IDFC MUTUAL FUND. Open Ended Fund of Funds of the Fund presented in these financial statements are as under: Dividend Frequency

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1 IDFC MUTUAL FUND Schedule 9 - Statement of Significant Accounting Policies and Other Explanatory Notes forming part of Accounts of Fund of Funds Scheme Background IDFC Mutual Fund ( the Fund ) is sponsored by IDFC Ltd. and is constituted as a Trust under the Indian Trust Act, 1882 with IDFC AMC Trustee Company Limited ( the Trustee ) as Trustee. In accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 ( SEBI (Mutual Funds) Regulations ) and amendments thereto, as applicable, the Trustee has entrusted the investment management function to Management Company Limited ( the AMC ). Open Ended Fund of Funds of the Fund presented in these financial statements are as under: Name of the scheme Allocation Fund Of Funds - Conservative Plan Allocation Fund Of Funds - Moderate Plan Allocation Fund Of Funds - Aggressive Plan IDFC All Seasons Bond Fund Option / Plan Growth Plan A and Direct Plan Dividend Plan A and Direct Plan Growth Plan A and Direct Plan Dividend Plan A and Direct Plan Growth Plan A and Direct Plan Dividend Plan A and Direct Plan Growth Plan A and Direct Plan Dividend Plan A and Direct Plan Dividend Frequency NA Ad hoc NA Ad hoc NA Ad hoc NA Fortnightly Quarterly Half Yearly Annual In terms of SEBI circular dated September 13, 2012, the schemes of Mutual Fund shall have only Direct and Regular plan effective January 1, The remaining plans are made Defunct which would be continuing till the existing investors remain invested in the plan. Investors investing directly without routing applications through a distributor shall be allotted units in direct plan only. The expense ratio of the direct plan will be lower than the regular plan.

2 A. SIGNIFICANT ACCOUNTING POLICIES 1. BASIS OF PREPARATION OF FINANCIAL STATEMENTS: The financial statements are prepared and presented under the historical cost convention, on the accrual basis of accounting in accordance with the accounting policies and standards specified in the Ninth Schedule of SEBI (Mutual Funds) Regulations, 1996 and amendments thereto, as applicable, and the accounting principles generally accepted in India and comply with the accounting standards and the guidance notes issued by the Institute of Chartered Accountants of India (the ICAI ), to the extent applicable. 2. USE OF ESTIMATES: The preparation of financial statements in conformity with the Generally Accepted Accounting Principles ( GAAP ) requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and the reported amount of revenues and expenses during the reported period. The estimates and the assumptions used in the accompanying financial statements are based upon the Management s evaluation of relevant facts and circumstances as at the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. Any revision to accounting estimates is recognised prospectively in the current and future periods. 3. INCOME RECOGNITION: a) Interest on investments is accounted on an accrual basis. Interest on an investment that is past due for three months is accrued and a full provision is made against all outstanding interest on that investment. b) Discounts / Premiums to redemption value on fixed income securities are amortised on a straight-line basis over the period upto redemption. c) Profit or Loss on sale of investments is recognised on trade dates. The cost of investments sold is determined on weighted average cost basis. 4. EXPENSES: a) All expenses identifiable with any particular scheme are accounted on an accrual basis. b) Expenses not identifiable with any particular scheme are generally allocated to the schemes in proportion to the number of live folios in the schemes. c) In accordance with the SEBI notification dated September 26, 2012 effective October 1, 2012, the Mutual Fund / AMC have the discretion to charge the Total Expense Ratio (TER) as per SEBI limit as Investment Management and Advisory Fees or charge both Investment Management and Advisory Fees and other expenses appropriately within the overall SEBI TER limit. The schemes have been charged with Investment Management and Advisory Fees within the overall SEBI TER limit after charging commission expenses, Investor Education expenses, statutory audit fees, printing and courier expenses and trusteeship fees effective January 1, 2013.

3 5. INVESTMENTS: Transactions for purchase and sale of investments are recorded on trade date at cost and sale price respectively. Cost of investments includes brokerage, commission, stamp charges and any charge customarily included in the broker note but excludes custodian fees. Broken period interest paid and received is not included in the cost of purchases and sales proceeds respectively. In respect of privately placed debt instruments, front end discount, if any, is reduced from the cost of the instrument. 6. PORTFOLIO VALUATION FOR NAV CALCULATION: Principles of Fair Valuation of Securities: In accordance with SEBI notification dated February 21, 2012, SEBI has mandated AMC s to put in place a policy framework for valuing each type of security / asset on the principles of fair valuation with the objective of ensuring fair treatment to all the investors. Further the AMC has framed policies for fair valuation of securities in accordance with the best practice guidelines issued by Association of Mutual Funds in India ( AMFI ) dated May 15, 2012 and the same has been adopted by the Board of AMC and Trustee Company with effect from July 01, i. Investment in Reverse Repo, Collateralised Borrowings and Lending Obligations (CBLO) and Bills Rediscounting (BRDS): Investment in Reverse Repo s, CBLO s and BRDS are valued at cost plus accrued interest. ii. Investment in Mutual Fund Units: Mutual fund units are valued at the respective Scheme s per unit net asset value prevailing as at the valuation date. For Mutual Fund units listed on the stock exchange, the closing price shall be considered for valuation of such units. iii. Unrealised Gain / Loss in value of Investments: In accordance with the Guidance Note on Accounting for Investments in the Financial Statements of Mutual funds issued by the Institute of Chartered Accountants of India (ICAI), (pursuant to the Eleventh Schedule of the Regulations), net Unrealised Gain or Loss in the value of investments is determined on an category of investment basis. The loss on investments sold or transferred during the period is charged to the Revenue Account instead of being first adjusted against the provision for diminution, if already created in the previous period. The Unrealised Loss/Gain is reversed on the first day of the immediately succeeding financial year. However, this departure from the Guidance Note does not have any net impact on the Scheme s net assets and the financial statements of the Scheme. The value of diminution as at the year end is reflected in the Revenue Account. Further, as recommended by the Guidance Note the diminution / appreciation on investments is worked out on a category of investment basis and any diminution is debited to Revenue Account and unrealised appreciation is directly transferred to Unrealised Appreciation Reserve Account without routing it

4 through the Revenue Account. The Unrealised Appreciation Reserve is reversed at the beginning of the next accounting year. 7. COMPUTATION OF NAV: The NAV of a Scheme is computed separately for units issued under the various options of the relevant plans, although the corresponding Plan s investments and other net assets are managed as a single portfolio. For computing the NAV for various plans / options, daily income earned, including realised and unrealised gains or losses in the value of investments and expenses incurred by the corresponding Scheme are allocated to the plans / options in proportion to the net assets of each plan / option. 8. UNIT PREMIUM RESERVE ( UPR ) AND INCOME EQUALISATION RESERVE: When units are issued / redeemed, the portion of the premium which is attributable to the realised gains is credited / debited to the Revenue Account for the period as Income Equalisation. The balance portion of the premium that is attributable to unrealised gains is credited / debited to the UPR. The distributable amount is determined by deducting from the balance in the Revenue Reserve as at the end of the period, the net unrealised appreciation in the value of investments as at the end of the period. The credit balance in the UPR is considered to be at par with the unit capital and is not taken into account in the determination of the distributable surplus. If units are sold at a price lower than the face value, the difference is debited to the Revenue Account as Income Equalisation. Dividend is declared only when the Revenue Reserve is positive. 9. SWITCH COMPENSATION: Switch compensation is applicable where units are created in one scheme but the funds are available for utilisation in other scheme either due to recording of transactions between the schemes prior to nonbusiness day or incorrect transfer of funds. 10. ACCUMULATED LOAD : a) Load represents amounts charged to investors at the time of entry into or exit from the scheme. The difference between the per unit NAV and the repurchase price is disclosed as Accumulated Load which is considered for computation of the Net Asset Value. The Scheme has not charged any entry load on investments made into it (including additional purchases and switches into the Scheme from other schemes) otherwise than through Systematic Investment Plans ( SIPs ) registered prior to July 31, 2009 (as the circular is applicable to SIPs registered on or after August 1, 2009): Upto September 30, 2012, in compliance of the terms of SEBI Circular dated March 9, 2011, the load balance needs to be segregated into two seperate accounts in the books of the scheme. One account should reflect load balance as on July 31, 2009 and the other account should reflect accretions after July 31, Further, as per the circular, the utilisation of load balance from the Load Account as of July 31, 2009 should be restricted to one-third in each of the financial year and the said utilisation should be only for meeting marketing and selling expenses including distributor's / agent's commissions. The accretions after July 31, 2009 can be utilised without any restrictions. Accordingly, for the following schemes Load has been utilised for distributor's / agent's commissions as per the aforesaid circular:.

5 Name of the scheme (Rupees) (Rupees) Conservative Plan 1,649,443 1,963,011 Moderate Plan 5,523,105 3,634,676 Aggressive Plan 4,692,567 5,321,163 IDFC All Seasons Bond Fund 164, ,281 b) Upto September 30, 2012 Exit load collected in excess of 1% of the redemption proceeds are credited to the Revenue Account as Load Income. Any surplus in Load account is treated as income as and when considered appropriate. In terms of the SEBI (Mutual Funds) (Second Amendment) Regulations, 2012 dated September 26, 2012, with effect from October 1, 2012, all Exit load collected is credited to the scheme net of service tax as Load income.

6 B. NOTES ATTACHED TO AND FORMING PART OF THE ACCOUNTS 1. Contingent liabilities of the schemes as at March 31, 2013 is Rs.Nil (Previous year Rs. Nil). 2. Investment management and Advisory fees: Upto September 30, 2012 in compliance with the SEBI (Mutual Funds) Regulations, and as per the Offer Document, the AMC is entitled to receive the Investment Management and Advisory fees up to an annual rate of 0.75% of the Scheme s weekly / daily average net assets (excluding AMC Investments, Intra-scheme Investments and Fixed Deposits with interest, wherever applicable). Further, the AMC has the discretion either to charge both Investment Management and Advisory fees and other fees to the schemes with appropriate percentages within the overall SEBI TER limits or it may charge only with Investment Management and Advisory fees to schemes within the overall SEBI TER limits. The AMC has charged schemes with Investment Management and Advisory fees within the overall SEBI TER limits after charging commission expenses, Investor education expenses, statutory audit fees, printing and courier charges and trusteeship fees effective January 1, Service tax on Investment Management and Advisory fees is over and above the SEBI TER limit effective October 1, The schemes have accrued and paid Investment Management and Advisory fees to the AMC for managing the schemes as a percentage of daily average net assets as per table below. Name of the scheme (Annualised) (Annualised) Conservative Plan 0.51% 0.55% Moderate Plan 0.45% 0.45% Aggressive Plan 0.54% 0.55% IDFC All Seasons Bond Fund 0.31% 0.19% 3. Investor Education Fund: The Fund of Funds schemes have not accrued investor education fund expense on daily net assets as AMC is of the opinion that it would lead to double accrual of the expense as the same is accrued in the underlying schemes in which the schemes invest. 4. Trustee fees: Pursuant to the trust deed dated December 29, 1999 between the Fund and the Trustee and amendments thereto, the trustee is entitled to annual remuneration of Rs. 600,000/- which is allocated between the schemes of the Fund. However with effect from November 1, 2011 the allocation of trustee fees to various schemes is done either considering the period of existence of the scheme or in proportion to the number of live folios of the schemes as per the table below:

7 Name of the scheme (Rupees)* (Rupees)* Conservative Plan Moderate Plan 1,773 1,729 Aggressive Plan 2,956 3,319 IDFC All Seasons Bond Fund 2,455 1,956 * Trustee Fees are inclusive of service tax. 5. Custodian fees: Deutsche Bank AG, India provides custodian services to the Scheme, for which it receives custodian fees as per the terms of the custodian agreement. 6. Registrar and Transfer Agents: Computer Age Management Services Private Limited, provides services as Registrar and Transfer Agents, to the Mutual Fund for which it receives R&T fees as per the terms of the agreement.. 7. Common Pool Expenses: The Fund as a process disbursed all expense liabilities through a common pool account for operational convenience and all schemes fund their individual expense liabilities to a common pool account in full discharge of their respective liabilities. The Fund issues consolidated cheques to various vendors for discharge of liabilities as a fund as of whole and separate reconciliation of pool account is maintained. The material liabilities if any which remain unpaid are reinstated in the books as at March 31, The amounts as of March 31, 2013 in pool accounts is Rs NIL (Previous year: Rs 1,037,069). 8. Commission payable to Agent: The total Commission Payable to Agents for the Schemes of the Mutual Fund amounting to Rs. 7,553,483 /-as of March 31, 2013 (Previous year : Rs.3,380,083) has been funded by the Schemes of the Mutual Fund in separate Bank Pool Accounts. However, these Bank Accounts and the Brokerage liability to the extent it represents withheld brokerage of the earlier years have been reinstated in the books of account of the respective Schemes as per the Scheme-wise details given by the Registrar & Transfer agents for the current period. Scheme-wise details of withheld brokerage is as under: Withheld brokerage Name of the scheme amount (in Rs.) Conservative Plan 1,293,641 Moderate Plan 3,154,058 Aggressive Plan 2,833,841 IDFC All Seasons Bond Fund 107, Aggregate value of purchases and sales of investments: The aggregate value of purchases and sales (including redemptions) of investments for the period ended expressed as a percentage of daily average net assets of various schemes are as follows:

8 Name of the scheme Conservative Plan Moderate Plan Aggressive Plan Aggregate value of Purchases Aggregate value of Sales ( including redemptions ) Percentage Percentage Rupees* (%) Rupees* (%) 300,842, ,399, ,507, ,407, ,279, ,218,980, ,321, ,796,651, ,706, ,572,946, ,900, ,449,665, ,899, IDFC All Seasons Bond Fund 147,100, ,031, *The amounts do not include CBLO, Fixed deposits and Reverse Repo transactions. 10. The aggregate fair value of non-traded investments, valued on the basis of Fair value principles is disclosed in Annexure 2 to the Financial Statements. 11. Aggregate appreciation / diminution of investments of various schemes are as under: (Amount in Rupees) As at March 31, 2013 As at March 31, 2012 Name of the scheme Allocation Fund Of Funds - Conservative Plan Category of Investment Units of Mutual Fund Appreciation Diminution* Net Appreciation Diminution * Net 3,378,803 4,110,950 (732,147) 26,132,178 2,098,029 24,034,149 Allocation Fund Of Funds - Moderate Plan Allocation Fund Of Funds - Aggressive Plan IDFC All Seasons Bond Fund Units of Mutual Fund and Exchange Traded Funds Units of Mutual Fund and Exchange Traded Funds Units of Mutual Fund 22,313,956 23,050,017 (736,061) 84,970,667 8,540,927 76,429,740 36,426,067 34,278,021 2,148, ,466,817 10,034, ,432,587 4,380,400-4,380,400 2,321,648-2,321,648 * Unprovided Diminution for the above schemes amounts to Rs.Nil

9 12. Income and Expenditure: Income: The total income (including loss on sale of investments, switch compensation and diminution in value of investments) and expenditure (excluding loss on sale of investment, switch compensation and diminution in value of investments) and these amounts as a percentage of the Scheme's daily average net assets are as follows: Expenditure: Name of the scheme Rupees % (Annualised) Rupees % (Annualised) Conservative Plan 51,231, ,772, Moderate Plan 144,983, ,124, Aggressive Plan 160,993, ,172, IDFC All Seasons Bond Fund 2,247, ,258, Name of the scheme Rupees % (Annualised) Rupees % (Annualised) Conservative Plan 2,023, ,660, Moderate Plan 5,527, ,701, Aggressive Plan 7,206, ,838, IDFC All Seasons Bond Fund 355, , The Companies which have invested more than 5% during the current year in the schemes of IDFC Mutual Fund and Schemes which have invested in these companies and/or in its subsidiaries/associates as per Regulation 25(11) (Refer Annexure 1). 14. Statement of Portfolio with Industry wise classification as at March 31, 2013 (Refer Annexure 2).

10 15. Disclosure under Regulation 25(8) of the SEBI (Mutual Funds) Regulations have been made in respect of brokerage / commission and other payments paid to parties associated with sponsors in which the Asset Management Company or its major shareholders have a substantial interest as per SEBI Circular dated 15 th March, Name of the Scheme Allocation Fund Of Funds - Conservative Plan Allocation Fund Of Funds - Moderate Plan Allocation Fund Of Funds - Aggressive Plan IDFC All Seasons Bond Fund Name of the Company Management Co. Ltd. IDFC Trustee Company Ltd. Management Co. Ltd. IDFC Trustee Company Ltd. Management Co. Ltd. IDFC Trustee Company Ltd. Management Co. Ltd. IDFC Trustee Company Ltd. Sharekhan Limited Nature of Payment* Investment management and advisory fees Trusteeship fees Investment management and advisory fees Trusteeship fees Investment management and advisory fees Trusteeship fees Investment management and advisory fees Trusteeship fees Commission on distribution of units (Rupees) 1,541, (Rupees) 3,769, ,202,978 8,165,317 % equity capital held by the sponsors & its subsidiary/a ssociates as at March 31, 2012 % equity capital held by the sponsors & its subsidiary/a ssociates as at March 31, % 100% 100% 100% 100% 100% 1,773 1, % 100% 5,782,421 11,193, % 100% 2,956 3, % 100% 165, , % 100% 2,455 1, % 100% % 100% *Investment management and advisory fees and Trusteeship fees are inclusive of service tax. The scheme has not subscribed to any issues of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager. 16. There are no unit holders holding over 25% of the net assets in the Schemes as at March 31, 2013.

11 17. All investments excluding (Mutual fund units and Government Securities) are held in safe custody with Deutsche Bank AG, India. Investments in Government Securities and Treasury Bills are held in an SGL account maintained with Reserve Bank of India. 18. Unclaimed Redemption and Unclaimed Dividend: After a period of six months from the issuance of the respective dividend/redemption payouts, all unclaimed amounts are being transferred to a fixed deposit. Such amounts along with interest earned are paid to the relevant investors when claimed by them as per SEBI circular MFD / CIR/9/120/2000 dated November 24, The details of unclaimed redemption and unclaimed dividend of various schemes are given below: Unclaimed Redemptions Unclaimed Dividend As at March 31, 2013 As at March 31, 2013 Name of the Scheme As at March 31, 2012 As at March 31, 2012 No of Investors Rupees No of Investors Rupees Conservative Plan , ,262 Moderate Plan Aggressive Plan 1 100, , , , , , , IDFC All Seasons Bond Fund , , , , No provision for income tax has been made since the income of the schemes is exempt u/s 10(23D) of the Income Tax Act Dues to Micro, Small and Medium Enterprises On the basis of the information and records available with the Management, there are no amounts payable to Micro, Small and Medium ( MSMED ) enterprise, as defined under the Micro, Small and Medium Enterprises Development Act, 2006, which have registered with the competent authorities. 21. The Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (ICAI) has opined that the Accounting Standards on Cash Flow Statement (AS-3), Segment Reporting (AS-17) and Related Party Disclosures (AS-18) issued by the ICAI are applicable to financial statements of Scheme of mutual funds. The Management of Management Company Limited (AMC) is of the view that mutual funds are governed by a self-contained regulatory framework, i.e. the SEBI Regulations, the Ninth and Eleventh Schedules which lay down the specific Accounting Policies and Standards to be adopted and the disclosures to be made. Accordingly, the financial statements have been prepared on the basis of the SEBI Regulations. 22. During the current year, there has been a modification in the accounting policy relating to the valuation of traded and non - traded debt securities (including money market securities) and Interest Rate Swaps,

12 pursuant to AMFI Best Practice Guidelines Circular No. 29/ dated May 15, 2012 with effect from July 01, 2012 and SEBI circular (Ref: Cir/IMD/DF/6/2012) dated February 28, 2012 with effect from September 30, This has been explained in note 6 of schedule 9-A. The impact of the change on the Revenue Account and the carrying value of Investments is not ascertainable. 23. Transactions Cost: SEBI regulation states that the transactions cost incurred by Mutual Funds on execution of investment trades may either be capitalized or included as part of recurring expenditure within the limits prescribed under Regulation 52(6) of the SEBI (Mutual Funds) Regulations. Till August 1, 2012 such charges payable to the Professional Clearing Member (PCM charges) on the position taken on Derivative Trades and the charges levied by Clearing Corporation of India (CCIL charges) for the trades done in CBLO / REPO transactions were charged as a recurring expenditure with the limits prescribed under Regulation 52(6) of the SEBI (Mutual Funds) Regulations. With effect from August 1, 2012 the said transactions cost is capitalised as part of investment acquisition cost. 24. The figures for the previous year have been regrouped and reclassified wherever necessary to conform with the current year figures. However on account of the change in the basis of charging expenses to the scheme explained in Note no. 2 above, expenses of the current year are not comparable with those charged in the previous year. 25. The figures in italics represent previous year figures. For Management Company Limited For IDFC AMC Trustee Company Limited Sd/- Mr. Vikram Limaye Director Sd/- Mr. Sunil Kakar Director Sd/- Mr.Kenneth Andrade Head-Investments Sd/- Ms. Punam Sharma Fund Manager Sd/- Mr. Suyash Choudhary Fund Manager Mumbai, July 25, 2013