct,195,andauthorizedbySEBItoactastheInvestmentManagertotheSchemesoRelianceMutualFund(RMF)
CDSC : ContingentDeerredSalesCharge,achargeimposedwhentheunitsare redeemedwithintheirstouryearsounitownership.TheSEBI(MutualFund)Regulations,199providesthataCDSCmaybechargedonlyortheirstouryearsaterpurchaseandmandatesthemaximumamountthatcanbechargedineachyear.
C O : OerotheUnitswhentheschemebecomesopen-endedatertheclosureotheNewFundOer.
C : DeutscheBank,NVMumbai,actingasCustodiantotheScheme,oranyothercustodianwhoisappointedbytheTrustee.
Dg I S C(DISC / O )
: AnylocationasmaybedeinedbytheAssetManagementCompanyromtimetotime,whereinvestorscantendertherequestorsubscription,redemptionorswitchingounits,etc.
ELSS : Equity Linked Saving Scheme, 2005 and notiied by Ministry o Finance (Department oEconomicAairs)videnotiicationsdatedNovember3,2005andDecember13,2005.
E L : Loadonsubscriptions/switchin.Eq : Such instruments like Convertible bondsand debentures and warrantscarrying the rightto
obtainequitysharesandderivativeinstruments.Ex L : Loadonredemptions/switchout.FII : ForeignInstitutionalInvestors,registeredwithSEBIundertheSecuritiesandExchangeBoardo
India(ForeignInstitutionalInvestors)Regulations,1995.I Mg Ag(IMA)
: TheAgreemententeredintobetweenRelianceCapitalTrusteeCo.LimitedandRelianceCapitalAssetManagementLimitedbywhichRCAMhasbeenappointedtheInvestmentManagerormanagingtheundsraisedbyRMFunderthevariousSchemesandallamendmentsthereo.
L : AchargethatmaybeleviedasapercentageoNAVatthetimeoentryintothescheme/plansoratthetimeoexitingromthescheme/plans.
L Cq : AChequehandledlocallyanddrawnonanybank,whichis amemberothebankersclearinghouselocatedattheplacewheretheapplicationormissubmitted.M F Rg/Rg
: SecuritiesandExchangeBoardo India(MutualFunds)RegulationsasamendedromtimetotimeandsuchotherregulationsasmaybeinorceromtimetotimetoregulatetheactivitiesoMutualFunds.
N A V/NAV : NetAssetValue/ NAVotheUnitsin eachplanotheSchemeiscalculatedinthemannerprovidedinthisSchemeInormationDocumentorasmaybeprescribedbyRegulationsromtimetotime.TheNAVwillbecomputeduptoourdecimalplaces.
NRI : Non-ResidentIndian.PIO : PersonoIndianOrigin
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P/O : TheSchemeoerstheollowingPlans:
GrowthPlan
GrowthOption
DividendPlan
DividendPayoutOption
DividendReinvestmentOptionP P : PurchasePricetotheinvestoroUnitsoanyotheplanscomputedinthemannerindicatedin
thisSchemeInormationDocument.RBI / R B I : ReserveBankoIndia,establishedundertheReserveBankoIndiaAct,1934..RCL/S/S : RelianceCapitalLimited
RCTC/T/T C : RelianceCapitalTrusteeCo.Limited,aCompanyincorporatedundertheCompaniesAct,195,andauthorizedbySEBIandbytheTrustDeedtoactastheTrusteeoRelianceMutualFund.
R P : RedemptionPricetotheinvestoroUnitsoanyotheplanscomputedinthemannerindicatedinthisSchemeInormationDocument.
Rg /K : KarvyComputersharePvt.Ltd.,whohavebeenappointedastheRegistraroranyotherRegistrarwhoisappointedbyRCAM.
RMF/M F/ F : RelianceMutualFund(ormerlyknownasRelianceCapitalMutualFund),aTrustunderIndianTrustAct,1882andregisteredwithSEBIvideregistrationnumberMF/022/95/1datedune30,1995.
SAI : StatementoAdditionalInormation.S : RelianceTaxSaver(ELSS)Fund(anopen-endedequitylinkedsavingsScheme)SEBI : TheSecuritiesandExchangeBoardoIndia.SID : SchemeInormationDocumentissuedbyRelianceMutualFund,oeringunitsoRelianceTax
Saver(ELSS)FundorSubscription.T D : TheTrustDeedenteredintoon April24,1995betweentheSponsorand theTrustee,andall
amendmentsthereo.T F : ThecorpusotheTrust,unitcapitalandallpropertybelongingtoand/orvestedintheTrustee.U : Theinterestotheinvestorsinanyotheplans,otheschemewhichconsistsoeachUnit
representingoneundividedshareintheassetsothecorrespondingplanothescheme.U : ApersonwhoholdsUnit(s)underthescheme.U R : Unitholderswhosenamesappearontheunitholdersregisterotheconcernedplan/(s)onthe
dateodeterminationoDividend/Bonus,subjecttorealisationothecheque.Wg D : Abusinessdaymeansanydayotherthan(1)Saturday(2)Sundayor(3)adayonwhichThe
StockExchange,MumbaiorNationalStockExchangeLimitedorReserveBankoIndiaorBanksinMumbaiareclosedor(4)adayonwhichthereisnoRBIclearing/settlementosecuritiesor(5)adayonwhichthesaleand/orredemptionand/orswitchesoUnitsissuspendedbytheTrustees/AMCor(7)adayonwhichnormalbusinesscouldnotbetransactedduetostorms,loods,bandhs,strikesoranyothereventsastheAMCmayspeciyromtimetotime.
W Ex S I D g Rg.
E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY
I :
1. TheSchemeInormationDocumentoRelianceTaxSaver(ELSS)Fund,orwardedtoSEBI,isinaccordancewiththeSEBI(MutualFunds)Regulations,199andtheguidelinesanddirectivesissuedbySEBIromtimetotime.
2. AlllegalrequirementsconnectedwiththelaunchingotheSchemeasalsotheguidelines,instructionsetc.,issuedbytheGovernmentandanyothercompetentauthorityinthisbehal,havebeendulycompliedwith.
3. ThedisclosuresmadeintheSchemeInormationDocumentaretrue,airandadequatetoenabletheinvestorstomakeawellinormeddecisionregardinginvestmentintheproposedScheme.
4. TheintermediariesnamedintheSchemeInormationDocumentandStatementoAdditionalInormationareregisteredwithSEBIandtheirregistrationsarevalid,asondate,tothebestoourknowledgeandbelie.
P : M N: S T. VD : M 21, 2009 Dg: C O
N:TheDueDiligenceCertiicateasstatedabovewassubmittedtotheSecuritiesandExchangeBoardoIndiaonMay22,2009.
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II. INFORMATION ABOUT THE SCHEME R Tx S (ELSS) F
A. TYPE OF THE SCHEME
Anopen-endedEquityLinkedSavingsScheme
B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME?
Theprimaryobjectiveotheschemeistogeneratelong-termcapitalappreciationromaportoliothatisinvestedpredominantlyinequityandequityrelatedinstruments.
However,therecanbenoassurancethattheschemesinvestmentobjectiveshallbeachieved.
C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS?
I I (% ) R P
Maximum Minimum
Equityandequityrelatedsecurities 100% 80% High
DebtandMoneyMarketInstruments 20% 0% LowtoMedium
Theabovepercentageswillbereckonedatthetimeoinvestment.
Anoveralllimito50%otheportoliovalue(i.e.netassetsincludingcash)hasbeenintroducedorthepurposeoequityderivativesinthescheme.
Theundmanagerswillollowanactiveinvestmentstrategytakingdeensive/aggressiveposturesdependingonopportunitiesavailableatvariouspointsotime.
Subject toRegulations, the assetallocation patternindicated abovemaychange romtimeto time,keeping inviewmarketconditions,opportunitiesandpolitical&economicactors.Itmustbeclearlyunderstoodthatthepercentagesstatedaboveareonlyindicativeandnot
absoluteandthattheycanvarysubstantiallydependingupontheperceptionotheAMC,theintentionbeingatalltimestoseektoprotecttheinterestsotheUnitholders.Suchchangesintheinvestmentpatternwillbeorshorttermanddeensiveconsiderations.However,suchchangesatalltimeswillcomplywithELSS2005notiications.
Cg I P
TheoverallportoliostructuringwouldaimatmoderatetohighlevelsoriskwhilethereisnoassurancethattheobjectiveotheSchememaybeachieved.TheTrusteesmayromtimetotimemodiytheinvestmentcompositionprovidedsuchmodiicationisinaccordancewiththeSchemeobjectiveandRegulationsandasamendedromtimetotimeincludingbywayoCirculars,PressReleases,NotiicationissuedbySEBIortheGovernmentoIndiatoregulatetheactivitiesandgrowthoMutualFunds,theintentbeingtoprotecttheNetAssetValueotheSchemeandunitholdersinterest.
D. WHERE WILL THE SCHEME INVEST?
TheinvestmentpolicesshallbeinaccordancewithSEBI(MutualFunds)Regulations,199andEquity Linked Saving Scheme, 2005 notiiedEquityLinkedSavingScheme,2005notiiedbyMinistryoFinance(DepartmentoEconomicAairs)videNotiicationsdatedNovember3,2005andDecember13,2005.
Consistent with the objective o the Scheme and subject to Regulations, the corpus o the Scheme will be invested in any o the ollowingConsistentwiththeobjectiveotheSchemeandsubjecttoRegulations,thecorpusotheSchemewillbeinvestedinanyotheollowingsecurities.
(a) TheundscollectedundertheSchemeshallbeinvested,totheextentoatleast80%,inequities,cumulativeconvertiblepreerencesharesandullyconvertibledebenturesandbondsocompanies.Investmentmayalsobemadeinpartlyconvertibleissuesodebenturesandbondsincludingthoseissuedonrightsbasissubjecttotheconditionthat,asaraspossible,thenon-convertibleportionothedebenturessoacquiredorsubscribed,shallbedisinvestedwithinaperiodo12months.
(b) Pendinginvestmento unds oaplanintherequiredmanner,theMutual Fund mayinvesttheundsinshort-termmoneymarketinstrumentsorotherliquidinstrumentsorboth.Aterthreeyearsothedateoallotmentotheunits,theMutualFundmayholduptotwentypercentonetassetsotheplaninshort-termmoneymarketinstrumentsandotherliquidinstrumentstoenablethemtoredeeminvestmentothoseunitholderswhowouldseektotendertheunitsorrepurchase.AnyotherixedincomesecuritiesandinstrumentsaspermittedbytheRegulations/Governmentnotiications,romtimetotime.
SubjecttotheRegulations,thesecuritiesmentionedabovecouldbelisted,unlisted,privatelyplaced,secured,unsecured,ratedorunratedandoanymaturity.ThesecuritiesmaybeacquiredthroughInitialPublicOerings(IPOs),secondarymarketoperations,privateplacementorrightsoers.
InvestmentinoverseassecuritiesshallbemadeinaccordancewiththerequirementsstipulatedbySEBIandRBIromtimetotime.
Anoveralllimito50%otheportoliovalue(i.e.netassetsincludingcash)hasbeenintroducedorthepurposeoequityderivativesinthescheme.
E. WHAT ARE THE INVESTMENT STRATEGIES?
INVESTMENT APPROACH & RISK CONTROL
Since investingrequiresdisciplinedriskmanagement,the AMCwouldincorporateadequate saeguardsorcontrollingrisksin theportolioconstructionprocess.Theriskcontrolprocessinvolvesreducingrisksthroughportoliodiversiication,takingcarehowevernottodilutereturnsintheprocess.TheAMCbelievesthatthisdiversiicationwouldhelpachievethedesiredleveloconsistencyinreturns.
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TheAMCaimstoidentiysecurities,whichoersuperiorlevelsoyieldatlowerlevelsorisks.Withtheaimocontrollingrisks,rigorousindepthcreditevaluationothesecuritiesproposedtobeinvestedinwillbecarriedoutbytheinvestmentteamotheAMC.
TheSchememayalsousevariousderivativesandhedgingproductsromtimetotime,aswouldbeavailableandpermittedbyRBI,inanattempttoprotectthevalueotheportolioandenhanceUnitholdersinterest.
TheSchememayinvestinotherSchemesmanagedbytheAMCorintheSchemesoanyotherMutualFunds,provideditisinconormitytothe investment objectiveso the Scheme and interms othe prevailingSEBI Regulations. As per the SEBI Regulations, noinvestmentmanagementeeswillbechargedorsuchinvestmentsandtheaggregateinterSchemeinvestmentmadebyallSchemesotheFundorintheSchemesunderthemanagementootherassetmanagementcompaniesshallnotexceed5%othenetassetvalueotheFund.
Ex g q :
Thescheme,subjecttoSEBIguidelinesissuedromtimetotime,mayhaveanexposureinoreignequitysecuritieswithinthepermissiblelimits.However,theexposureinsuchoreignequitysecuritieswouldnotexceedthemaximumamountpermittedromtimetotime.Boardsoassetmanagementcompanies(AMCs)andtrusteesshallexerciseduediligenceinmakinginvestmentdecisionsasrequiredunderRegulation25(2).Theyshallmakea detailedanalysisorisksandreturnsoinvestmentinoreignequitysecurities,comparingthemwithlikelyyieldso thesecuritiesavailableindomesticmarketsandhowtheseinvestmentswouldbeintheinterestoinvestors.Investmentmustbemadeinliquidactivelytradedsecurities.BoardsoAMCsandtrusteesmayprescribedetailedparametersormakingsuchinvestments,whichmayincludeidentiicationo countries, country rating, country limits, etc.Theyshallsatisythemselvesthat theAMC hasexperiencedkeypersonnel,research acilities and inrastructure or making such investments. Other specialized agencies and service providers associated with suchinvestments e.g. custodian, bank,advisors, etcshouldalso have adequateexpertiseand inrastructureacilities.Their pasttrackrecordoperormanceandregulatorycompliancerecord,itheyareregisteredwithoreignregulators,mayalsobeconsidered.Necessaryagreementsmaybeenteredintowiththemasconsiderednecessary.
I : SEBIvideitscircularno.SEBI/IMD/CIRNo.7/104753/07datedSeptember2,2007andCircularNo.SEBI/IMD/CIRNo.2/122577/08datedApril08, 2008has issued guidelines pertaining toinvestments inoverseas inancialassets.Accordinglyallthe investments inADR/GDRandoreignsecurities shall bemade incompliancewith theabovereerred circular.It isthe
investmentmanagersbeliethatoverseassecuritiesoernewinvestmentandportoliodiversiicationopportunitiesintomulti-marketandmulti-currencyproducts.However,suchinvestmentsalsoentailadditionalrisks.Oshoreinvestmentwillbemadesubjecttoany/allapprovals/conditionsthereoasmaybestipulatedbySEBI/RBI/otherregulatoryauthorities.TheFundshallappointadedicatedundmanagerorthepurposeoinvestmentinoverseasinancialassetsasprescribedintheaoresaidSEBIcircular.Theundmay,wherenecessary,appointotherintermediariesoreputeasadvisors,subcustodians,etc.or managingand administeringsuchinvestments.The eesandexpenses osuchappointmentwouldbepartotherecurringexpensesothescheme.TheappointmentosuchintermediariesshallbeinaccordancewiththeapplicablerequirementsoSEBIandwithinthepermissibleceilingsoexpenses.Theeesandexpenseswouldinclude,besidestheinvestmentsmanagement ees,custody eesand costs, eeso appointed advisorsand submanagers,transaction costsandoverseasregulatory costs.Investmentinoreignsecuritiesoersmoreopportunitiesanddiversiicationorinvestments.Investorsmaynotethattheschemeshallnotinvestinoreigndebtsecurities.
Ag R :
ItisAMCsbeliethattheinvestmentinADRs/GDRs/overseassecuritiesoernewinvestmentandportoliodiversiicationopportunitiesintomulti-market andmulti-currencyproducts. However, suchinvestmentsalso entailadditional risks. Suchinvestmentopportunitiesmay bepursuedbytheAMCprovidedtheyareconsideredappropriateintermsotheoverallinvestmentobjectivesotheschemes.SincetheScheme
wouldinvestonlypartiallyinADRs/GDRs/overseassecurities,theremaynotbereadilyavailableandwidelyacceptedbenchmarkstomeasureperormanceotheScheme.
Wehaveseenthatdierenteconomiesperormdierentlyatvariouspointsintime.Thereoreinordertomaximizethegainstotheinvestorsbyallocatingresourcestoeconomieswhicharedoingbetterthanoursandalsotodiversiytheriskarisingoutoconcentratedinvestmentsin
justonecountry,wemayproposetoinvestinoreignsecuritiesincompliancetotheregulationsromtimetotime.
Tomanagerisksassociatedwithoreigncurrencyandinterestrateexposure,theFundmayusederivativesoreicientportoliomanagementincludinghedgingandinaccordancewithconditionsasmaybestipulatedbySEBI/RBIromtimetotime.
TotheextentthattheassetsotheSchemeswillbeinvestedinsecuritiesdenominatedinoreigncurrencies,theIndianRupeeequivalentothenetassets,distributionsandincomemaybeadverselyaectedbythechangesinthevalueocertainoreigncurrenciesrelativetotheIndianRupee.Therepatriationocapitalalsomaybehamperedbychangesinregulationsconcerningexchangecontrolsorpoliticalcircumstancesaswellastheapplicationtoitotheotherrestrictionsoninvestment.
Oshoreinvestmentswillbemadesubjecttoany/allapprovals,conditionsthereoasmaybestipulatedbySEBI/RBIandprovidedsuchinvestmentsdonotresultinexpensestotheFundinexcessotheceilingonexpensesprescribedbyandconsistentwithcostsandexpenses attendant tointernationalinvesting.The Fundmay, wherever necessary, appoint other intermediaries oreputeas advisors,custodian/sub-custodiansetc.ormanagingandadministeringsuchinvestments.
TheappointmentosuchintermediariesshallbeinaccordancewiththeapplicablerequirementsoSEBIandwithinthepermissibleceilingsoexpenses.Theeesandexpenseswouldillustrativelyinclude,besidestheinvestmentmanagementees,custodyeesandcosts,eesoappointedadvisorsandsub-managers,transactioncosts,andoverseasregulatorycosts.
D M I I
TheIndianDebtmarketisacingmajorshitintherecenttimes.ThesubstantialgrowthinMutualFundcollectionsinthepastewyearshaveprovidedaneasyrouteortheinvestorstochannelisetheirsavingsintothedebtmarket,whichotherwiseislargelydominatedbyBanksandotherInstitutionalinvestors.
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Atpresent,theIndiandebt marketis dominatedbyissuesoCentralGovernmentbonds,Coporate DebenturesandPSUBonds.The newSecuritisedinstrumentsarealsoveryattractiveintheprimarymarket.RiskassociatedwithsecuritizedDebtorPTCsarecreditrisk,liquidityriskandpricerisk/interestraterisk.TheotherinstrumentsavailableorinvestmentareCommercialPapers,CertiicateoDeposits,Governmentguaranteedbonds,etc.
BriedetailsabouttheinstrumentsaregivenbelowasonOctober1,2009.
I L/ U C Y Rg
A O 1, 2009.
Lq R
CentralGovernmentSecurities(Annualised) Listed 3.32%-8.37% High Low
CorporateDebentures/PSUBonds Listed 5.5%-8.85% Moderate Low
CPs/CDs(shortterm) Unlisted 3.00%-5.55% High LowCallMoney Unlisted 2.25%-3.30% High Low
MiborlinkedPapers Listed 250-300bps Low Low
AbriedescriptionaboutyieldspresentlyavailableonCentralGovt.Securities/Bonds&Debenturesovariousmaturitiesisasollows:Annualisedyields(asonOctober1,2009)are:
Y < 1 27 711 1120
CentralGovernmentsecurities 3.32%-4.0% 5.9%-7.34% 7.13%-7.81% 7.88%-8.37%
Debentures/Bonds(AAArated) 5.5%-5.75% .80%-8.70% 8.70%-8.85% -
THEPRICEANDYIELDONVARIOUSDEBTINSTRUMENTSFLUCTUATEFROMTIMETOTIMEDEPENDINGUPONTHEMACROECONOMICSITUATION,INFLATIONRATE,OVERALLLIQUIDITYPOSITION,FOREIGNEXCHANGESCENARIO,ETC.ALSO,THEPRICEANDYIELDVARIESACCORDINGTOMATURITYPROFILE,CREDITRISKETC
S Lg F:
InaccordancewiththeMutualFundRegulationstheFundmayengageinstocklendingactivities.Accordingly,theSchememaylendsecuritiestotheextentoitsentireportoliootheSchemetoanyborrowerthroughanapprovedintermediary.TheSecuritieswillbelentbytheapprovedintermediaryagainstcollateralsreceivedromtheborrower,oraixedperiodotime,onexpiryowhichthesecuritieslentwillbereturnedbytheborrower.
Itmaybenotedthatthisactivitywouldhavetheinherentprobabilityocollateralvaluedrasticallyallingintimesostrongdownwardmarkettrends,resultingininadequatevalueocollateraluntilsuchtimeasthatdiminutioninvalueisreplenishedbyadditionalsecurity.Itisalsopossiblethattheborrowingpartyand/ortheapprovedintermediarymaysuddenlysuerseverebusinesssetbackandbecomeunabletohonouritscommitments.ThisalongwithasimultaneousallinvalueocollateralwouldrenderpotentiallosstotheScheme.Besides,therecanalsobetemporaryilliquidityothesecuritiesthatarelentoutandtheschememaynotbeabletosellsuchlentoutsecurities.
TRADING IN DERIVATIVES
Theschemeintendstousederivativesorpurposesthat maybepermittedbySEBI MutualFundregulationsromtimeto time.DerivativetransactionsthatcanbeundertakenbytheSchemeincludeawiderangeoinstruments,including,butnotlimitedto
Futures
Options
Swaps
Anyotherinstrument,asmaybepermittedbystatutoryauthoritiesromtimetotime.
Derivativescanbeeitherexchangetradedorcanbeoverthecounter(OTC).
ExchangetradedderivativesarelistedandtradedonStockExchangeswhereasOTCderivativetransactionsaregenerallystructuredbetweentwocounterparties.
Derivativeproductsareleveragedinstrumentsandcanprovidedisproportionategainsaswellasdisproportionatelossestotheinvestor.Executionosuchstrategiesdependsupontheabilityoheundmanagertoidentiysuchopportunities.Identiicationandexecutionothestrategiestobepursuedbytheundmanagerinvolveuncertaintyanddecisionoundmanagermaynotalwaysbeproitable.Noassurancecanbegiventhattheundmanagerwillbeabletoidentiyorexecutesuchstrategies.Therisksassociatedwiththeuseoderivativesaredierentromorpossiblygreaterthan,therisksassociatedwithinvestingdirectlyinsecuritiesandothertraditionalinvestments.
SEBIhasvideitscirculardatedanuary20,200andSeptember22,200interaliaspeciiedtheguidelinespertainingtotradingbyMutualFundsinExchangeTradedderivatives.
Allderivativepositiontakenintheportoliowouldbeguidedbytheollowingprinciples.
i. PositionlimitortheMutualFundinindexoptionscontracts
a. TheMutualFundpositionlimitinallindexoptionscontractsonaparticularunderlyingindexshallbeRs.500croreor15%othetotalopeninterestothemarketinindexoptions,whicheverishigher,perStockExchange.
b. Thislimitwouldbeapplicableonopenpositionsinalloptionscontractsonaparticularunderlyingindex.
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ii. PositionlimitortheMutualFundinindexuturescontracts:
a. TheMutualFundpositionlimitinallindexuturescontractsonaparticularunderlyingindexshallbeRs.500croreor15%othetotalopeninterestothemarketinindexutures,whicheverishigher,perStockExchange.
b. Thislimitwouldbeapplicableonopenpositionsinalluturescontractsonaparticularunderlyingindex.
iii. Additionalpositionlimitorhedging
Inadditiontothepositionlimitsatpoint(i)and(ii)above,theMutualFundmaytakeexposureinequityindexderivativessubjecttotheollowinglimits:
1. Shortpositionsinindexderivatives(shortutures,shortcallsandlongputs)shallnotexceed(innotionalvalue)theMutualFund'sholdingostocks.
2. Longpositionsinindexderivatives(longutures,longcallsandshortputs)shallnotexceed(innotionalvalue)theMutualFund'sholdingocash,governmentsecurities,T-Billsandsimilarinstruments.
iv. PositionlimitorMutualFundorstockbasedderivativecontracts.TheMutualFundpositionlimitinaderivativecontractonaparticularunderlyingstock,i.e.stockoptioncontractsandstockuturescontracts,isdeinedintheollowingmanner:-
1. ForstocksinwhichthemarketwidepositionlimitislessthanorequaltoRs.500crore,theMutualFundpositionlimitinsuchstockshallbe20%othemarketwidepositionlimit.Furhter,positioninutures,willnotbemorethan10%oapplicablemarketwidepositionlimitorRs.150crores,whicheverislower.
2. ForstocksinwhichthemarketwidepositionlimitisgreaterthanRs.500crore,CombinedpositioninstockoptionsandutureswillnotbemorethanRs300Croresor20%omarketwideposition,whicheverislower.Further,positioninutures,willnotbemorethan10%oapplicablemarketwidepositionlimitorRs150crores,whicheverislower.
v. PositionlimitoreachschemeoaMutualFundorstockbasedderivativecontracts.
Thescheme-wisepositionlimit/disclosurerequirementsshallbe
1. Forstockoptionandstockuturescontracts,thegrossopenpositionacrossallderivativecontractsonaparticularunderlyingstockoaschemeoamutualundshallnotexceedthehighero:
1%othereeloatmarketcapitalization(intermsonumberoshares)or5%otheopeninterestinthederivativecontractsonaparticularunderlyingstock(intermsonumberocontracts).
2. This position limits shallbeapplicable on thecombinedpositioninallderivativecontracts on an underlying stockata StockExchange.
3. Forindexbasedcontracts,MutualFundsshalldisclosethetotalopeninterestheldbyitsschemeorallschemesputtogetherinaparticularunderlyingindex,isuchopeninterestequalstoorexceeds15%otheopeninterestoallderivativecontractsonthatunderlyingindex.
I
IndexFutures
IndexFutureshavebeenintroducedbyBSEandNSE.Generallythreeutureso1month2monthsand3monthsarepresentlytradedontheseexchanges.TheseuturesexpireonthelastworkingThursdayotherespectivemonths.
ItheNity(Index)was1875atthebeginningoamonthandthequotesorthethreeutureswereasunder:
Month BidPrice OerPrice
1 1880 1885
2 1900 1915
3 1910 1930
TheFundcanbuyanIndexomonth1onthelastdayothemonthpriortomonth1intheillustrationaboveatanoerpriceo1885.
Numericalexampleouturestrade
FollowingtablewillgiveanoverviewothenewderivativepolicypermittedbySEBI:
S. N D T L L
1 IndexOptions MutualFundLevel Highero
Rs500crores
15%oopeninterestposition
2 IndexFuture MutualFundLevel Highero
Rs500crores
15%oopeninterestposition
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3 Indexderivatives MutualFundLevel Additionallimitsorhedging(overandabove1&2)
1. Shortpositionsinindexderivatives(shortutures,shortcallsandlongputs)shallnotexceed(innotionalvalue)theMutualFundsholdingostocks.
2. Longpositionsinindexderivatives(longutures,longcallsandshortputs)shall not exceed (in notional value) the Mutual Fundsholding o cash,governmentsecurities,T-Billsandsimilarinstruments.
4 Stockderivatives MutualFund 1. Marketwideposit ionlimitlessthan500crores Combinedpositioninstockoptionsandutureswillnotbemorethan20%
omarketwidepositions Further, position in utures, will not be more than 20% o applicable
MarketwidepositionsorRs150Croreswhicheverislower
2. Marketwidepositionlimitmorethan500crore CombinedpositioninstockoptionsandutureswillnotbemorethanRs
300Croresor20%omarketwideposition,whicheverislower Further,positioninutures,willnotbemorethan10%oapplicablemarket
widepositionlimitorRs150crores,whicheverislower.5 Stockderivatives Scheme Highero
1%oreeloatmarketcapor 5%oopeninterestinthederivativescontractsSubjectto4above
Theollowingisahypotheticalexampleoatypicallikelyindexuturetradeandtheassociatedcosts.
P Ix F A P S
Indexatthebeginningothemonth 1875 1875
Priceo1MonthFuture 1885
A.ExecutionCost:CarryandotherIndexFutureCosts(1885-1875)
10 Nil
B.BrokerageCost:Assumedat0.30%orIndexFutureand0.50%orspotStocks(0.30%o1885)(0.50%o1875)
5. 9.38
C.GainsonSurplusFunds:(assumed10%returnon90%othemoneyletaterpaying10%margin)(10%*1875*90%*30days/35)
13.87 Nil
T C (A+BC) 1.79 9.3
Inthisexample,theIndexFuturetradehasresultedinproitabilitycomparedtoactualpurchaseotheunderlyingindexstocks.TheproitabilityoIndexFutureascomparedtoanindividualsecuritywillinteraliadependuponthecarryingcost,theinterestavailableonsurplusundsandthetransactioncost.
Thereareuturesbasedonstockindicesasmentionedaboveasalsouturesbasedonindividualstocks.Illustrativelistostrategiesthatcanemployutures
Sg x :
(a) Theundhasanexistingequityportioninvestedinabasketostocks.Incasetheundmanagerhasaviewthattheequitymarketsareheadeddownwards,theundcanthenhedgetheexposuretoequityeitherullyorpartiallybyinitiatingshortuturespositionsintheindex.Asimilarpositioninthelongdirectioncanalsobeinitiatedbytheundtohedgeitspositionocashandpermissibleequivalents.
Theextenttowhichthiscanbedoneisdeterminedbyexistingguidelines.
(b) Totheextentpermissiblebyextantregulationstheschemecaninitiateanakedshortpositioninanunderlyingindexuturetradedonarecognizedstockexchange.
Incasethenitynearmonthuturecontracttradingatsay,1850,andtheundmanagerhasaviewthatitwilldepreciategoingorward,theundcaninitiateasaletransactiononityuturesat1850withoutholdingaportoliooequitystocksoranyotherunderlyinglongequityposition.Oncethepriceallsto1800atersay,20daystheundcaninitiateasquare-uptransactionbybuyingthesaiduturesandbookaproito50.Correspondinglytheundcantakealongpositionwithoutanunderlyingcash/cashequivalentsubjecttotheextantregulations.
Sg S F:
IndividualstockuturesarealsoavailableintheIndianEquityMarkets.Stockuturestradeeitheratapremiumoratdiscounttothespotprices,thelevelopremiumgenerallyrelectsthecostocarry.Stockspeciicissuesmayhaveabearingonuturesasspeculatorsmayinduturesasa cost-eective way o executing their viewon thestock. However suchexecutionsusually increasethe premium/discountto thespotsigniicantly,therebygivingrisetoarbitrageopportunitiesoraund.
(a) Sellingspotandbuyinguture:IncasetheundholdsthestockoacompanyatsayRs.1000whileintheuturesmarketittradesatadiscounttothespotpricesayatRs.980thentheundmaysellthestockandbuytheutures.Onthedateoexpiryothestockuture,theundmayreversethetransactions(i.e.BuyingatSpot&Sellingutures)andearnarisk-reeRs.20/-(2%absolute)onitsholdings.Asthiscanbewithoutanydilutionotheviewotheundontheunderlyingstocktheundcanstillbeneitromanymovementothepriceinthenorthwarddirection,i.e.ionthedateoexpiryotheutures,ithestocktradesat1100whichwouldbethepriceotheuturestoo,theundwillhaveabeneitoRs.100/-wherebytheundgetsthe10%upsidemovementtogetherwiththe2%beneitonthearbitrage,andthusgettingatotalreturno12%.
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(b) Buyingspotandsellinguture:WheretheundholdsthestockoacompanytradinginthespotmarketatRs1000whileittradesatRs.1020/-inthe uturesmarketthenundmaybuythestockatspotandsellintheuturesmarkettherebyearningRs20. Incaseo
adequacyocashwiththeund,thisstrategymaybeusedtoenhancereturnsotheSchemewhichwasotherwisesittingoncash.
(c) Buyingstockuture:Wheretheschemewantstoinitiatealongpositoninastockwhosespotpriceisatsay,Rs.1000anduturesisat
980,thentheundmayjustbuytheuturescontractinsteadothespottherebybeneitingromalowercostoption.
(d) IncasetheundhasabearishviewonastockwhichistradinginthespotmarketatRs.1000/-andtheuturesmarketatsayRs.980/-
.TheundcanexpresssuchaviewsubjecttoextantSEBIregulationsbyinitiatingashortpostionintheuturescontract.Incasetheview
isrightandtheuturespricedepreciatestosay900/-theundcansquareuptheshortpositiontherebyearningaproitoRs.80/-
O:
Optioncontractsareotwotypes-CallandPut;theormerbeingtheright,butnotobligation,topurchaseaprescribednumberosharesataspeciiedpricebeoreoronaspeciicexpirationdateandthelatterbeingtheright,butnotobligation,tosellaprescribednumberoshares
ataspeciiedpricebeoreoronaspeciicexpirationdate.Thepriceatwhichthesharesarecontractedtobepurchasedorsoldiscalledthe
strikeprice.OptionsthatcanbeexercisedonorbeoretheexpirationdatearecalledAmericanOptions,whilethosethatcanbeexercisedonlyontheexpirationdatearecalledEuropeanOptions.Optioncontractsaredesignatedbythetypeooption,nameotheunderlying,expirymonth
andthestrikeprice.NumericalexamplesoOptionsCallOption(Buy):TheundbuysacalloptionatthestrikepriceosayRs.1000andpays
apremiumosayRs.50,theundwouldearnproitsithemarketpriceothestockatthetimeoexpiryotheoptionismorethan1050
beingthetotalothestrikepriceandthepremiumthereon.IonthedateoexpiryotheoptionthestockpriceisbelowRs1000,theundwillnotexercisetheoptionwhileitlosesthepremiumoRs50.
PutOption(Buy):TheundbuysaPutOptionatRs1000bypayingapremiumosayRs50.IthestockpricegoesdowntoRs.900,theundwouldprotectitsdownsideandwouldonlyhavetobearthepremiumoRs50insteadoalossoRs100whereasithestockprice
movesuptosayRs.1100theundmaylettheOptionexpireandoregothepremiumtherebycapturingRs.100upsideaterbearingthe
premiumoRs50.
WritingaCallOption:TheundwritesacalloptionatRs.1050andearnsapremiumo,say,Rs.10.IthepriceishigherthanRs.1050,sayRs.1100/-atexpirythentheoptionisexercised,theFundearnsthepremiumoRs.10/-butlosesthedierencebetweenthemarketpriceandtheexercisepricei.e.Rs.50/-.IncasethestockpriceislessthanRs.1050,theundgetstokeepthepremiumoRs.10/-.
WritingaPutOption:TheundwritesaputoptionwiththestrikepriceoRs1000andearnsapremiumosayRs20.IncasethestocktradesatRs950theputoptionwillbeexercised,theundwillearnthepremiumoRs.20/-butlossesthedierencebetweentheexercisepriceandthemarketpricewhichisRs.50/-.Wherethestocktradesatabovetheexerciseprice,theoption-holderwillnotexercisetheoptionandletitexpire.InthiscasetheundwillearnthepremiumincomeoRs.20.
Theaboveouroptionpositionscanbeinitiatedinbothindexbasedoptionsaswellasstockspeciicoptions.Permissiblestrategiesinvolvingindexoptionsandstockspeciicoptionswouldbethesameasthatoindexuturesandstockspeciicuturesrespectively.
TheAMCretainstherighttoenterintosuchderivativetransactionsasmaybepermittedbytheapplicableregulationsromtimetotime.
D D
IntermsoCircularNo.MFD.BC.191/07.01.279/1999-2000andMPD.BC.187/07.01.279/1999-2000datedNovember1,1999anduly7,1999respectivelyissuedbyReserveBankoIndiapermittingparticipationbyMutualFundsinInterestRateSwapsandForwardRateAgreements,theFundwillusederivativeinstrumentsorthepurposeohedgingandportoliobalancing.TheAMCwouldundertakethesameorsimilarpurposesonly.
I R S (IRS)
AnIRSisan agreementbetweentwopartiesto exchangestatedinterestobligationsoran agreedperiodinrespectoa notionalprincipalamount.Themostcommonormisaixedtoloatingrateswapwhereonepartyreceivesaixed(predetermined)rateointerestwhiletheotherreceivesaloating(variable)rateointerest.
F R Ag (FRA)
AFRAisbasicallyaorwardstartingIRS.Itisanagreementbetweentwopartiestopayorreceivethedierencebetweenanagreedixedrate(theFRArate)andtheinterestrate(reerencerate)prevailingonastipulateduturedate,basedonanotionalprincipalamountoranagreedperiod.TheonlycashlowisthedierencebetweentheFRArateandthereerencerate.AsisthecasewithIRS,thenotionalamountsarenot
exchangedinFRAs. EAMPLE OF A DERIVATIVES TRANSACTION
BasicStructureoASwap
BankAhasamonthRs10croresliability,currentlybeingdeployedincall.BankBhasaRs10croresmonthasset,beingundedthroughcall.Bothbanksarerunninganinterestraterisk.
Tohedgethisinterestraterisk,theycanenterintoamonthMIBOR(MumbaiInterBankOeredRate)swap.Throughthisswap,Awillreceiveaixedpreagreedrate(say7%)andpaycallontheNSEMIBOR(thebenchmarkrate).BankAspayingatcallonthebenchmarkratewillneutralizetheinterestrateriskolendingincall.Bwillpay7%andreceiveinterestatthebenchmarkrate.BankAsreceivingocallonthebenchmarkratewillneutralizehisinterestrateriskarisingromhiscallborrowing.
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Themechanismisasollows:
AssumetheswapisorRs.10croreromMarch1,2002toSeptember1,2002.Aisaixedratereceiverat7%andBisaloatingratereceiverattheovernightcompoundedrate.
OnMarch1,2002AandBwillexchangeonlyanagreementohavingenteredthisswap.ThisdocumentationwouldbeasperInternationalSwapsandDerivativesAssociation(ISDA).
Onadailybasis,thebenchmarkrateixedbyNSEwillbetrackedbythem.OnSeptember1,2002theywillcalculatetheollowing:
AisentitledtoreceiveinterestonRs.10croreat7%or184daysi.e.Rs.35.28lakh,(thisamountisknownat thetimetheswapwasconcluded)andwillpaythecompoundedbenchmarkrate.
Bisentitledtoreceivedailycompoundedcallrateor184days&pay7%ixed.
OnSeptember1,2002,ithetotalinterestonthedailyovernightcompoundedbenchmarkrateishigherthanRs.35.28lakhs,AwillpayBthedierence.Ithedailycompoundedbenchmarkrateislower,thenBwillpayAthedierence.
EectivelyBankAearnsinterestattherateo7%p.a.orsixmonthswithoutlendingmoneyormonthsixed,whileBankBpaysinterest@7%p.a.ormonthsonRs.10crore,withoutborrowingormonthsixed.
TheAMCretainstherighttoenterintosuchderivativetransactionsasmaybepermittedbytheSEBIregulationsromtimetotime.Forrisksassociatedwithinvestmentsinderivativesinvestorsarerequestedtoreertopageno.othisSchemeInormationDocument.
PORTFOLIO TURNOVER POLICY:
Giventhe natureothe scheme,theporolioturnoverratiomaybeveryhigh.Consequently,it isdiiculttoestimatewith anyreasonablemeasureoaccuracy,thelikelyturnoverintheportolio.Theeectohigherportolioturnoverratiocouldbehigherbrokerageandtransactioncosts.
F. FUNDAMENTAL ATTRIBUTES
FollowingaretheundamentalattributesinaccordancewithRegulation18(15)(A)otheSEBI(MF)Regulations,199:
1. T
Open-endedequitylinkedsavingsscheme
2. I Oj
a) M Oj:
Theprimaryobjectiveotheschemeistogeneratelong-termcapitalappreciationromaportoliothatisinvestedpredominantlyinequityandequityrelatedinstruments.
b)b) I P:
Undernormalcircumstances,theassetallocationundertheSchemewillbeasollows:
I I (% )
R P
Maximum Minimum
Equityandequityrelatedsecurities 100% 80% High
DebtandMoneyMarketInstruments 20% 0% LowtoMedium
Theabovepercentageswillbereckonedatthetimeoinvestment.
Anoveralllimito50%otheportoliovalue(i.e.netassetsincludingcash)hasbeenintroducedorthepurposeoequityderivativesinthescheme.
Theundmanagerswillollowanactiveinvestmentstrategytakingdeensive/aggressiveposturesdependingonopportunitiesavailableatvariouspointsotime.
3. T I
)) Lq /
Beinganopen-endedscheme,theunitsarenotproposedtobelistedonanystockexchange.However,theTrusteereservestherighttolisttheunitsasandwhenopen-endSchemesarepermittedtobelistedundertheRegulations,anditheTrusteeconsidersitnecessaryintheinterestounitholdersotheScheme.
Repurchase/redemptionounitsasreerredtoinRedemption.
Theschemeprovidesrepurchase/switch-outacilityonallBusinessDaysatNAVbasedpricesateraninitiallock-in-periodothreeyearsromthedateoallotmentounits.
Aterthelockinperiodothreeyears,theUnitHoldershallhaveoptiontotendertheunitstotheMutualFund,orrepurchase.However,intheeventothedeathothesubscriber,thenomineeorlegalheir,asthecasemaybe,othedeceasedsubscribershallbeabletowithdrawtheinvestmentonlyaterthecompletionooneyearromthedateoallotmentotheunitstothesubscriberoranytimethereater.
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) Aggg F x g S
)) N F O (NFO) Ex
TheseexpensesareincurredorthepurposeovariousactivitiesrelatedtotheNFOlikesalesanddistributioneespaidmarketingandadvertising,registrarexpenses,printingandstationary,bankchargesetc.
BeinganongoingSchemedetailsasregardNFOexpenseshavenotbeenprovidedherein.
AsperSEBICircularSEBI/IMD/CirNo.1/4057/0datedApril04,200,openendedschemesarenotpermittedtochargeNFOExpensestothescheme.However,theinitialissueexpensesincurredatthetimeoNewFundOerperiodotheschemelaunchedpriortotheissueotheabovementionedcircularshallbedebitedtotheschemetotheextento%otheundsraisedandthesameshallbeamortizedoveraperiodnotexceedingiveyears.Anyexpensemorethan%otheinitialnetassetsshallbebornebytheAMC.
) A S Rg Ex
These arethe ees andexpensesoroperatingthe scheme.TheseexpensesincludeInvestmentManagementandAdvisoryFeechargedbytheAMC,RegistrarandTranserAgentsee,marketingandsellingcostsetc.asgiveninthetablebelow:
TheAMChasestimatedthatupto2.50%otheweeklyaveragenetassetsotheschemewillbechargedtotheschemeasexpenses.Fortheactualcurrentexpensesbeingcharged,theinvestorshouldreertothewebsiteothemutualund.
P % N A
InvestmentManagement&AdvisoryFee 1.25
CustodialFees 0.01
Registrar&TranserAgentFeesincludingcostrelatedtoprovidingaccountsstatement,dividend/redemptioncheques/warrantsetc.
0.08
Marketing&SellingExpensesincludingAgentsCommissionandstatutoryadvertisement 0.34
Brokerage&TransactionCostpertainingtothedistributionounits 0.0
AuditFees/Feesandexpensesotrustees 0.01
Costsrelatedtoinvestorcommunications 0.01
Costsoundtranserromlocationtolocation -
OtherExpenses 0.20
TotalRecurringExpenses 2.50
ThepurposeothetableistoassisttheInvestorinunderstandingthevariouscostsandexpensesthatanInvestorintherespectivePlans/optionswillbeardirectlyorindirectly.
TheseestimateshavebeenmadeingoodaithaspertheinormationavailabletotheInvestmentManagerbasedonpastexperienceandaresubjecttochangeinter-seasperactual.TypesoexpenseschargedshallbeaspertheSEBI(MF)Regulations.
WhiletheAMCeesremainsthesame,theothercategoriesorecurringexpensesmaychangeinter-seandthetotalexpensesshallnotexceedthe limitspermittedbySEBI.Subjectto SEBIRegulations,theTrusteesreservestherightto modiy theabovetotalestimateorrecurringexpensesonaprospectivebasis
IntermsotheRegulations,[email protected]%otheaverageweeklynetassetsoracorpusuptoRs.100croresand1%onthebalanceamountaboveRs.100crores,calculatedonadailybasis.However,noAMCeescanbechargeableonRCAMsinvestmentintheScheme.TheTrusteeCompany,RCTC,[email protected]%otheUnitCapitaloalltheSchemesoRMFon1stAprileachyearorasumoRs.5,00,000/-whicheverislowerorsuchothersumasmaybeagreeduponbetweentheSettlor(RCL)andtheTrustee(RCTC)romtimetotimeinaccordancewiththeSEBIRegulationsoranyotherauthority,romtimetotime.
TheFundwillstrivetoreducethelevelotheseexpensessoastokeepthemwellwithinthemaximumlimitsallowedbySEBI.ExpensesonanongoingbasiswillnotexceedtheollowingpercentageotheweeklynetassetsorsuchmaximumlimitsasmaybespecifedbySEBIRegulationsromtimetotime.
ThetotalexpensesotheschemeincludingtheinvestmentmanagementandadvisoryeeshallnotexceedthelimitsstatedinRegulation52()whichareasollows:
N A Mx Ex %
UptoRs.100crores 2.50%
NextRs.300crores 2.25% NextRs.300crores 2.00%
Balance 1.75%
Providedthatsuchexpensesshallbelesserbyatleast0.25%othedailyaveragenetassetsoutstandingineachfnancialyearinrespectoaschemeinvestinginbonds.
A g NotApplicable
InaccordancewithRegulation18(15A)otheSEBI(MF)Regulations,theTrusteesshallensurethatnochangeintheundamentalattributesotheScheme(s)andthePlan(s)/Option(s)thereunderorthetrustoreeandexpensespayableoranyotherchangewhichwouldmodiytheScheme(s)andthePlan(s)/Option(s)thereunderand aecttheinterestsoUnitholdersis carriedout
unless:
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AwrittencommunicationabouttheproposedchangeissenttoeachUnitholderandanadvertisementisgiveninoneEnglishdailynewspaperhavingnationwidecirculationaswellasinanewspaperpublishedinthelanguageotheregionwheretheHead
OiceotheMutualFundissituated;and
TheUnitholdersaregivenanoptionoraperiodo30daystoexitattheprevailingNetAssetValuewithoutanyexitload.
G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE?
BSE 100 Ix
Consideringtheinvestmentintheundmadeinequity/equityrelatedsecuritieswiththeobjectiveoachievinglongtermgrowthocapital,weproposetohaveBSE100asabenchmarksincemajorityothestocksrelatetothebroaderinvestmentphilosophyotheundwhichisto
investinstockswithpotentialoruturegrowthandgoodtrackrecord.
H. WHO MANAGES THE SCHEME?
N Ag EQ
T N xg g g
10
N S g
AshwaniKumar
39 B.Sc., MBA -Finance
Over10yearsoexperience
2003-tilldate
Reliance Capital Asset ManagementLtd.-FundManager-Equity
19922003
ZurichAssetmanagementCo.IndiaP.Ltd-SeniorResearchAnalyst
RelianceIndexFundSinceFeb2005tillApril08
RelianceVisionFundSinceune2003
RelianceTaxSaver(ELSS)Fund-SinceSept2005
RelianceEquityAdvantageFundSinceAug2007
RelianceMonthlyIncomePlanSincean2004
RelianceNaturalResourcesFundSinceFeb2008
I. WHAT ARE THE INVESTMENT RESTRICTIONS?
Theinvestmentpolicyotheschemecomplywiththerules,regulationsandguidelineslaidoutinSEBI(MutualFunds)Regulations,199.AspertheRegulations,speciicallytheSeventhSchedule,theollowinginvestmentlimitationsarecurrentlyapplicable:\
1. TheSchemeshallnotinvestmorethan15%oitsNAVindebtinstrumentsissuedbyasingleissuer,whichareratednotbelowinvestmentgradebyacreditratingagency.Thisinvestmentlimitmaybeextendedto20%otheNAVotheSchemewiththepriorapprovalotheBoardotheTrusteeCompanyandtheBoardotheAMC.
Providedthatsuchlimitshallnotbeapplicableortheinvestmentsingovernmentsecurities.
Provided urtherthatinvestmentwithin such limitcanbemadeinmortgagedbacked securitizeddebtswhichare ratednotbelowinvestmentgradebyacreditratingagencyregisteredwithBoard.
2. The Schemeshall notinvestmorethan10%oitsNAVin unrateddebtinstrumentsissuedbyasingleissuerandthetotal osuchinstrumentsshallnotexceed25%otheNAVotheScheme.AllsuchinvestmentswillbemadewiththepriorapprovalotheInvestmentCommitteeoRCAM.
N: Debentures,irrespectiveo anyresidualmaturityperiod(aboveorbelowone year),shallattracttheinvestmentrestrictionsasapplicableordebtinstrumentsasspeciiedunderclause1and1Aabove.Further,itisclariiedthattheinvestmentlimitsmentionedin(1)and(2)aboveareapplicabletoalldebtsecuritieswhichareissuedbypublicbodies/institutionssuchaselectricityboards,municipalcorporations,statetransportcorporationsetc.guaranteedbyeithercentralorstategovernment.Governmentsecuritiesissuedbycentral/stategovernmentoronitsbehalbyRBIareexemptromtheabovereerredinvestmentlimits.
3. Nomutualundschemeshallinvestmorethanthirtypercentoitsnetassetsinmoneymarketinstrumentsoanissuer:
ProvidedthatsuchlimitshallnotbeapplicableorinvestmentsinGovernmentsecurities,treasurybillsandcollateralizedborrowingandlendingobligations.
4. TheMutualFundunderallitsschemestakentogetherwillnotownmorethan10%oanycompaniespaidupcapitalcarryingvotingrights.
5. TransersoinvestmentsromoneschemetoanotherschemeintheMutualFundshallbeallowedonlyi:
i) Suchtransersaredoneattheprevailingmarketpriceorquotedinstrumentsonspotbasis;
ii) Thesecuritiessotranserredshallbeinconormitywiththeinvestmentobjectives&policiesotheSchemetowhichsuchtranser
hasbeenmade.
. TheSchemeshallmeetthesales,marketingandothersuchexpensesconnectedwithsalesanddistributionoschemeromtheentryloadinaccordancewiththeregulationsasapplicableromtimetotime
7. TheSchememayinvestinanotherschemeunderthesameassetmanagementcompanyorinanyothermutualundwithoutcharginganyees,providedtheaggregateinterschemeinvestmentsmadebyallSchemesunderthesamemanagementcompanyorinschemesunderthemanagementoanyotherAMCshallnotexceed5%oNAVotheMutualFund.[Providedthatthisclauseshallnotapplytoanyundoundsscheme.]
8. TheMutualFundshallbuyandsellsecuritiesonthebasisodeliveriesandshallinallcasesopurchases,takedeliveryorelativesecuritiesandinallcasesosale,deliverthesecuritiesandshallinnocaseputitselinapositionwherebyithastomakeshortsaleorcarryorwardtransactionsorengageinbadlainance:
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P thata mutualundmayengagein shortsellingo securitiesin accordancewiththe rameworkrelatingtoshort sellingandsecuritieslendingandborrowingspeciiedbytheBoard:
P thatamutualundmayenterintoderivativestransactionsinarecognizedstockexchange,subjecttotherameworkspeciiedbytheBoard.
ProvidedurtherthatsaleogovernmentsecurityalreadycontractedorpurchaseshallbepermittedinaccordancewiththeguidelinesissuedbytheReserveBankoIndiainthisregard.
9. The Fund shall get the securitiespurchasedortranserredinthename otheFundonaccount otheconcerned scheme,whereverinvestmentsareintendedtobeoalong-termnature.
10. Theundsschemesshallnotmakeanyinvestmentin:
i) Anyunlistedsecurityoanassociateorgroupcompanyothesponsor
ii) Anysecurityissuedbywayoprivateplacementbyanassociateorgroupcompanyothesponsor
iii) Thelistedsecuritiesogroupcompaniesothesponsorwhichisinexcesso25%othenetassetsothescheme.
11. TheSchemeshallnotinvestinaundoundsscheme.
12. Pendingdeploymentoundsotheschemeinsecuritiesintermsotheinvestmentobjectivesandpoliciesothescheme,theMutualFundcaninvesttheundotheschemeinshorttermdepositsoscheduledcommercialbankssubjecttotheguidelinesasapplicableromtimetotime.
13. NotermloansoranypurposewillbeadvancedbytheScheme.
14. TheFundshallnotinvestmorethan5%oitsNAVintheunlistedequitysharesorequityrelatedinstruments.
15. TheAMCmayinvestintheSchemeinthenewundoer.However,itshallnotchargeanyinvestmentmanagementeeonsuchamountsinvestedbyit.
1. TheSchemeshallnotinvestmorethan10%oitsNAVinequityshares/equityrelatedinstrumentsoanycompany.
Providedthat,thelimito10%shallnotbeapplicableorinvestmentsinindexundorsector/industryspeciicscheme.
However,theSchemeatanypointotimewillnotinvestmorethan10%otheNAVotheSchemeinasinglecompany.
17. Incaseanycompanyhasinvestedmorethan5%othenetassetvalueoascheme,theinvestmentmadebythatschemeorbyanyotherschemeothesameMutualFundinthatcompanyoritssubsidiaries,iany,shallbebroughttothenoticeotheTrusteesbyRCAMandbedisclosedinthehal-yearlyandannualaccountswithjustiicationorsuchinvestmentprovidedthatthelatterinvestmenthasbeenmadewithinoneyearothedateotheormerinvestmentcalculatedoneitherside.
18. RCAMshallnotundertakeanyotherbusinessexceptthatpermittedundertheMFRegulations.RCAMshallmeetwiththecapitaladequacyrequirements,iany,separatelyoreachotheseparateactivity,ianyundertakenbytheAMCandobtainseparateapproval,inecessaryundertheMFRegulations.
19. TheSchememayinvestinOverseassecuritiesinaccordancewiththeregulationsasapplicableromtimetotime.
20. TheSchemewillcomplywithanyotherregulationsapplicabletotheinvestmentsomutualundsromtimetotime.
21. AggregatevalueoilliquidsecuritiesotheScheme,whicharedeinedasnon-traded,thinlytradedandunlistedequityshares,shallnotexceed15%othetotalassetsotheScheme.
22. TheFundshallnotborrowexcepttomeettemporaryliquidityneedsotheFundorthepurposeorepurchase/RedemptionoUnitsorpaymentointerestandDividendtotheUnitholders.
ProvidedthattheFundshallnotborrowmorethan20%othenetassetsoanyindividualSchemeandthedurationotheborrowingshallnotexceedaperiodomonths.
AtRMF,toensurerobustriskmanagementandadequateportoliodiversiicationinternalInvestmentpolicyorvariousdebtschemeshasbeenramed.TheinvestmentpolicyatRMFspeciieslimitsbothonoverallbasis(acrossallschemes)aswellasonindividualschemelevel.Guidelinesorollowingparametersorliquidaswellasnonliquidschemeshasbeenspeciiedinthepolicy:
1. EligibleInstruments:Deinestheeligibleinstrumentswheretheschemecaninvest
2. MinimumLiquidity:Deinestheinstrumentsconsideredasliquidinstrumentsandtheminimuminvestmentsintheseinstrumentsas
apercentageototalnetassets
3. MaximumIlliquidcomponent:Deinestheinstrumentsconsideredasilliquidandthemaximuminvestmentthatcanbemadeintheseinstrumentsasapercentageonetassets.
4. Rating:Deinesminimumand/ormaximuminvestmentinaparticularratingasapercentageototalportolio.
5. Maturity:Deinedtheweightedaveragematurityoaportolio.Alsodeinestheweightedaveragematurity,maximumandmaturityorcertainassettypeslikecorporatebond,PTCs,Giltsetc
AlltheSchemessecuritiesinvestmentwillbeintranserablesecurities.
Allinvestmentrestrictionsstatedaboveshallbeapplicableatthetimeomakinginvestment.
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TheSchemewillnotenterintoanytransaction,whichexposesittounlimitedliabilitiesorresultsintheencumberingoitsassetsinanywaysoastoexposethemtounlimitedliability.
Theseinvestmentlimitations/parametersasexpressed/linkedtothenetasset/netassetvalue/capital,shallintheordinarycourse,applyasatthedateothemostrecenttransactionorcommitmenttoinvest.Changesdonothavetobeeectedmerelybecauseoappreciationordepreciationinvalueorbyreasonothereceiptoanyrights,bonusesorbeneitsinthenatureocapitaloroanyschemeoarrangementororamalgamation,reconstructionorexchange,oratanyrepaymentorredemptionorotherreasonoutsidethecontrolotheFund,anysuchlimitswouldtherebybebreached.Itheselimitsareexceededorreasonsbeyonditscontrol,AMCshalladoptasapriorityobjectivetheremedyingothatsituation,takingdueaccountotheinterestsotheUnitholders.
TheTrusteeCompanyinconsultationwithAMCmayaltertheseabovestatedlimitationsromtimetotime,andalsototheextenttheRegulationschange,soastopermittheSchemetomakeitsinvestmentsintheullspectrumopermittedinvestmentsinordertoachieveitsinvestmentobjectives&policies.Assuch,allinvestmentsotheSchemewillbemadeinaccordancewiththeRegulationsincluding
ScheduleVIIthereoandtheFundamentalAttributesothisScheme.
TheinvestmentinForeignequitySecuritiesshallbeinaccordancewithSEBIRegulations.
I AMC S: RCAMreservestherighttoinvestitsownundsintheSchemeuptoamaximumextentoitsnetworth.AsperSEBIRegulations,suchinvestmentsarepermitted,subjecttodisclosurebeingmadeintheSchemeInormationDocument.Further,RCAMshallnotchargeanyeesonitsinvestmentintheScheme,unlessallowedtodosounderSEBIRegulationsintheuture.
J. HOW HAS THE SCHEME PERFORMED?
CompoundedAnnualisedReturnsasonSeptember30,2009 SchemeReturns% BenchmarkReturns%
Returnsorthelast1year 3.5 33.4
Returnsorthelast3years 9.14 12.14
Returnsorthelast5years N.A N.A
Returnssinceinception 13.51 19.5
Calculationassumethatallpayoutsduringtheperiodhavebeenre-investedintheunitsotheschemeatthethenprevailingNAV.
AllthereturnsareoGrowthPlan-GrowthOption
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III. UNITS AND OFFER
Thissectionprovidesdetailsyouneedtoknoworinvestinginthescheme.
A. NEW FUND OFFER (NFO)
Thissectionisnotapplicable,astheongoingoerotheSchemehascommencedatertheNFO,andtheUnitsareavailableorcontinuoussubscriptionandredemption.
Howeverdetailsrelevantduringtheongoingoerhavebeenprovidedherein.
P/O RelianceTaxSaver(ELSS)FundhasaGrowthPlanandDividendPlan.GrowthPlanhasGrowthOptionandDividendPlanhasDividendPayoutOptionandDividendRe-investmentOption.
DetailsotheabovePlans/optionsareasunder:
() G P: TheGrowthPlanisdesignedorinvestorsinterestedincapitalappreciationontheirinvestmentandnotregularincome.Accordingly,theFundwillnotdeclaredividendsundertheGrowthPlan.TheincomeearnedontheGrowthPlanscorpuswillremaininvestedintheGrowthPlan.
GrowthPlanhasGrowthoption:
G O:TheGrowthPlanhasaGrowthOption.UnderthisOption,therewillbenodistributionoincomeandthe returns to theinvestor areonly by way o capitalgains/appreciation,i any, through redemption atapplicableNAVotheunitsheldbythem.
() D P:TheDividendPlanh