Front Cover Page - Tata Mutual Fund

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This assessment is based on a detailed financial risk assessment. TATA FLOATER FUND A traditional SWOT analysis is used for identifying company specific financial risks. One of the most important factors for assessment is the quality of management based on its past track record and feedback from market participants. In order to assess financial risk a broad assessment of the issuer’s financial statements is undertaken to review its ability to undergo stress on cash flows and asset quality. Business risk assessment, wherein following factors are considered: - Outlook for the economy (domestic and global) - Outlook for the industry - Company specific factors In addition a detailed review and assessment of rating rationale is done including interactions with the company as well as agency. Typically we would avoid investing in securitization transaction (without specific risk mitigant strategies / additional cash/security collaterals/ guarantees) if we have concerns on the following issues regarding the originator / underlying issuer: High default track record/ frequent alteration of redemption conditions / covenants High leverage ratios - both on a standalone basis as well on a fated level/ group level. This is very important in case of single borrower loan sell down Higher proportion of re-schedulement of underlying assets of the pool or loan Higher proportion of overdue assets of the pool or the underlying loan Poor reputation in market Insufficient track record of servicing of the pool or the loan 3. Risk mitigation strategies for investments with each kind of originator Risk Mitigation Strategies Investments in securitized debt will be done based on the assessment of the originator which is carried out by the Fixed Income team based on the in-house research capabilities as well as the inputs from the independent credit rating agencies. In order to mitigate the risk at the issuer/originator level, the Fixed Income team will consider various factors which will include: size and reach of the originator the infrastructure and follow-up mechanism quality of information disseminated by the issuer/originator; and the Credit enhancement for different type of issuer/originator the originator’s track record in that line of business 4. The level of diversification with respect to the underlying assets, and risk mitigation measures for less diversified investments Majority of securitized debt investments shall be in asset backed pools wherein the underlying assets could be Medium and Heavy Commercial Vehicles, Light Commercial Vehicles (LCV), Cars, and Construction Equipment, Mortgages etc. The <strong>Fund</strong> Manager will invest in securitized debt which are rated ‘AA’ (+/- or equivalent) or above by a credit rating agency recognized by SEBI. While the risks mentioned above cannot be eliminated completely, they may be minimized by considering the diversification of the underlying assets as well as credit and liquidity enhancements. Table 1: illustrates the framework that will be applied while evaluating investment decision relating to a pool securitization transaction: Characteristics/T ype of Pool Mortgage Loan Commercial Vehicle and Construction Equipment CAR 2 wheelers Micro Finance Pools Personal Loans Single Downs Sell Others Approximate Average maturity (in Months) Collateral margin (including cash ,guarantees, excess interest spread , subordinate tranche) Average Loan to Value Ratio Up to 120 months In excess of 3% 95% or lower Up to 60 months Up to 60 months In excess of 5% In excess of 5% 100% or lower* 95% or lower Up to 60 months In excess of 5% 4 Up to 12 months In excess of 10% Up to 36 months In excess of 10% 95% or lower Unsecured unsecure d Case by case basis Case by case basis Case by case basis Any other class of securitized debt would be evaluated on a case by case basis
Average seasoning of the Pool Maximum single exposure range Average single exposure range % Minimum 3 months Minimum 6 months Minimum 6 months Minimum 6 months Minimum 1 month Minimum 2 months TATA FLOATER FUND Case by case basis 5% 5% 1% 1%
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Front Cover Page - Tata Mutual Fund

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