HDFC Fixed Maturity Plans - Series XI - HDFC Mutual Fund

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1. Investment ObjectiveThe investment objective of the Plans under the Scheme is to generateregular income through investments in Debt / Money Market Instrumentsand Government Securities maturing on or before the maturity date of therespective Plan(s).2. Asset Allocation Pattern of the SchemeType of InstrumentsMinimum MaximumAllocation Allocation(% of Net (% of NetAssets) Assets)Debt and Money Market Instruments 60% 100%(including securitised debt)Government Securities 0% 40%It is the intention of the Scheme that the investments in securitised debtwill not, normally exceed 75% of the net assets of the respective Plans.The Scheme may take derivative position (maximum 20% of the net assetsof the respective Plans), for Hedging and Portfolio Balancing, based onopportunities available subject to SEBI Regulations. The Scheme may seekinvestment opportunity in Foreign Debt Securities (maximum 75% of NetAssets of respective Plans) in accordance with the guidelines stipulated inthis regard by SEBI and RBI from time to time.3. Risk Profile of the SchemeMutual Fund Units involve investment risks including the possible loss ofprincipal. Please read the Scheme Information Document carefully fordetails on risk factors before investment. Scheme specific Risk Factorsinclude but are not limited to the following :Risk factors associated with investing in Fixed Income Securities Trading volumes, settlement periods and transfer procedures may restrictthe liquidity of the investments made by the Scheme. Different segmentsof the Indian financial markets have different settlement periods andsuch periods may be extended significantly by unforeseen circumstancesleading to delays in receipt of proceeds from sale of securities. The NAVof the Plan under the Scheme can go up or down because of variousfactors that affect the capital markets in general.The NAV of the Plan will be affected by changes in the general levelof interest rates. The NAV of the Plan is expected to increase from afall in interest rates while it would be adversely affected by an increasein the level of interest rates.Money market securities, while fairly liquid, lack a well developedsecondary market, which may restrict the selling ability of the Schemeand may lead to the Scheme incurring losses till the security is finallysold.Investment in Debt Securities are subject to the risk of an issuer'sinability to meet interest and principal payments on its obligations andmarket perception of the creditworthiness of the issuer.Government securities where a fixed return is offered run price-risk likeany other fixed income security. Generally, when interest rates rise,prices of fixed income securities fall and when interest rates drop, theprices increase. The extent of fall or rise in the prices is a function ofthe existing coupon, days to maturity and the increase or decrease inthe level of interest rates. The new level of interest rate is determinedby the rates at which government raises new money and/or the pricelevels at which the market is already dealing in existing securities. Theprice-risk is not unique to Government Securities. It exists for all fixedincome securities. However, Government Securities are unique in thesense that their credit risk generally remains zero. Therefore, their pricesare influenced only by movement in interest rates in the financialsystem.Different types of fixed income securities in which the Scheme wouldinvest as given in the Scheme Information Document carry differentlevels and types of risk. Accordingly, the Scheme risk may increase ordecrease depending upon its investment pattern. e.g. corporate bondscarry a higher level of risk than Government securities. Further evenamong corporate bonds, bonds, which are AAA rated, are comparativelyless risky than bonds, which are AA rated.The AMC may, considering the overall level of risk of the portfolio,invest in lower rated / unrated securities offering higher yields as wellas zero coupon securities that offer attractive yields. This may increasethe absolute level of risk of the portfolio.As zero coupon securities do not provide periodic interest payments tothe holder of the security, these securities are more sensitive to changesin interest rates. Therefore, the interest rate risk of zero coupon securitiesis higher. The AMC may choose to invest in zero coupon securities thatoffer attractive yields. This may increase the risk of the portfolio.While securities that are listed on the stock exchange carry lowerliquidity risk, the ability to sell these investments is limited by the overalltrading volume on the stock exchanges. Securities, which are not quoted on the stock exchanges, are inherentlyilliquid in nature and carry a larger amount of liquidity risk, in comparisonto securities that are listed on the exchanges or offer other exit optionsto the investor, including a put option. The AMC may choose to investin unlisted securities that offer attractive yields. This may increase therisk of the portfolio.Risk factors associated with investing in Foreign Debt Securities Currency RiskMoving from Indian Rupee (INR) to any other currency entails currencyrisk. To the extent that the assets of the Scheme will be invested insecurities denominated in foreign currencies, the Indian Rupee equivalentof the net assets, distributions and income may be adversely affectedby changes in the value of certain foreign currencies relative to theIndian Rupee.Interest Rate RiskThe pace and movement of interest rate cycles of various countries,though loosely co-related, can differ significantly. Hence by investingin securities of countries other than India, the Scheme stand exposedto their interest rate cycles.Credit RiskThis is substantially reduced since the SEBI (MF) Regulations stipulateinvestments only in debt instruments with rating not below investmentgrade by accredited/registered credit rating agency.To manage risks associated with foreign currency and interest rateexposure, the Mutual Fund may use derivatives for efficient portfoliomanagement including hedging and in accordance with conditions asmay be stipulated by SEBI / RBI from time to time.Risk factors associated with investing in Derivatives The AMC, on behalf of the Plan, may use various derivative products,from time to time, in an attempt to protect the value of the portfolioand enhance Unit holders' interest. Derivative products are specializedinstruments that require investment techniques and risk analysis differentfrom those associated with stocks and bonds. The use of a derivativerequires an understanding not only of the underlying instrument butof the derivative itself. Other risks include, the risk of mispricing orimproper valuation and the inability of derivatives to correlate perfectlywith underlying assets, rates and indices.Derivative products are leveraged instruments and can providedisproportionate gains as well as disproportionate losses to the investor.Execution of such strategies depends upon the ability of the fundmanager to identify such opportunities. Identification and execution ofthe strategies to be pursued by the fund manager involve uncertaintyand decision of fund manager may not always be profitable. No assurancecan be given that the fund manager will be able to identify or executesuch strategies.The risks associated with the use of derivatives are different from orpossibly greater than, the risks associated with investing directly insecurities and other traditional investments.Risk factors associated with investing in Securitised DebtThe Risks involved in Securitised Papers described below are the principalones and does not represent that the statement of risks set out hereunderis exhaustive.Limited Liquidity & Price RiskThere is no assurance that a deep secondary market will develop forthe Certificates. This could limit the ability of the investor to resell them.Limited Recourse, Delinquency and Credit RiskThe Credit Enhancement stipulated represents a limited loss cover tothe Investors. These Certificates represent an undivided beneficial interestin the underlying receivables and do not represent an obligation ofeither the Issuer or the Seller or the originator, or the parent or anyaffiliate of the Seller, Issuer and Originator. No financial recourse isavailable to the Certificate Holders against the Investors' Representative.Delinquencies and credit losses may cause depletion of the amountavailable under the Credit Enhancement and thereby the Investor Payoutspage 2
to the Certificate Holders may get affected if the amount available inthe Credit Enhancement facility is not enough to cover the shortfall.On persistent default of an Obligor to repay his obligation, the Servicermay repossess and sell the Asset. However many factors may affect,delay or prevent the repossession of such Asset or the length of timerequired to realise the sale proceeds on such sales. In addition, the priceat which such Asset may be sold may be lower than the amount duefrom that Obligor. Risks due to possible prepayments and Charge OffsIn the event of prepayments, investors may be exposed to changes intenor and yield. Also, any Charge Offs would result in the reductionin the tenor of the Pass Through Certificates (PTCs). Bankruptcy of the Swap BankIf the Swap Bank, becomes subject to bankruptcy proceedings then anInvestor could experience losses or delays in the payments due underthe Interest Rate Swap Agreement. Risk of Co-minglingWith respect to the Certificates, the Servicer will deposit all paymentsreceived from the Obligors into the Collection Account. However, therecould be a time gap between collection by a Servicer and depositingthe same into the Collection account especially considering that someof the collections may be in the form of cash. In this interim period,collections from the Loan Agreements may not be segregated fromother funds of originator. If originator in its capacity as Servicer fails toremit such funds due to Investors, the Investors may be exposed to apotential loss.Risk factors associated with Securities LendingAs with other modes of extensions of credit, there are risks inherent tosecurities lending, including the risk of failure of the other party, in this casethe approved intermediary, to comply with the terms of the agreemententered into between the lender of securities i.e. the Scheme and theapproved intermediary. Such failure can result in the possible loss of rightsto the collateral put up by the borrower of the securities, the inability ofthe approved intermediary to return the securities deposited by the lenderand the possible loss of any corporate benefits accruing to the lender fromthe securities deposited with the approved intermediary.Risk Factors associated with Market TradingAlthough Units of the respective Plan(s) are to be listed on the Exchange,there can be no assurance that an active secondary market will developor be maintained.Trading in Units of the respective Plan(s) on the Exchange may be haltedbecause of market conditions or for reasons that in view of ExchangeAuthorities or SEBI, trading in Units of the respective Plan(s) is not advisable.In addition, trading in Units of the Scheme is subject to trading halts causedby extraordinary market volatility and pursuant to Exchange and SEBI'circuit filter' rules. There can be no assurance that the requirements ofExchange necessary to maintain the listing of Units of the respective Plan(s)will continue to be met or will remain unchanged.Any changes in trading regulations by the Stock Exchange(s) or SEBI mayinter-alia result in wider premium/ discount to NAV.The Units of the respective Plan(s) may trade above or below their NAV.The NAV of the respective Plan(s) will fluctuate with changes in the marketvalue of Plan's holdings. The trading prices of Units of the respective Plan(s)will fluctuate in accordance with changes in their NAV as well as marketsupply and demand for the Units of the respective Plan(s).The Units will be issued in demat form through depositories. The recordsof the depository are final with respect to the number of Units availableto the credit of Unit holder. Settlement of trades, repurchase of Units bythe Mutual Fund on the maturity date / final redemption date will dependupon the confirmations to be received from depository(ies) on which theMutual Fund has no control.The market price of the Units of the respective Plan(s), like any other listedsecurity, is largely dependent on two factors, viz., (1) the intrinsic value ofthe Unit (or NAV), and (2) demand and supply of Units in the market.Sizeable demand or supply of the Units in the Exchange may lead to marketprice of the Units to quote at premium or discount to NAV.As the Units allotted under respective Plan(s) of the Scheme will be listedon the Exchange, the Mutual Fund shall not provide for redemption /repurchase of Units prior to maturity / final redemption date of the respectivePlan(s).4. Plans and OptionsHDFC FMP 13M October 2009HDFC FMP 13M October 2009 offers Growth and Dividend Option. DividendOption offers Quarterly Dividend Option and Normal Dividend Option withPayout facility only.5. Applicable NAV (after the scheme opens for repurchase)Applicable NAV For Purchases including switch-insThe Units of the Plan will not be available for subscriptions / switchinafter the closure of NFO Period.Applicable NAV For Redemptions including switch-outsUnits of the Plan cannot be redeemed / switched-out by the investorsdirectly with the Fund until the date of Maturity / Final Redemption.Therefore, the provisions of Cut off timing for redemptions includingswitch-outs will not be applicable to the Plan.Units of the Plan will be automatically redeemed on the Maturity /Final Redemption date, except requests for switch-out received by theFund.Switch-out request will be accepted upto 3.00 p.m. on the MaturityDate/Final Redemption Date.6. Minimum Application Amount / Number of UnitsPurchase Additional RepurchasePurchaseRs. 5,000 Not Not Applicableand in Applicable As the Units are listed on themultiplesStock Exchange, the Plan will notof Rs. 10provide redemption facility untilthereafter the date of Maturity /Final Redemption date.7. Despatch of Repurchase (Redemption) RequestWithin 10 working days from the date of final maturity / final redemption.8. Benchmark IndexCrisil Short-Term Bond Fund9. Dividend PolicyIt is proposed to declare dividends subject to availability of distributableprofits, as computed in accordance with SEBI (Mutual Funds) Regulations,1996.Dividends, if declared, will be paid (subject to deduction of tax at source,if any) to those unit holders whose names appear in the register of unitholders on the notified record date.There is no assurance or guarantee to unit holders as to the rate of dividenddistribution nor that dividends will be paid regularly. On payment ofdividends, the NAV will stand reduced by the amount of dividend anddividend tax (if applicable) paid.10. Name of the Fund Manager(s)Mr. Shobhit MehrotraMr. Anand Laddha (Dedicated Fund Manager for Overseas Investments)11. Name of the Trustee CompanyHDFC Trustee Company Limited12. Performance of the Scheme / PlanThis Scheme is a new scheme and does not have any performance trackrecord.13. Expenses of the Scheme(i) Load StructureNew Fund Offer PeriodEntry Load : Not ApplicablePursuant to SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated June 30,2009, no entry load will be charged by the Scheme to the investor. Upfrontcommission shall be paid directly by the investor to the ARN Holder (AMFIregistered Distributor) based on the investors’ assessment of various factorsincluding the service rendered by the ARN Holder.page 3
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HDFC Fixed Maturity Plans - Series XI - HDFC Mutual Fund

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