Mafatlal Centre, 10th Floor, Nariman Point, Mumbai CIN: U65991MH1996PTC Tel.: Fax:

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1 Mafatlal Centre, 10th Floor, Nariman Point, Mumbai CIN: U65991MH1996PTC Tel.: Fax: January 31, 2018 Dear Unit Holder, Sub: Change in Fundamental Attributes DSP BlackRock Opportunities Fund ('Scheme') Thank you for investing in DSP BlackRock Mutual Fund. We appreciate your trust in us. Scheme is an open ended growth scheme DSP BlackRock Mutual Fund ('Fund'). Securities and Exchange Board India ('SEBI') vide its Circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017 read alongwith Circular no. SEBI/HO/IMD/DF3/CIR/P/ 2017/126 dated December 4, 2017 (Circular) has issued directions for Categorization and Rationalization all Mutual Fund Schemes in order to bring about uniformity in practice across Mutual Funds and to standardize scheme categories and characteristics each category. In this regard, in order to standardize our schemes in line with categories as prescribed by SEBI in said circular, certain changes needs to be carried out in features Scheme. Such changes shall result in change in fundamental attribute Scheme, which will attract compliance Regulation 18 (15A) SEBI (Mutual Fund) Regulations, 1996 (MF Regulations) read alongwith Circular. DSP BlackRock Trustee Company Pvt. Ltd., Trustee to Fund, has approved following changes to existing features/provisions Scheme: Sr. No. Particulars Existing Proposed 1. Type Scheme An Open ended growth Scheme Large & Mid Cap Fund- An open ended equity scheme investing in both large cap and mid cap stocks 2. Product Labeling This open ended growth Scheme is suitable for investor who are seeking* Long-term capital growth Investment in equity and equity-relate securities to form a diversified Portfolio * Investors should consult ir financial advisers if in doubt about wher Scheme is suitable for m This open ended equity Scheme is suitable for investor who are seeking* Long-term capital growth Investment in equity and equity-related securities predominantly large and midcap companies * Investors should consult ir financial advisers if in doubt about wher Scheme is suitable for m. RISKOMETER RISKOMETER 3. Investment Objective primary investment objective Scheme is to seek to generate long term capital appreciation and secondary objective is income generation and distribution dividend from a portfolio constituted equity and equity related securities concentrating on investment focus Scheme re is no assurance that investment objective Scheme will be realized. primary investment objective is to seek to generate long term capital appreciation from a portfolio that is substantially constituted equity and equity related securities large and midcap companies. From time to time, fund manager will also seek participation in or equity and equity related securities to achieve optimal portfolio construction. re is no assurance that investment objective Scheme will be realized Page 1 24

2 4. Asset Allocation Under normal circumstances, it is anticipated that asset allocation Scheme shall be Under normal circumstances, it is anticipated that asset allocation Scheme shall be as follows as follows: Instruments Indicative Allocations Risk Prile (% total assets) Instruments Indicative Allocations (% total assets) Minimum Maximum Risk Prile 1.Equity and equity 80% 100% Medium related securities to High 2. Fixed incom securities 0% 20% Low to (Debt* and Money Medium Market Securities *Debt securities/instruments are deemed to include securitized debts Stock lending Minimum #1st -100th company in terms full market capitalization would be considered as large cap companies. $101st - 250th company in terms full market capitalization would be considered as midcap companies. *Debt securities/instruments are deemed to include securitized debts Maximum 1 (a) Equity & equity related instruments large cap companies# 35% 65% Medium to High 1(b) Equity & equity related instruments mid cap companies$ 35% 65% Medium to High 1(c) Investment in or equity and equity related instruments 0% 30% Medium to High 2. Debt* and Money Market Securities 0% 30% Low to Medium 3. Units REITs and InvITs 0% 10% Medium to High Scheme retains flexibility to invest across all securities in debt and money markets as permitted by SEBI / RBI from time to time, including schemes mutual funds. Subject to SEBI (MF) Regulations and Stock lending applicable guidelines issued by SEBI, Mutual Subject to SEBI (MF) Regulations and applicable guidelines issued by SEBI, Mutual Fund may Fund may engage in stock lending. AMC engage in stock lending. AMC shall comply with all reporting requirements and Trustee shall shall comply with all reporting requirements carry out periodic review as required by SEBI guidelines. Stock lending means lending stock to and Trustee shall carry out periodic review anor person or entity for a fixed period time, at a negotiated compensation. securities lent will as required by SEBI guidelines. Stock lending be returned by borrower on expiry stipulated period. means lending stock to anor person or entity for a fixed period time, at a negotiated compensation. securities lent will be Investment Manager will apply following limits, should it desire to engage in Stock Lending: returned by borrower on expiry 1. Not more 20% net assets a Scheme can generally be deployed in Stock Lending. stipulated period. Investment Manager will apply 2. Not more 5% net assets a Scheme can generally be deployed in Stock Lending to any single counter party. following limits, should it desire to engage in Stock Lending: Overseas Investments 1. Under normal circumstances Schemes shall not have an exposure more 25% its net Not more 20% net assets a assets in foreign assets/securities, subject to applicable regulatory limits. Scheme can generally be deployed in 2. Stock Lending. Not more 5% net assets a Scheme can generally be deployed in Stock Lending to any single counter party. Trading in Derivatives net derivative position in Scheme may be upto 100% net assets, subject to applicable regulatory limits, as mentioned in, "Where will Scheme Invest?". cumulative gross exposure through equity, debt, money market instruments and derivative Trading in Derivatives net derivative position in Scheme may be upto 100% net assets, subject to applicable regulatory limits, as mentioned in, positions shall not exceed 100% net assets Scheme. Pending deployment funds Scheme, AMC may invest funds Scheme in short-term deposits scheduled commercial banks, subject to following conditions issued by SEBI vide its circular SEBI/IMD/CIR No. 1/91171 /07 dated April 16, 2007: "Where will Scheme Invest?". 1. term 'short term' for parking funds shall be treated as a period not exceeding 91 days. percentage Scheme's corpus invested in equity and equity related securities may decrease subject to a minimum 70% and in event same falling below 70%, a review and rebalancing asset allocation will be called for by Investment Manager. Such changes in investment pattern will be for a short term and for defensive considerations and intention being at all times to seek to protect interests Unit Holders. 2. Such deposits shall be held in name Scheme. 3. Scheme shall not park more 15% its net assets in short term deposit(s) all scheduled commercial banks put toger. However, it may be raised to 20% with prior approval Trustee. Also, parking funds in short term deposits associate and sponsor scheduled commercial banks toger shall not exceed 20% total deployment by Mutual Fund in short term deposits. 4. Scheme shall not park more 10% its net assets in short term deposit(s) with any one scheduled commercial bank including its subsidiaries. 5. Trustee shall ensure that funds Scheme are not parked in short term deposits a bank which has invested in that Scheme. 6. AMC will not charge any investment management and advisory fees for parking funds in short term deposits scheduled commercial banks. above provisions do not apply to term deposits placed as margins for trading in cash and derivative market. Page 2 24

3 Scheme shall rebalance portfolio in case any deviation to asset allocation. Such rebalancing shall be done within 30 days from date occurrence deviation. Where portfolio is not rebalanced within 30 Days, justification for same shall be placed before Investment Committee and reasons for same shall be recorded in writing. Investment committee shall n decide on course action. However, at all times portfolio will adhere to overall investment objectives Schemes. Any alteration in investment pattern will be for a short term on defensive considerations; intention being at all times to protect interests Unit Holders. It may be noted that no prior intimation/indication will be given to investors when composition/asset allocation pattern under Scheme undergoes changes within permitted band as indicated above. 5 Where will Scheme invest? principal feature this Scheme is to respond to dynamically changing Indian economy by moving its investments amongst different sectors as prevailing trends change. This Scheme will allow Investment Manager to be highly concentrated in any two or more sectors such as Lifestyle sector, Pharmaceuticals sector, Cyclical sector, Technology sector, as described in, "E. What are investment strategies?" Investment Manager may at any given time have a zero weightage in any one or more sectors. Investment Manager will identify opportunities in sectors such as Lifestyle sector, Pharmaceuticals sector, Cyclical sector, Technology sector. Lifestyle sector would include companies that have established brands and are servicing large and stable consumer groups. It would also include fast moving consumer goods, food, beverages, edible oils, tobacco, personal care products, white goods, retailing and related industries such as ready made clothing and accessories, service and leisure. Pharmaceuticals sector would include, but is not limited to, pharmaceuticals, OTC medicine, ayurved / herbal product, hospitals, drug intermediaries, bio-technology, fine chemicals and agrochemicals. Cyclical sector would include companies characterised by high capital requirements and business driven by demandsupply imbalances. This sector would include, but is not limited to, automobiles and auto ancillaries, engineering, banking & finance, cement, infrastructure, construction, metals, mining, utilities, transportation, steel and paper. Technology sector would include businesses driven by technology changes. This would include, but is not limited to, stware, hardware, telecom, media & entertainment, e- commerce, internet business companies. Equity related securities include, but are not limited to, fully convertible debentures, partly convertible debentures, convertible preference shares and warrants converting into equity securities. Fixed income securities encompass both debt and money market securities. Subject to Regulations and disclosures as made under section "How Scheme will allocate its Assets", corpus Scheme can be invested in any (but not exclusively) following securities: 1. Equity and equity related securities 2. Equity Related Instruments, being securities which give holder security right to receive Equity Shares on pre agreed terms. It includes convertible/optionally convertible/compulsorily convertible preference shares, share warrants and any or security which has equity component embedded in it 3. Equity Derivatives, which are financial instruments, generally traded on stock exchange, price which is directly dependent upon (i.e., "derived from") value equity shares or equity indices. Derivatives involve trading rights or obligations based on underlying, but do not directly transfer property 4. Securities created and issued by Central and State Governments and/or repos/reverse repos in such Government Securities as may be permitted by RBI (including but not limited to coupon bearing bonds, zero coupon bonds and treasury bills); 5. Securities guaranteed by Central and State Governments (including but not limited to coupon bearing bonds, zero coupon bonds and treasury bills); 6. Fixed Income Securities domestic Government agencies and statutory bodies, which may or may not carry a Central/State Government guarantee; 7. Corporate debt ( both public and private sector undertakings); 8. Money market instruments as permitted by SEBI/RBI; 9. Usance bills; 10. Securitised Debt; 11. non-convertible part convertible securities; 12. Any or domestic fixed income securities as permitted by SEBI/ RBI from time to time. 13. Derivative instruments like Interest Rate Swaps, Forward Rate Agreements, Interest Rate Derivatives and such or derivative instruments permitted by SEBI/RBI. 14. Investment in units Real Estate Investment Trust ('REIT') & Infrastructure Investment Trus ('InvIT') Debt and money market securities include, but are not limited to: Debt obligations Government India, state and local governments, government agencies, statutory bodies, public sector undertakings, scheduled commercial banks, non-banking finance companies, development financial institutions, supranational financial institutions, corporate entities and trusts (securitised debt) Pass through, Pay through or or Participation Certificates, representing interest in a pool assets including receivables Scheme may also enter into repurchase and reverse repurchase obligations in all securities held by m as per guidelines non-convertible part convertible securities Units Mutual funds as may be permitted by regulations Page 3 24

4 and regulations applicable to such transaction. Furr, Scheme intends to participate in securities lending as permitted under SEBI (MF) Regulations. It is intention each Scheme to trade in derivatives market as and when SEBI (MF) Regulations permit mutual funds to participate in derivatives market. Scheme also intends to invest in foreign equity and debt securities (i.e. fshore investments) as and when permitted by SEBI and in accordance with SEBI (MF) Regulations n prevailing. Debt and money market securities include, but are not limited to: Debt obligations Government India, state and local governments, government agencies, statutory bodies, public sector undertakings, scheduled commercial banks, non-banking finance companies, development financial institutions, supranational financia institutions, corporate entities and trusts (securitised debt) Pass through, Pay through or or Participation Certificates, representing interest in a pool assets including receivables non-convertible part convertible securities Units Mutual funds as may be permitted by regulations Structured Notes Any or like instruments as may be permitted by RBI/SEBI from time to time. From time to time, it is possible that Investment Manager may decide to invest a higher proportion in debt and money market securities, depending on prevailing economic and market conditions and need to adopt a defensive posture on portfolio Scheme. securities mentioned in, "Where will Scheme invest?", could be listed, unlisted, privately placed, secured, unsecured, rated or unrated (subject to rating or equivalency requirements discussed above) and any maturity. securities may be acquired through secondary market operations, primary issues/ferings, or public fers, Private Placement and negotiated deals amongst or mechanisms. Collateralized Borrowing an Lending Obligations (CBLO): Collateralized Borrowing and Lending Obligations (CBLO) is a money market instrument that enables entities to borrow and lend against sovereign Any or like instruments as may be permitted by RBI/SEBI/such or Regulatory Authority from time to time. securities mentioned in, "Where will Scheme(s) invest?", could be listed, unlisted, privately placed, secured, unsecured, rated or unrated (subject to rating or equivalency requirements discussed above) and any maturity. securities may be acquired through secondary market operations, primary issues/ferings, or public fers, Private Placement and negotiated deals amongst or mechanisms. Scheme may invest in or Schemes managed by AMC or in Schemes any or Mutual Fund(s), provided such investment is in conformity to investment objectives Scheme and in terms prevailing Regulations. As per Regulations, no investment management fees will be charged for such investments and aggregate inter-scheme investment made by all Schemes Mutual Fund or in Scheme under management or asset management companies shall not exceed 5% net asset value Mutual Fund. Investment in Short-Term Deposits Pending deployment funds Scheme, AMC may invest funds Scheme in short term deposits scheduled commercial banks, subject to following conditions issued by SEBI vide its circular SEBI/IMD/CIR No. 1/ /07 dated April 16, 2007: (a) Each Scheme shall not park more 15% its net assets in short term deposit(s) all scheduled commercial banks put toger. However, it may be raised to 20% with prior approval Trustee. Also, parking funds in short term deposits associate and sponson scheduled commercial banks toger shall not exceed 20% total deployment by Mutual Fund in short term deposits. (b) Each Scheme shall not park more 10% its net assets in short term deposit(s) with any one scheduled commercial bank including its subsidiaries. (c) Trustee shall ensure that funds each Scheme are not parked in short term deposits a bank which has invested in that Scheme. (d) AMC will not charge any investment management and advisory fees for parking funds in short term deposits scheduled commercial banks. (e) term 'short term' for parking funds shall be treated as a period not exceeding 91 days. (f) Such deposits shall be held in name Scheme. Investment in domestic Securitized Debt: Depending upon Investment Manager's views, Scheme may invest in domestic securitized debt such as ABS or MBS. investments in domestic securitized debt will be made only after giving due consideration to factors such as but not limited to securitization structure, quality underlying receivables, credentials servicing agent, level credit enhancement, liquidity factor, returns provided by securitized paper vis-a-vis or comparable investment alternatives. Although returns provided by securitized debt could be higher, one must not lose sight fact that risks also exist with regard to investments in securitized debt. Investments in pass-through certificates a securitization transaction represent an undivided beneficial interest in underlying receivables and do not represent an obligation eir issuer or seller, or parent seller, or any affiliate seller or issuer or trustee in its personal capacity, save to extent credit enhancement to be provided by credit enhancer. trust's principal asset will be pool underlying receivables. ability trust to meet its obligations will be dependent on receipt and transfer to designated account collections made by servicing agent from pool, amount available in cash account, and any or amounts received by trust pursuant to terms transaction documents. However, credit enhancement stipulated in a securitization transaction represents a limited loss cover only. Delinquencies and credit losses may cause depletion amount available under cash account and reby scheduled payouts to investors may get affected if amount available in cash account is not enough to cover shortfall. Furr Unit holders are requested to refer below disclosure relating to investments in securitized debt, in SEBI prescribed format: (i) How risk prile securitized debt fits into risk appetite Scheme: Scheme seeks to generate an attractive return, consistent with prudent risk, from a portfolio Page 4 24

5 security. maturity ranges from 1 day which is substantially constituted quality debt securities. Scheme also seeks to generate to 90 days and can also be made capital appreciation by investing a smaller portion its corpus in equity and equity related available upto 1 year. Central securities issuers domiciled in India. Government securities including T-bills are eligible securities that can be used as for borrowing through CBLO. Repos: (ii) investment objective, securitised debt instruments having a high credit quality commensurate with or debt instruments in portfolio will be considered for investment. Policy relating to originators based on nature originator, track record, NPAs, losses in earlier securitized debt, etc Repo (Repurchase Agreement) or Reverse Repo is a transaction in which two parties agree to sell and purchase parameters used to evaluate originators are Track record same security with an agreement to purchase or sell same security at a mutually decided future date and price. Willingness to pay, through credit enhancement facilities etc. Ability to pay transaction results in ized borrowing or lending funds. Business risk assessment, wherein following factors are considered: - Outlook for economy (domestic and global) Investment in Short-Term Deposits Pending deployment funds Scheme, AMC may invest funds Scheme in short term deposits - Outlook for - Company specific factors In addition a detailed review and assessment rating rationale is done including interactions with originator as well as rating agency. scheduled commercial banks, subject to following conditions issued by SEBI vide its circular SEBI/IMD/CIR No. 1/ / 07 dated April 16, 2007: (a) Each Scheme shall not park more 15% its net assets in short term deposit(s) all scheduled commercial banks put toger. Critical Evaluation Parameters (for pool loan) regarding originator / underlying issuer: Default track record/ frequent alteration redemption conditions / covenants High leverage ratios ultimate borrower - both on a standalone basis as well on a consolidated level/ group level Higher proportion re-schedulement underlying assets pool or loan, as case may be However, it may be raised to 20% with prior approval Trustee. Also, parking Higher proportion overdue assets pool or underlying loan, as case may be Poor reputation in market funds in short term deposits associate and sponsor scheduled commercial banks toger shall not exceed 20% total deployment by Mutual Fund in short term deposits. (iii) Insufficient track record servicing pool or loan, as case may be. Risk mitigation strategies for investments with each kind originator Analysis originator: An independent Risk and Quantitative Analysis (RQA) team analyses and evaluates each originator and sets up limits specifying both maximum quantum and maximum tenor for investments and investments are considered only within se limits. (b) Each Scheme shall not park more Originator analysis typically encompasses: 10% its net assets in short term deposit(s) with any one scheduled commercial bank Size and reach originator Collection process, infrastructure and follow-up mechanism including its subsidiaries. Quality MIS (c) Trustee shall ensure that Credit enhancement for different type originator funds each Scheme are not parked in short term deposits a bank which has invested in that Scheme. (d) AMC will not charge any investment management and advisory fees for parking funds in short term deposits scheduled (iv) level diversification with respect to underlying assets, and risk mitigation measures for less diversified investments Eligible assets: Only assets with an established track record low delinquencies and high credit quality over several business cycles will be considered for investment. Analysis pool: Characteristics such as pool maturity (in months), loan to value ratio, seasoning pool, maximum single exposure, geographical distribution and single exposure are studied to determine pool quality commercial banks. Risk mitigating measures: Credit enhancement facilities (including cash, guarantees, excess (e) term 'short term' for parking funds shall be treated as a period not exceeding 91 days. interest spread, subordinate tranches), liquidity facilities and payment structure are studied in relation to historical collection and default behavior asset class to ensure adequacy credit enhancement in a stress scenario. (f) Such deposits shall be held in (v) Minimum retention period debt by originator prior to securitization name Scheme. We will follow guidelines on minimum holding period requirements as laid down by SEBI and RBI from time to time. Page 5 24

6 Investment in domestic Securitized Debt: (vi) Minimum retention percentage by originator debts to be securitized Depending upon Investment Manager's views, Scheme may invest in domestic securitized debt such as ABS or MBS. investments in domestic securitized debt will be made only after giving due consideration to factors such as but not limited to securitization structure, quality underlying receivables, credentials servicing agent, level credit enhancement, liquidity factor, returns provided by securitized paper visa-vis or comparable investment alternatives. Although returns provided by securitized debt could be higher, one must not lose sight fact that risks also exist with regard to investments in securitized debt. Investments in pass-through certificates a securitization transaction represent an undivided beneficial interest in underlying receivables and do not represent an obligation eir issuer or seller, or parent seller, or any affiliate seller or issuer or trustee in its personal capacity, save to extent credit enhancement to be provided by credit enhancer. trust's principal asset will be pool underlying receivables. ability trust to meet its obligations will be dependent on receipt and transfer to designated account collections made by servicing agent from pool, amount available in cash account, and any or amounts received by trust pursuant to terms transaction documents. However, credit enhancement stipulated in a securitization transaction represents a limited loss cover only. Delinquencies and credit losses may cause depletion amount available under cash account and reby scheduled payouts to investors may get affected if amount available in cash account is not enough to cover shortfall. We will follow guidelines on minimum holding period requirements as laid down by SEBI and RBI from time to time. (vii) mechanism to tackle conflict interest when Mutual Fund invests in securitized debt an originator and originator in turn makes investments in that particular Scheme Fund AMC has an independent RQA team which is distinct from Sales function and Investments function and has a separate reporting and appraisal structure designed to avoid conflict interest. Investments can be initiated by fund managers only after RQA team has assigned limits for originator. originator wise limits specify both maximum quantum and maximum tenor for investments. (viii) resources and mechanism individual risk assessment with AMC for monitoring investment in securitized debt AMC has a rigorous risk management process for all fixed income investments, which also encompasses securitized debt. A dedicated RQA team is responsible for monitoring risks including credit and liquidity risk. functions RQA team include: Detailed credit analysis issuers: based on management evaluation, operating strength and financial strength to determine suitability for investment. Periodic reviews on a quarterly/ annual basis are under taken for eligible issuers. Ratings are monitored on a daily basis and any changes are immediately recorded and suitable action taken. RQA team monitors adherence to single and group level exposure norms, minimum rating requirements, liquidity requirements, and ensures that only eligible securities are included in fund, in line with Scheme information document/internal templates. For securitized pool loan exposures, analysis includes pool seasoning, pool asset quality, diversification, margin, originator analysis and credit enhancement mechanisms. Pool performance statistics published by rating agencies are analyzed for performance or securitised pools same originator as well as for performance asset class as a whole. Regular interactions with rating agencies are done to discuss performance trends. Documents are vetted by legal and compliance team. In addition, monthly payout reports from trustees are analysed for collection performance and adequacy cash. Furr Unit holders are requested to refer below disclosure relating to investments in securitized debt, in SEBI prescribed format: (i) How risk prile securitized debt fits into risk appetite Scheme: Scheme seeks to generate an attractive return, consistent with prudent risk, from a portfolio which is substantially constituted quality debt securities. Scheme also seeks to generate capital appreciation by investing a smaller portion its corpus in equity and equity related securities issuers domiciled in India. Page 6 24

7 investment objective, securitised debt instruments having a high credit quality commensurate with or debt instruments in portfolio will be considered for investment. (ii) Policy relating to originators based on nature originator, track record, NPAs, losses in earlier securitized debt, etc parameters used to evaluate originators are Track record Willingness to pay, through credit enhancement facilities etc. Ability to pay Business risk assessment, wherein following factors are considered: - Outlook for economy (domestic and global) - Outlook for - Company specific factors In addition a detailed review and assessment rating rationale is done including interactions with originator as well as rating agency. Critical Evaluation Parameters (for pool loan) regarding originator / underlying issuer: Default track record/ frequent alteration redemption conditions / covenants High leverage ratios ultimate borrower - both on a standalone basis as well on a consolidated level/ group level Higher proportion re-schedulement underlying assets pool or loan, as case may be Higher proportion overdue assets pool or underlying loan, as case may be Poor reputation in market Insufficient track record servicing pool or loan, as case may be. (iii) Risk mitigation strategies for investments with each kind originator Analysis originator: An independent Risk and Quantitative Analysis (RQA) team analyses and evaluates each originator and sets up limits specifying both maximum quantum and maximum tenor for investments and investments are considered only within se limits. Framework that is applied while evaluating investment decision relating to a pool securitization transaction: Scheme will not be investing in foreign securitised debt. Characteristics / Type Pool Approximate Average maturity (in Months Collateral margin (including cash, guarantees, excess interest spread, subordinate tranche) Average Loan to Value Ratio Average seasoning Pool Maximum single exposure range Average single exposure range % Mortgage Loan maturity mortgage loans as per Typically less 10 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio mortgage loans as per Typically less 80 per cent. norms and guidelines laid down by RBI/SEBI from time to time. Typically, more 3 months Commercial Vehicle and Construction Equipment maturity Commercial Vehicle and Construction Equipment loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio Commercial Vehicle and Construction Equipment loans as per Typically less 85 per cent. norms and guidelines laid down by RBI/SEBI from time to time. Typically, more 3 months Investment in Overseas Financial Assets/Foreign Securities CAR 2 wheelers Ors maturity car loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio car loans as per Typically less 85 per cent. norms and guidelines laid down by RBI/SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% Not more 10% Not more 10% Not more 10% Not more 10% maturity two-wheeler loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio two-wheeler loans as per Typically less 85 per cent. norms and guidelines laid down by RBI/SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% maturity asset class as per margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio asset class loans as per norms and guidelines laid down by RBI/ SEBI from time to time. Not more 10% Not more 10% * Kindly note that all references to single loan securitization has been removed as securitization single corporate loans are no longer envisaged under revised RBI guidelines on securitization According to SEBI circular no. SEBI/IMD/CIR No. 7/104753/07 dated September 26, 2007 mutual funds can invest in ADRs/GDRs/or specified foreign securities and as per SEBI circular no. SEBI/IMD/CIR No. 2/122577/08 dated April 08, 2008, such investments are subject to an overall limit US$ 7 bn. for all mutual funds put toger. Mutual Fund has been allowed an individual limit US$ 600 mn. overall ceiling for investment in overseas ETFs that invest in securities is US$ 1 billion subject to a maximum US$ 50 million per mutual fund. Page 7 24

8 Originator analysis typically encompasses: Size and reach originator Collection process, infrastructure and follow-up mechanism Quality MIS Credit enhancement for different type originator (iv) level diversification with respect to underlying assets, and risk mitigation measures for less diversified investments Eligible assets: Only assets with an established track record low delinquencies and high credit quality over several business cycles will be considered for investment. Analysis pool: Characteristics such as pool maturity (in months), loan to value ratio, seasoning pool, maximum single exposure, geographical distribution and single exposure are studied to determine pool quality Risk mitigating measures: Credit enhancement facilities (including cash, guarantees, excess interest spread, subordinate tranches), liquidity facilities and payment structure are studied in relation to historical collection and default behavior asset class to ensure adequacy credit enhancement in a stress scenario. (v) Minimum retention period debt by originator prior to securitization We will follow guidelines on minimum holding period requirements as laid down by SEBI and RBI from time to time. (vi) Minimum retention percentage by originator debts to be securitized We will follow guidelines on minimum holding period requirements as laid down by SEBI and RBI from time to time. (vii) mechanism to tackle conflict interest when Mutual Fund invests in securitized debt an originator and originator in turn makes investments in that particular Scheme Fund AMC has an independent RQA team which is distinct from Sales function and Investments function and has a separate reporting and appraisal structure designed to avoid conflict interest. Investments can be initiated by fund managers only after RQA team has dedicated fund manager appointed for making overseas investments by Mutual Fund will be in accordance with applicable requirements SEBI. Depending upon Investment Manager's views, Scheme would like to seek investment opportunities in ADR/GDR/overseas market. Trading in Derivatives Mutual Fund may use various derivatives and hedging products/ techniques, in order to seek to generate better returns for Scheme. Derivatives are financial contracts pre-determined fixed duration, whose values are derived from value an underlying primary financial instrument, commodity or index. Scheme while investing in equities shall transact in exchange traded equity derivatives only and se instruments may take form Index Futures, Index Options, Futures and Options on individual equities/securities and such or derivative instruments as may be appropriate and permitted under SEBI Regulations and guidelines from time to time. Advantages Trading in Derivatives Advantages derivatives are many. use derivatives provides flexibility to Schemes to hedge whole or part portfolio. following section describes some more common derivatives transactions along with ir benefits: Derivatives are financial contracts pre-determined fixed duration, whose values are derived from value an underlying primary financial instrument, commodity or index, such as interest rates, exchange rates, commodities and equities. 1. Futures A futures contract is a standardized contract between two parties where one parties commits to sell, and or to buy, a stipulated quantity a security at an agreed price on or before a given date in future. Currently, futures contracts have a maximum expiration cycle 3 months. Three contracts are available for trading, with 1 month, 2 months and 3 months expiry respectively. A new contract is introduced on next trading day following expiry relevant monthly contract. Futures contracts typically expire on last Thursday month. For example a contract with April 2017 expiration expires on last Thursday April 2017 (April 27, 2017). Basic Structure an Index Future Stock Index futures are instruments designed to give exposure to equity markets indices. Stock Exchange, Mumbai (BSE) and National Stock Exchange (NSE) have trading in index futures 1, 2 and 3 month maturities. pricing an index future is function underlying index and short-term interest rates. Index futures are cash settled, re is no delivery underlying stocks. Example using hypotical figures: 1 month ABC Index Future If Scheme buys 2,000 futures contracts, each contract value is 50 times futures index price. Purchase Date : April 01, 2017 Spot Index : Future Price : Date Expiry : April 27, 2017 Margin : 10% Assuming exchange imposes a total margin 10%, Investment Manager will be required to provide a total margin approx. Rs. 93,000,000 (i.e. 10%*9300*2000*50) through eligible securities and cash. Assuming on date expiry, i.e. April 27, 2017, ABC Index closes at 9350, net impact will be a prit Rs. 5,000,000 for Scheme, i.e. ( ) * 2000 * 50 (Futures price = Closing spot price = Rs ) Prits for Scheme = ( ) * 2000*50 = Rs. 5,000,000. Please note that above example is given for illustration purposes only. Some assumptions have been made for sake simplicity. Page 8 24

9 assigned limits for originator. originator wise limits specify both maximum quantum and maximum tenor for investments. (viii) resources and mechanism individual risk assessment with AMC for monitoring investment in securitized debt AMC has a rigorous risk management process for all fixed income investments, which also encompasses securitized debt. A dedicated RQA team is responsible for monitoring risks including credit and liquidity risk. functions RQA team include: Detailed credit analysis issuers: based on management evaluation, operating strength and financial strength to determine suitability for investment. Periodic reviews on a quarterly/annual basis are under taken for eligible issuers. Ratings are monitored on a daily basis and any changes are immediately recorded and suitable action taken. RQA team monitors adherence to single and group level exposure norms, minimum rating requirements, liquidity requirements, and ensures that only eligible securities are included in fund, in line with Scheme information document/internal templates. For securitized pool loan exposures, analysis includes pool seasoning, pool asset quality, diversification, margin, originator analysis and credit enhancement mechanisms. Pool performance statistics published by rating agencies are analyzed for performance or securitised pools same originator as well as for performance asset class as a whole. Regular interactions with rating agencies are done to discuss performance trends. Documents are vetted by legal and compliance team. In addition, monthly payout reports from trustees are analysed for collection performance and adequacy cash. net impact for Scheme will be in terms difference closing price index and cost price. Thus, it is clear from above example that prit or loss for Scheme will be difference between closing price (which can be higher or lower purchase price) and purchase price. risks associated with index futures are similar to those associated with equity investments. Additional risks could be on account illiquidity and potential mis-pricing futures. Basic Structure a Stock Future A futures contract on a stock gives its owner right and obligation to buy or sell stocks. Single Stock Futures traded on NSE (National Stock Exchange) are cash settled; re is no delivery underlying stocks on expiration date. A purchase or sale futures on a security gives trader essentially same price exposure as a purchase or sale security itself. In this regard, trading stock futures is no different from trading security itself. Example using hypotical figures: Scheme holds shares XYZ Ltd., current price which is Rs. 500 per share. Scheme sells one month futures on shares XYZ Ltd. at rate Rs If price stock falls, Mutual Fund will suffer losses on stock position held. However, in such a scenario, re will be a prit on short futures position. At end period, price stock falls to Rs. 450 and this fall in price stock results in a fall in price futures to Rs re will be a loss Rs. 50 per share (Rs Rs. 450) on holding stock, which will be fset by prits Rs. 70 (Rs Rs. 470) made on short futures position. Please note that above example is given for illustration purposes only. Some assumptions have been made for sake simplicity. Certain factors like margins and or related costs have been ignored. risks associated with stock futures are similar to those associated with equity investments. Additional risks could be on account illiquidity and potential mis-pricing futures. 2. Options An option gives a person right but not an obligation to buy or sell something. An option is a contract between two parties wherein buyer receives a privilege for which he pays a fee (premium) and seller accepts an obligation for which he receives a fee. premium is price negotiated and set when option is bought or sold. A person who buys an option is said to be long in option. A person who sells (or writes) an option is said to be short in option. An option contract may be two kinds: 1) Call option An option that provides buyer right to buy is a call option. buyer call option can call upon seller option and buy from him underlying asset at agreed price seller option has to fulfill obligation upon exercise option. 2) Put option right to sell is called a put option. Here, buyer option can exercise his right to sell underlying asset to seller option at agreed price. Option contracts are classified into two styles: (a) European Style In a European option, holder option can only exercise his right on date expiration only. (b) American Style In an American option, holder can exercise his right anytime between purchase date and expiration date. Basic Structure an Equity Option In India, options contracts on indices are European style and cash settled whereas, option contracts on individual securities are American style and cash settled. Page 9 24

10 Framework that is applied while evaluating investment decision relating to a pool securitization transaction: Characteristics / Type Pool Ors Approximate Average maturity (in Months) Collateral margin (including cash, guarantees, excess interest spread, subordinate tranche) In line with Loan to Value ratio asset class loans as per Average Loan to Value Ratio Mortgage Loan maturity mortgage loans as per Typically less 10 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio mortgage loans as per Typically less 80 per cent. Commercial Vehicle and Construction Equipment maturity Commercial Vehicle and Construction Equipment loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Loan to Value ratio Commercial Vehicle and Construction Equipment loans as per Typically less 85 per cent. CAR 2 whe ele rs In line with maturity car loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. In line with Loan to Value ratio car loans as per Typically less 85 per cent. maturity twowheeler loans as per Typically less 4 years. margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. In line with Loan to Value ratio twowheeler loans as per Typically less 85 per cent. In line with maturity asset class as per margin will be adequate for pool to achieve a rating in high safety category at time initial rating. margin will ensure at least a 3 times cover over historical losses observed in asset class. Example using hypotical figures: Market type : N Instrument Type : OPTSTK Underlying : XYZ Ltd. (XYZ) Purchase date : April 1, 2017 Expiry date : April 27, 2017 Option Type : Put Option (Purchased) Strike Price : Rs. 9, Spot Price : Rs. 9, Premium : Rs Lot Size : 100 No. Contracts : 50 Say, Mutual Fund purchases on April 1, 2017, 1 month Put Options on XYZ Ltd. (XYZ) on NSE i.e. put options on 5000 shares (50 contracts 100 shares each) XYZ. As se are American style options, y can be exercised on or before exercise date i.e. April 27, If share price XYZ Ltd. falls to Rs. 9,500/- on April 27, 2017, and Investment Manager decides to exercise option, net impact will be as Follows: Premium Expense = Rs. 200 * 50 * 100 = Rs. 10,00,000/- Option Exercised at = Rs. 9,500/- Prits for Mutual Fund = (9, ,500.00) * 50 * 100 = Rs. 12,50,000/- Net Prit = Rs. 12,50,000 - Rs. 10,00,000 = Rs. 2,50,000/- In above example, Investment Manager hedged market risk on 5000 shares XYZ Ltd. by purchasing put options. Please note that above example is given for illustration purposes only. Some assumptions have been made for sake simplicity. Certain factors like margins have been ignored. purchase Put Options does not increase market risk in Mutual Fund as risk is already in Mutual Fund's portfolio on account underlying asset position (in his example shares XYZ Ltd.). Premium paid for option is treated as an expense and added to holding cost relevant security. Additional risks could be on account illiquidity and potential mis-pricing options. Exposure to Equity Derivatives i. Position limit for Mutual Fund in index options contracts: a. Mutual Fund position limit in all index options contracts on a particular underlying index shall be Rs. 500 crore or 15% total open interest in market in index options, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all options contracts on a particular underlying index. ii. Position limit for Mutual Fund in index futures contracts: a. Mutual Fund position limit in all index futures contracts on a particular underlying index shall be Rs. 500 crore or 15% total open interest in market in index futures, whichever is higher, per Stock Exchange. b. This limit would be applicable on open positions in all futures contracts on a particular underlying index. iii. Additional position limit for hedging: In addition to position limits at point (i) and (ii) above, Fund may take exposure in equity index derivatives subject to following limits: a. Short positions in index derivatives (short futures, short calls and long puts) shall not exceed (in notional value) Mutual Fund's holding stocks. b. Long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in notional value) Mutual Fund's holding cash, government securities, T Bills and similar instruments. Page 10 24

11 Characteristics / Type Pool Average seasoning Pool Maximum single exposure range Average single exposure range % Mortgage Loan norms and guidelines laid down by RBI/ SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% norms and guidelines laid down by RBI/SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% CAR 2 whe ele rs In line with norms and guidelines laid down by RBI/ SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% In line with norms and guidelines laid down by RBI/ SEBI from time to time. Typically, more 3 months Not more 10% Not more 10% Mutual Fund may use various derivatives and hedging products/ techniques, in order to seek to generate better returns for Scheme. Derivatives are financial contracts pre-determined fixed duration, whose values are derived from value an underlying primary financial instrument, commodity or index. Scheme while investing in equities shall transact in exchange traded equity derivatives only and se instruments may take form Index Futures, Index Options, Futures and Options on individual equities/securities and such or derivative instruments as may be appropriate and permitted under SEBI Regulations and guidelines from time to time. Advantages Trading in Derivatives Commercial Vehicle and Construction Equipment Ors In line with norms and guidelines laid down by RBI/ SEBI from time to time. Not more 10% Not more 10% * Kindly note that all references to single loan securitization has been removed as securitization single corporate loans are no longer envisaged under revised RBI guidelines on securitization Advantages derivatives are many. use derivatives provides flexibility to Schemes to hedge whole or part portfolio. following section describes some more common derivatives transactions along with ir benefits: Derivatives are financial contracts pre-determined fixed duration, whose values are derived from value an underlying primary financial instrument, commodity or index, such as interest rates, exchange rates, commodities and equities. iv. Position limit for Mutual Fund for stock based derivative contracts: combined futures and options position limit shall be 20% applicable Market Wide Position Limit (MWPL). v. Position limit for Scheme: position limits for Scheme and disclosure requirements are as follows: a. For stock option and stock futures contracts, gross open position across all derivative contracts on a particular underlying stock a scheme a Fund shall not exceed higher 1% free float market capitalization (in terms number shares). Or 5% open interest in derivative contracts on a particular underlying stock (in terms number contracts). b. This position limit shall be applicable on combined position in all derivative contracts on a underlying stock at a Stock Exchange. c. For index based contracts, Mutual Fund shall disclose total open interest held by its scheme or all schemes put toger in a particular underlying index, if such open interest equals to or exceeds 15% open interest all derivative contracts on that underlying index. As and when SEBI notifies amended limits in position limits for exchange traded derivative contracts in future, aforesaid position limits, to extent relevant, shall be read as if y were substituted with SEBI amended limits. Exposure Limits: With respect to investments made in derivative instruments, Schemes shall comply with following exposure limits in line with SEBI Circular Cir/IMD/DF/11/2010 dated August 18, 2010: 1. cumulative gross exposure through equity, debt and derivative positions will not exceed 100% net assets respective Scheme. However, following shall not be consid ered while calculating gross exposure: a. Security-wise hedged position and Scheme will not be investing in foreign securitised debt. b. Exposure in cash or cash equivalents with residual maturity less 91 days Trading in Derivatives 2. total exposure related to option premium must not exceed 20% net assets Scheme. 3. Mutual Fund shall not write options or purchase instruments with embedded written options. 4. Exposure due to hedging positions may not be included in above mentioned limits subject to following: a. Hedging positions are derivative positions that reduce possible losses on an existing position in securities and till existing position remains. b. Hedging positions cannot be taken for existing derivative positions. Exposure due to such positions shall have to be added and treated under limits mentioned in Point 1. c. Any derivative instrument used to hedge has same underlying security as existing position being hedged. d. quantity underlying associated with derivative position taken for hedging purposes does not exceed quantity existing position against which hedge has been taken. 5. Mutual Fund may enter into plain vanilla interest rate swaps for hedging purposes. counter party in such transactions has to be an entity recognized as a market make by RBI. Furr, value notional principal in such cases must not exceed value respective existing assets being hedged by scheme. Exposure to a single counterparty in such transactions should not exceed 10% net assets scheme. 6. Exposure due to derivative positions taken for hedging purposes in excess under lying position against which hedging position has been taken, shall be treated under limits mentioned in point Definition Exposure in case Derivative Positions: Each position taken in derivatives shall have an associated exposure as defined under. Exposure is maximum possible loss that may occur on a position. However, certain Page 11 24