PRINCIPAL MUTUAL FUND Exchange Plaza, B Wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai

Transcription

1 PRINCIPAL MUTUAL FUND Exchange Plaza, B Wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai PRINCIPAL RETIREMENT SAVINGS FUND MODERATE PLAN (Erstwhile known as Principal Asset Allocation Fund Of Funds Moderate Plan) - ABRIDGED ANNUAL REPORT FOR TO THE BOARD OF DIRECTORS OF TRUSTEES TO PRINCIPAL MUTUAL FUND PRINCIPAL RETIREMENT SAVINGS FUND MODERATE PLAN (Erstwhile known as Principal Asset Allocation Fund Of Funds Moderate Plan) Report on the abridged financial statements The accompanying abridged financial statements, which comprise of the abridged balance sheet as at 31 March 2018 and the abridged revenue account for the year ended 31 March 2018 and related notes of Principal Retirement Savings Fund Moderate Plan (Erstwhile known as Principal Asset Allocation Fund of Funds Moderate Plan), (the Scheme ) are derived from the audited financial statements of the Scheme as at 31 March 2018 and for the year ended 31 March We expressed an unmodified audit opinion on those financial statements in our report dated 6 July These abridged financial statements have been prepared by Principal Trustee Company Private Limited (the Trustees ) to the Principal Mutual Fund (the Fund ) and Principal PNB Asset Management Company Private Limited, the Scheme s Asset Manager (the AMC ) pursuant to Regulation 56 (1) of Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and amendments thereto (the SEBI Regulations ) and as per the format prescribed by SEBI vide circular number SEBI/IMD/CIR No.8/132968/2008 dated 24 July 2008 (the Circular ) and are derived from the audited financial statements of the Scheme as at 31 March 2018 and for the year ended 31 March 2018, prepared in accordance with the accounting policies and standards specified in the Ninth Schedule to the SEBI Regulations and accounting principles generally accepted in India to the extent applicable and covered by our report of even date to the Trustees of Principal Mutual Fund. The abridged financial statements do not contain all the disclosures required by the accounting principles generally accepted in India, including the accounting policies and standards specified in the Ninth Schedule to the SEBI Regulations. Reading the abridged financial statements, therefore, is not a substitute for reading the audited financial statements of the Scheme. Management s responsibility for the abridged financial Statements Management of the Trustees and the AMC are responsible for the preparation of the abridged financial statements from the audited financial statements of the Scheme pursuant to Regulation 56 (1) of the SEBI Regulations, and in accordance with the format prescribed by SEBI vide circular number SEBI/IMD/CIR No.8/132968/2008 dated 24 July In preparing the audited financial statements, management is responsible for assessing the Scheme s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Scheme or to cease operations, or has no realistic alternative but to do so. INDEPENDENT AUDITORS REPORT TRUSTEE REPORT To the Unitholders, Directors of Principal Trustee Company Private Limited have the pleasure in presenting the Twenty Fourth Annual Report along with the audited financial statements of the Schemes of Principal Mutual Fund for the Financial Year Scheme Performance, Future Outlook and Operations of the Scheme: (a) Equity Schemes Overview during Financial Year The performance of the equity markets in FY could be split into two time periods. The first period lasted from April 2017 to end- Jnauary 2018, when the markets rallied strongly. The Nifty index was up 21 % for the financial year till January 29, and it was then down about 9% in the next two months till end of March, In the second period, i.e. from January to March, mid caps substantially underperofrmd the large cap indices, though for the full year, they still did better than the large cap stocks. Emerging Markets (EMs) globally exhibited similar behaviour, with the MSCI EM index falling 7% from end January to March. Capital flows from non-resident investors into EM equity which were running at about USD 25 Billion per quarter for the first three quarters of the financial year slowed down to about US 17 Billion for the fourth quarter. As far as flows into Indian equity were concerned, FIIs were not very dominant in FY 18, with net equity flows amounting to ` 25,635 crores for the full year. Mutual funds were substantial investors into equity markets in FY 18 as they received inflows of about ` 1.70 lac crores in equity and hybrid funds in the financial year. The roll out of the GST in July 2017 was a major macroeconomic event of the last year. Though there were initial hiccups the new system gradually stabilized during the course of the year. The government also moderated the tax rates on a few items based on industry feedback. Macroeconomic parameters for India deteriorated somewhat during the year compared to where they were in the previous year. The rate of inflation which was around 2% in the first quarter of the financial year rose to 4.3% for March Core inflation also rose in the last quarter. Crude prices were up sharply during the year both as energy demand remained robust on good global growth and action by oil producers to somewhat moderate supplies. Brent crude was up 33% yoy. Higher crude prices were among the reasons for the higher trade and the current account deficit in FY 18. Indian exports grew 9.8% during the year but imports grew at 20%. The trade deficit widened to USD 156 Billion in FY 18 from USD 109 Billion in FY 17. However, the bottom up picture for the economy was better with consumption demand holding up, capital expenditure on infrastructure continuing and early signs of capital expenditure in other parts of the economy as well. The current year started with global concerns as the Europen economy showed signs of slowing down even though the US and Japan showed good growth. However, rising interest rates in the US, the stronger Dollar, news on trade friction between the US and its trading partners and weaker capital flows into EMs were of concern and would be watched carefully by investors. Index 1 Month (%) 3 Months (%) 6 Months (%) 1 Year (%) Broad Markets Nifty S&P BSE Sensex S&P BSE S&P BSE S&P BSE Auditor s responsibility Our responsibility is to express an opinion on the abridged financial statements based on our procedures, which were conducted in accordance with Standard on Auditing (SA) 810, Engagements to Report on Summary Financial Statements issued by the Institute of Chartered Accountants of India. We are also responsible to conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Scheme s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify the opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor s report. However, future events or conditions may cause the Scheme to cease to continue as a going concern. Opinion In our opinion, the abridged financial statements, derived from the audited financial statements of the Scheme as at 31 March 2018 and for the year ended 31 March 2018 is a fair summary of those financial statements and is in accordance with the accounting policies and standards specified in the Ninth Schedule to the SEBI Regulations and Generally Accepted Accounting Principles in India to the extent applicable and as per the format prescribed by SEBI circular number SEBI/IMD/CIR No.8/132968/2008 dated 24 July Other Matter The abridged financial statements for the year ended 31 March 2017 were derived from the audited financial statements of the Scheme for the year ended 31 March, 2017 which were audited by another auditor who expressed an unmodified opinion on those statements on 14 July Our opinion is not modified in respect of this matter. For B S R & Co. LLP Chartered Accountants Firm s Registration No: W/W Sd/- Milind Ranade Mumbai Partner 06 July 2018 Membership No: S&P BSE MID CAP S&P BSE SMALL CAP Sectoral Performance S&P BSE AUTO S&P BSE Bankex S&P BSE CD S&P BSE CG S&P BSE FMCG S&P BSE HC S&P BSE METAL S&P BSE Oil & Gas S&P BSE PSU S&P BSE Teck Source MFI Explorer (b) Debt Schemes Overview during Financial Year During the Financial Year , debt market saw two phases in movement in interest rates. While in the first half of the FY yields remained stable with declining bias, towards the second half of the year yields started rising due to variety of factors. Ample banking system liquidity, RBI effecting a rate cut in August 2017 while being on neutral stance, depressed growth conditions, stable global bond yields, appreciating rupee and crude oil prices were the main reason for yields remaining benign. These stable conditins saw some reversal in the second half of the year with inflation and crude oil prices starting to rise, banking system liquidity steadily draining away, rupee facing some volatility, increase on govt borrowing, OMO sales and improvement in growth conditions. From a low of 1.46% in June 2017, CPI rose to touch a high of 5.21% in Dec WPI ranged from a low of 0.9% to a high of 4.02% during the year. Brent Crude Oil prices ended the year at USD per barrel as compared to USD in previous March. Real GDP growth for the quarter ending March 2018 was at 7.7% as compared to 6.1% at end of March The ten yr US treasury yield ended the year at 2.78%, 40 bps higher than a year ago. The key policy rate, the repo rate was lowered to 6.00% by end of March 2018 from 6.25% a year ago. SLR was reduced by 100 bps from 20.5% to 19.5% by end of March The corridor between repo and reverse repo was narrowed from 50 bps to 25 bps as banking system liquidity rose in order to ensure overnight rates remained in a tigher band. As the banking system liquidity remained high as a hangover from demoetization, RBI conducted OMO sales of government securities worth ` 90,000 cr and issued T bills worth ` 1 lakh crores under MSS scheme. Towards the end of the FY, banking system liquidity went into deficit zone due to a combination of factors including steady increase in currency in circulation, OMO sales, MSS issuances and tax revenue outflows. The ten year benchmark Gsec ended the year at 7.40%, a rise of 74 bps as compared to the yield prevailing at March Five yr AAA corporate bonds ended the year 40 bps higher at 7.97% and ten year AAA corporate bonds ended 36 bps higher at 8.17%. Yields on one year CDs rose to 7.36%, a rise of 70 bps as compared to previous year end. One year T bill levels also rose to 6.47%, a rise of 37 bps as compared to March For the full financial year government s gross borrowing through dated G secs totaled ` 5.99 lakh crores, higher than previous year. Fiscal deficit for came in at 3.53% of GDP, higher than the initial target of 3.2% of GDP due to several headwinds faced by the economy including issues with GST implementation. Gross borrowing through dated G secs was pegged at ` 6.05 lakh crores, which was

2 subsequently reduced by 50,000 cr by the government as yields started rising and concerns on absorption of government bond supply emerged. Centre s fiscal deficit for FY 19 is pegged at 3.3% of GDP. States gross borrowing in FY 2018 was at ` 4.19 lakh crores, 9.7 % higher than previous year. On the global front the Federal Reserve Bank in the US effected three rates hike- in June 2017, Dec 2017 and March The Fed Funds rate was in the range of 1.50% % at the end of March Among other important global events, trade protectionism measures imposed by the US Trump government has led to counter tariff impositions by China and other targeted countries leading to fears of escalating trade tensions and impact on global growth. This has led to a flatter yield curve in US with long treasury yields falling lower inspite of rate hikes. FII sales in debt market, rising dollar strength and widening of trade deficit has led to depreciation of rupee with the rupee ending at ` 65.17/ USD as compared to 64.85/ USD a year back. In market development front, in April 2017, SEBI approved a new framework for consolidation and reissuance of debt securities as part of its efforts to deepen the corporate bond market. Liquidity in the secondary market for corporate bonds will be increased by way of minimal number of ISINs (International Securities Identification Numbers). Under the framework, approved by the Sebi board during its meeting here, an issuer will be permitted a maximum of 12 ISINs maturing per financial year. Furthermore, an entity can issue up to five ISINs every fiscal for structured debt instruments of a particular category. Sebi said these restrictions will not be applicable to debt instruments that are used for raising regulatory capital and affordable housing as well as capital gains tax bonds. In Sept 2017, SEBI released a circular on IRFs to allow imperfect (duration) hedging subject to certain limits. Performance of Scheme as on March 28, 2018: Principal Retirement Savings Fund - Moderate Plan (Erstwhile Principal Asset Allocation Fund of Funds - Moderate Plan) An open ended retirement solution oriented scheme having a lock-in of 5 years or till retirement age (whichever is earlier) Period Date Appreciation (%) Scheme Returns 40% Nifty % (%)^ Crisil Short Term Bond Fund Index Regular Plan Last 1 Year 31-Mar Since Inception 14-Dec Direct Plan Last 1 Year 31-Mar Since Inception 14-Dec Note: Past performance may or may not be sustained in the future During the Financial Year , the Direct Plan has outperformed the benchmark. The combination of the underlying funds outperformed the benchmark with strong performance from the Low Duration Fund category. The Regular Plan under the Scheme underperformed its benchmark due to difference in the expense ratio as compared to Direct Plan. The net assets of the Scheme amounted to ` 1.14 Crs as at March 31, 2018 as compared to ` 1.29 Crs as at March 31, Outlook and Operations of the Scheme: a. Equity Market: The macroeconomic parameters for India have somewhat deteriorated in the past year. Specifically, on the fiscal side, slightly lower GST collections than would be need to meet the indirect tax target remain a challenge. Also, if the markets remain weak, meeting the divestment target for the union government may be challenging and given that government expenditure may be higher ahead of elections, fiscal slippage may be a concern for FY 19. Other factors to watch for domestically would be the distribution of monsoon rains, the trend of inflation, the growth in corporate earnings which are expected to improve in FY 19, global commodity prices, the progress in the resolution of cases before the NCLT in the current year and finally, the interest rate trajectory of the Reserve Bank of India. Higher cost of money and the fact that a number of PSU banks may not grow their balance sheets could have potential impact on growth. Globally, the current year started with concerns on the European economy as it showed signs of slowing down even though the US and Japan showed good growth. However, rising interest rates in the US, the stronger Dollar, news on trade friction between the US and its trading partners and weaker capital flows into EMs were of concern and would be watched carefully by investors. Overall, the environment is that of risk aversion. Equity market valuations are still at a premium to historical valuations. Overall, this should lead to much more moderate returns from equity in the current year compared to the last year. b. Debt Market: RBI has effected rate hike in June 2018 while maintaining neutral stance. Going forward we expect RBI may hike key rates in range of bps based on evolving market conditions and if there is further rise in CPI and global crude oil prices. CPI is expected to remain within RBI s comfort band of 4+-2%, however if CPI rises above 6% we can expect further hikes. While growth in terms of GDP growth has shown improvement over past few quarters, rising global trade tensions, depreciating rupee and rising interest rates could impact growth in the second half of the year. While gilt, corporate bond and money market rates have been rising over past many months, if the macro risk factors further deteriorate yields can go up further. However we believe RBI and government would take appropriate steps to stem any sharp rise in yields. As Banking system liquidity turns decisively negative in seconf half of FY 19 we expect RBI to step up OMO gilt purchases which can cool off yields at the short end. Operations: Principal Mutual Fund (PMF) as at March 31, 2018 offered Twenty Two Schemes. These include Ten Equity Schemes (including two Equity Linked Savings Schemes), one Balanced Scheme, One Fund of Funds Scheme (Overseas), Three Fund of Funds (Domestic one fund with three different Plans), Seven Debt Schemes/Plans including one Liquid Scheme. The total assets under management across all these Schemes as on March 31, 2018 was ` Crore. The AMC operates out of 11 branches, including Mumbai. Increased use of technology coupled with optimum allocation and utilization of resources has helped us to enhance operational efficiency at PMF. During the year, SEBI has introduced significant changes to the MF regulations which has impacted the industry as a whole. PMF has continued to modify its processes, wherever required, to remain compliant with the said regulations at all times. SEBI circular dated October 6, 2017 w.r.t Categorization and Rationalization of Mutual Fund Schemes was issued in order to bring uniformity across Mutual Fund schemes and to standardize the scheme categories and characteristics of each category. In line with the above SEBI circular, below is the gist of changes in the schemes of Principal Mutual Fund: Erstwhile Scheme Name Changes carried out to the scheme (Fundamental Attributes change/ Change in type of scheme/ No Change) Revised Scheme Name Effective date for Change in fundamental attributes Principal Emerging Bluechip Fund Change in Fundamental Attributes No change April 23, 2018 Principal Arbitrage Fund Change in type of scheme No change Not applicable Principal Dividend Yield Fund Change in type of scheme No change Not applicable Principal Growth Fund Change in type of scheme Principal Multi Cap Growth Fund Not applicable Principal Dynamic Bond Fund Change in type of scheme No change Not applicable Principal Tax Savings Fund Change in type of scheme No change Not applicable Principal Equity Savings Fund Change in Fundamental Attributes No change May 10, 2018 Principal Large Cap Fund Change in Fundamental Attributes Principal Focused Multicap Fund May 10, 2018 Principal Index Fund - Nifty Change in Fundamental Attributes Principal Nifty 100 Equal Weight Fund May 10, 2018 Principal Global Opportunities Fund Change in Fundamental Attributes No change May 14, 2018 Principal Money Manager Fund Change in Fundamental Attributes Principal Ultra Short Term Fund May 16, 2018 Principal Short Term Income Fund Change in Fundamental Attributes Principal Short Term Debt Fund May 18, 2018 Principal Low Duration Fund Change in Fundamental Attributes No change May 18, 2018 Principal Debt Saving Fund Change in Fundamental Attributes Principal Corporate Bond Fund May 18, 2018 Principal Credit Opportunities Fund Change in Fundamental Attributes Principal Credit Risk Fund May 18, 2018 Principal Smart Equity Fund Change in Fundamental Attributes Principal Balanced Advantage Fund June 04, 2018 Principal Personal Tax Saver Fund Change in type of scheme No change June 10, 2018 Principal Cash Management Fund No Change No change Not applicable Principal Balanced Fund Change in Fundamental Attributes Principal Hybrid Equity Fund June 11, 2018 Principal Asset Allocation Fund of Funds Principal Retirement Savings Fund with three with three separate plans namely: separate plans namely: i) Conservative Plan Change in Fundamental Attributes i) Conservative Plan June 11, 2018 ii) Moderate Plan ii) Moderate Plan iii)aggressive Plan iii)progressive Plan 2

3 Brief background of Sponsors, Trust, Trustee Co. and AMC Co. A. Sponsor and Constitution of the Mutual Fund Principal Mutual Fund is sponsored by Principal Financial Services Inc., USA [acting through its wholly owned subsidiary Principal Financial Group (Mauritius) Ltd.]. The Sponsor is the Settlor of the Mutual Fund Trust with Punjab National Bank as co-settlor. The Sponsor and co-settlor have entrusted a sum of ` 25 lakhs to the Trustee as the initial contribution towards the corpus of the Mutual Fund. Principal Financial Services Inc. is a member of the Principal Financial Group - a leading provider of financial products and services globally to businesses and individuals including retirement and investment services, Mutual Funds, life and health insurance, annuities and mortgage banking. Established in 1879, the Principal Financial Group has more than $673.8 billion in assets under management and serves 22 million customers with offices in 19 countries throughout Asia, Australia, Europe, Latin America and North America (as on March 31, 2018). The business of Principal Financial Group (Mauritius) Limited, is to carry out business activities which are not prohibited under the Laws of Mauritius and the laws of the countries where the Company is transacting business and to do all such things as are incidental or conducive to the attainment of the above objects. The present share holding pattern of the AMC is as follows: Name of the Shareholder % of equity capital Principal Financial Group (Mauritius) Limited Punjab National Bank B. Principal Trustee Company Private Limited ( the Trustee ): The Trustee is the exclusive owner of the Trust Fund and holds the same in trust for the benefit of the Unitholders. Principal Trustee Company Private Limited (formerly IDBI-PRINCIPAL Trustee Company Limited), a company incorporated under the Companies Act, 1956 is the Trustee to the Fund with effect from October 18, Prior to October 18, 2002, Board of Trustees discharged the Trusteeship function of the Fund. The Trustee has the exclusive ownership of the Trust Fund and is vested with the general powers of superintendence, direction and management of the affairs of the Trust. The Trustee has been discharging its duties and carrying out its responsibilities as provided in the SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed. The Trustee seeks to ensure that the Fund and the Schemes floated there under are managed by the AMC in accordance with the Trust Deed, the Regulations, directions and guidelines issued by the SEBI, the Association of Mutual Funds in India and other regulatory agencies. Principal Financial Group (Mauritius) Limited and Punjab National Bank hold 70% and 30% respectively of the paid up equity capital of the Trustee Company. C. Asset management Company (AMC): Principal Pnb Asset Management Company Private Limited (AMC) is a private limited company incorporated under the Companies Act, 1956 on November 20, 1991 having its Registered Office at Exchange Plaza, B Wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai , India. Principal Pnb Asset Management Company Private Limited has been appointed as the Asset Management Company of the Principal Mutual Fund by the Trustee vide Investment Management Agreement (IMA) dated November 25, 1994 executed between Trustee and AMC. The AMC has also been registered as a Portfolio Manager under the provisions of SEBI (Portfolio Manager) Regulations, 1993 vide SEBI Registration no. INP Further, the AMC has obtained No Objection from SEBI for undertaking activities which are in the nature of advisory services to offshore funds, venture capital funds, financial consultancy and exchange of research pertaining to securities. 2. Liabilities and Responsibilities of Trustee and Settlor The key responsibility of the Trustee is to safeguard the interest of the Unit holders and inter-alia ensure that Principal Pnb Asset Management Company Private Limited functions in the interest of investors and as laid down under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Investment Management Agreement, Statement of Additional Information and Scheme Information Document of the respective Schemes. From the information provided to the Trustees and the reviews the Trustee has undertaken, the Trustee believes Principal AMC has operated in the interests of the Unit holders. The Sponsor and any of its associates including co-settlors is not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the initial contribution of an amount of ` 25 lakhs towards setting up of Principal Mutual Fund. 3. Investment Objectives and Policy of Investment of the Current Scheme The investment objective of the scheme is to provide capital appreciation and income generation to enable investors save over the long term towards their retirement savings goals, by investing in a mix of securities comprising of equity, equity related instruments and fixed income securities. However, there can be no assurance or guarantee that the investment objective of the Scheme will be achieved. The Principal Retirement Savings Fund s offers three relevant plans, namely a Progressive Plan, a Moderate plan and a Conservative plan, as described in the table below. These three plans with different levels risk orientations thereby offer a comprehensive retirement solution to enable investors save over the long term towards their retirement savings goals, by investing in a mix of securities comprising of equity, equity related instruments and fixed income securities. Moderate Plan: The Scheme will invest in equity and equity related instruments. The Scheme will also invest in fixed income instruments rated investment grade or higher or otherwise comparable including units of Liquid / Money Market / Debt Mutual Fund Schemes. The Scheme shall not take high risks in managing equity portion of the portfolio. For the equity portion of the portfolio, companies would be selected after research covering areas such as quality of management, competitive position and financial analysis. 4. Significant Accounting Policies The Significant Accounting Policies form part of the Notes to the Accounts annexed to the Balance Sheet of the Scheme. Accounting policies are in accordance with Securities Exchange Board of India (Mutual Fund) Regulations, Unclaimed Dividends & Redemptions for the financial year NIL 6. Investor Grievances The data on Investor Grievance as per the SEBI prescribed is enclosed herewith as Annexure I. 7. General Policies & Procedures for exercising the voting rights & Exercise of Proxy Votes a. As per the requirements of the SEBI Circular No. SEBI/IMD/CIR No.18/198647/2010 dated March 15, 2010 and SEBI Circular No. CIR/IMD/DF/05/2014 dated March 24, 2014 the General policies and procedures for exercising voting rights (along with the relevant disclosures) in respect of the shares held by the Schemes of Principal Mutual Fund has been hosted on our website b. During the FY , the proxy voting was exercised by Principal Pnb Asset Management Company Private Limited for and on behalf of Principal Mutual Fund ("the Fund"). The summary of proxy votes cast by Principal Mutual Fund/AMC across all the investee companies is as follows: Summary of Votes cast during the F.Y F.Y. Quarter Total No. of Break - up of vote decisions Resolutions For Against Abstained April-June July-September October - December January- March For complete voting details for the period of , unit holders can log on to the website ( of the Fund. Further the said Details are also available in the Annual Report for the period A copy thereof is available on the said website of the fund and shall be sent / ed to the unit holders free of cost on demand. 8. Statutory Information i. The Sponsors/Co- Settlors are not responsible or liable for any loss resulting from the operations of the Schemes of Principal Mutual Fund beyond their initial contribution of an amount of ` 25 lakhs towards setting up Principal Mutual Fund, and such other accretions/ additions to the same; ii. The price and redemption value of the units, and income from them, can go up as well down with fluctuations in the market value of its underlying investment; iii. Full Annual Report shall be disclosed on the website and shall also be available for inspection at the Head Office of Principal Mutual Fund. Present and prospective unitholder can obtain copy of the trust deed, the full Annual Report of the Fund / AMC at a price. Acknowledgement The Trustee wish to thank Securities and Exchange Board of India, Reserve Bank of India and Association of Mutual Funds in India for their support and direction. The Trustees also wish to thank all the Unitholders, distributors, key partners and service providers for their commitment and strong support. For Principal Trustee Company Private Limited Date: July 06, 2018 Place: Mumbai Sd/- V.S. Mathur Chairman 3

4 ABRIDGED BALANCE SHEET AS AT MARCH 31, 2018 PRINCIPAL RETIREMENT SAVINGS FUND - MODERATE PLAN (Erstwhile known as Principal Asset Allocation Fund of Funds - Moderate Plan) Notes to Accounts - Annexure I As at March 31, 2018 (` in Lacs) As at March 31, 2017 LIABILITIES Unit Capital Reserves & Surplus Unit Premium Reserves (10.67) (5.51) Unrealised Appreciation Reserve Other Reserves Loans & Borrowings - - Current Liabilities & Provisions Provision for doubtful Income/Deposits - - Other Current Liabilities & Provisions TOTAL ASSETS Investments Listed Securities: Equity Shares - - Preference Shares - - Equity Linked Debentures - - Other Debentures & Bonds - - Securitised Debt securities - - Securities Awaited Listing: - - Equity Shares - - Preference Shares - - Equity Linked Debentures - - Other Debentures & Bonds - - Securitised Debt securities - - Unlisted Securities Equity Shares - - Preference Shares - - Equity Linked Debentures - - Other Debentures & Bonds - - Securitised Debt securities - - Government Securities - - Treasury Bills - - Commercial Paper - - Certificate of Deposits - - Bill Rediscounting - - Units of Domestic Mutual Fund Foreign Securities - - Total Investments Deposits - - Other Current Assets Cash & Bank Balance CBLO/ Reverse Repo Lending Others Deferred Revenue Expenditure - - (to the extent not written off) TOTAL ABRIDGED REVENUE ACCOUNT FOR THE YEAR ENDED MARCH 31, 2018 PRINCIPAL RETIREMENT SAVINGS FUND - MODERATE PLAN (Erstwhile known as Principal Asset Allocation Fund of Funds - Moderate Plan) INCOME Dividend - - Interest Realised Gain / (Loss) on Foreign Exchange Transactions - - Realised Gains / (Losses) on Interscheme sale of investments - - Realised Gains /(Losses) on External sale / redemption of investments Realised Gains / (Losses) on Derivative Transactions - - Other income (refer note 5 to notes to accounts) - - (A) EXPENSES Management fees Service tax / GST on Management fees Transfer agents fees and expenses Custodian fees - - Trusteeship fees Commission to Agents Marketing & Distribution expenses Audit fees Other operating expenses (B) NET REALISED GAINS / (LOSSES) FOR THE YEAR (A -B = C) Change in Unrealised Depreciation in value of investments (D) - - NET GAINS / (LOSSES) FOR THE YEAR (E=(C-D)) Change in unrealised appreciation in the value of investments (F) NET SURPLUS / (DEFICIT) FOR THE YEAR ( E + F = G ) Opening Balance 3.13 (6.82) Add: Balance transfer from Unrealised Appreciation Reserve Less: Balance transfer to Unrealised Appreciation Reserve Add / (Less): Equalisation Total (Including G) Dividend appropriation Less: Income Distributed during the year - - Less: Tax on income distributed during the year - - Retained Surplus / (Deficit) carried forward to Balance sheet Notes to Accounts - Annexure I Current Year ended March 31, 2018 (` in Lacs) Previous Year ended March 31, 2017 For B S R & Co. LLP For and on behalf of Principal Pnb Asset For and on behalf of Principal Chartered Accountants Management Company Private Limited Trustee Company Private Limited Firm's Registration No: W/W Sd/- Sd/- Sd/- Sd/- Sd/- Milind Ranade M. M. Chitale Lalit Vij V. S. Mathur H. M. Singh Partner Chairman Managing Director Chairman Director Membership No Place : Mumbai Date : July 06, 2018 Sd/- P.V.K. Mohan Fund Manager NOTES TO ACCOUNTS Annexure I to the Abridged Balance Sheet and Revenue Account for the Year Ended March 31, Investments : Except Government Securities, CBLO's and Treasury Bills (which are held in the name of the Mutual Fund) all other investments of the scheme are registered in the name of Principal Trustee Company Pvt. Ltd. - Trustee to Principal Mutual Fund for the benefit of the Schemes unitholders. 1.2 There was no exposure to derivative products during the year ended March 31, 2018 & previous year ended March 31, During the year ended March 31, 2018 the scheme has made investments in securities of the Associate / Group Companies of the Sponsor. Details of Aggregate Value of Investments made by the schemes of Principal Mutual Fund during the year ended March 31, 2018 is given in Annexure II. The above investments were considered sound before making investment. The AMC evaluated the same on merits and on arm's length basis and in accordance with the investment objectives of the respective Schemes. 1.4 There were no open position of securities borrowed and / or lent by the scheme as at March 31, 2018 and as at March 31, Non Performing Assets as at March 31, 2018 cost was Rs. Nil (as at March 31, 2017 cost was ` Nil). 1.6 Aggregate value of Unrealised Gain / Loss as at the end of the Financial Year, expressed as a percentage to Net Assets. ( ` In Lakhs) Scheme Year ended March 31, 2018 Year ended March 31, 2017 Unrealised Gain / (Loss) % to Net Assets Unrealised Gain / (Loss) % to Net Assets Principal Retirement Savings Fund - Moderate Plan

5 1.7 Aggregate Value of Purchase and Sale made during the year, expressed as a percentage of Average Daily Net Asset Value : ( ` In Lakhs) Year Purchases Sales* Amount % of Avg. Net Assets Amount % of Avg. Net Assets March 31, March 31, , , * Sales includes redemptions / maturities 1.8 The Aggregate book value of Non-Traded / Thinly traded Debt Investments, which have been valued in good faith in accordance with the guidelines for valuation of securities of Mutual Fund issued by SEBI, expressed as percentage to Net Assets as at March 31, 2018 is ` Nil (as at March 31, 2017 is ` Nil). 2 As per the requirements of Regulation 25 (8) of SEBI Regulation 1996, the details of Payments made to Associates during the year is given in Annexure III. 3 As per the SEBI disclosure wide circular No. MFD/CIR No.3/211/2001 dated April 30, 2001; Scheme does not have a single unit holder holding more than 25% of the NAV at the end as on March 31,2017 and March 31, Year Number of Investor Holding as a percentage to NAV March 31, March 31, Expenses other than management fees are inclusive of service tax / GST wherever applicable. 5 Other Income represents receipts /payments of miscellaneous nature and also includes load on redemption of units net off service tax / GST. 6. Details of movements in Unit Capital during the year is given in Annexure IV. 7 In view of the AMFI Best Practices Guidelines Circular No. 56/ , the IEF accrual was set aside in a separate bank account and the consolidated balance across all schemes as on March 31, 2018 is ` Lakh. The break-up of which is as under: (` In Lakhs) Particulars Opening Balance Accretion to Investor Education & Awareness Fund including income earned on investment Less: Uitilisation towards investor education and awareness initiatives including amount contributed to AMFI Closing Balance *Amounting ` 5.85 Lakh transferred to AMFI on 03rd April Previous Year's figures have been regrouped and reclassified, wherever necessary, to make them comparable with current year's presentation. 9 There was no Contingent Liability for the current financial year & previous financial year. 10 ` 0.00' in notes to accounts and annexures indicates amount less than a five hundred and ` -' indicates Nil amount. 11 SEBI circular dated October 6, 2017 w.r.t Categorization and Rationalization of Mutual Fund Schemes was issued in order to bring uniformity across Mutual Fund schemes and to standardize the scheme categories and characteristics of each category. In line with the above SEBI circular, schemes has undergone fundamental attribute change as below: Scheme Name Erstwhile Scheme Name Changes carried out to the scheme (Fundamental Effective date for Change Attributes change/ Change in type of scheme/ No Change) in fundamental attributes Principal Retirement Savings Fund - Principal Asset Allocation Fund of Funds - Change in Fundamental Attributes June 11, 2018 Moderate Plan Moderate Plan Annexure II Details of Investments made in Associates / Group Companies (` In Lakhs) Associate Name Scheme Name Purchase March 31, 2018 March 31, 2017 Sale / Redemption Holding Purchase Sale / Redemption Atul Ltd Principal Emerging Bluechip Fund , Atul Ltd Total , Larsen & Toubro Limited Principal Multi Cap Growth Fund , , Principal Nifty 100 Equal Weight Fund Principal Focused Multicap Fund , , Principal Dividend Yield Fund Principal Personal Tax Saver Fund , Principal Balanced Advantage Fund Principal Tax Savings Fund , Principal Equity Savings Fund Principal Hybrid Equity Fund 1, , Principal Arbitrage Fund Larsen & Toubro Limited Total 3, , , , , , Punjab National Bank Principal Index Fund - Midcap Principal Emerging Bluechip Fund Principal Hybrid Equity Fund Punjab National Bank Total 1, , Grand Total 5, , , , , , (` In Lakhs) Associate Name Scheme Name Dividend Income March 31, 2018 March 31, 2017 Atul Ltd Principal Emerging Bluechip Fund Atul Ltd Total Larsen & Toubro Limited Principal Multi Cap Growth Fund Principal Nifty 100 Equal Weight Fund Principal Focused Multicap Fund Principal Dividend Yield Fund Principal Personal Tax Saver Fund Principal Balanced Advantage Fund Principal Tax Savings Fund Principal Equity Savings Fund - - Principal Hybrid Equity Fund Principal Arbitrage Fund Larsen & Toubro Limited Total Grand Total Holding 5

6 Annexure III Details of Payments made to Associates in terms of regulation 25(8): I) Brokerage paid to associates/related parties/group companies of Sponsor/Asset Management Company (AMC) for securities transaction Name of associate/related parties/ group companies of Sponsor/AMC ii) Commission paid to associates/related parties/group companies of Sponsor/ Asset Management Company (AMC) for Distribution of units Name of associate/related parties/ group companies of Sponsor/AMC Nature of Association /Relation April 01, 2017/Launch date to March 31, 2018/Maturity date April 01, 2016/Launch date to March 31, 2017/Maturity date Business given (` In Lakhs & % of total business received by the fund) Commission paid (` In Lakhs & % of total commission paid by the fund) Business given (` In Lakhs Commission paid ( ` In & % of total business received Lakhs & % of total by the fund) commission paid by the fund) Punjab National Bank Associate of Investment Manager 801,342.88(20.63%) (14.33%) 3,95,628.99(12.88%) (15.23%) Principal Retirement Advisors Pvt. Ltd Associate of Investment Manager (0.02%) 15.15(0.49%) 2,111.06(0.07%) 14.55(0.82%) Note : Commission paid to associates has been disclosed on payment basis towards the entire mobilisation introduced by the distributors (comprising of existing mobilisation and the new flow during the year). Whereas the details of business given indicates the gross mobilization (net of rejections, if any) during the corresponding period. Annexure IV Details of Movement in Unit Capital for the year ended March 31, 2018 Scheme Opening Balance Subscription Redemption Closing Balance Principal Retirement Savings Fund Moderate Plan- Growth Option* 7,788, ,210 2,534,848 5,429,612 Principal Retirement Savings Fund Moderate Plan - Direct Growth Option* 3,482, , ,458 3,769,427 * Face Value is ` 10 per unit Nature of Association /Relation Details of Movement in Unit Capital for the year ended March 31, 2017 April 01, 2017/Launch date to March 31, 2018/Maturity date April 01, 2016/Launch date to March 31, 2017/Maturity date Value of transaction (` In Lakhs & % of total value of transaction of the fund) NIL Brokerage (` In Lakhs & % of total brokerage paid by the fund) Value of transaction (` In Lakhs & % of total value of transaction of the fund) Brokerage (` In Lakhs & % of total brokerage paid by the fund) Scheme Opening Balance Subscription Redemption Closing Balance Principal Retirement Savings Fund Moderate Plan- Growth Option* 25,237, ,195 17,621,174 7,788,252 Principal Retirement Savings Fund Moderate Plan - Direct Growth Option* 13,113, ,909 9,775,314 3,482,481 * Face Value is ` 10 per unit For B S R & Co. LLP For and on behalf of Principal Pnb Asset For and on behalf of Principal Chartered Accountants Management Company Private Limited Trustee Company Private Limited Firm's Registration No: W/W Sd/- Sd/- Sd/- Sd/- Sd/- Milind Ranade M. M. Chitale Lalit Vij V. S. Mathur H. M. Singh Partner Chairman Managing Director Chairman Director Membership No Place : Mumbai Date : July 06, 2018 Sd/- P.V.K. Mohan Fund Manager 6

7 Particulars KEY STATISTICS FOR THE YEAR ENDED 31 MARCH 2018 PRINCIPAL RETIREMENT SAVINGS FUND - MODERATE PLAN (Erstwhile known as Principal Asset Allocation Fund of Funds - Moderate Plan) March 31, 2018 (`) Regular Plan Growth Option March 31, 2017 (`) March 31, 2018 (`) Direct Plan Growth Option March 31, 2017 (`) 1. NAV per unit ( `): Open High Low End March 31, 2018 March 31, Closing Assets Under Management (` in Lakhs) Average (AAuM) Gross income as % of AAuM 4.81% 3.58% 4. Expense Ratio: a. Total Expense as % of AAuM (plan wise) - Regular plan 0.93% 0.85% - Direct plan 0.24% 0.20% b. Management Fee as % of AAuM (plan wise) - Regular plan 0.16% 0.12% - Direct plan 0.16% 0.12% 2 5. Net Income as a percentage of AAuM 4.14% 2.94% 3 6. Portfolio turnover ratio Total Net Dividend per unit distributed during the year / period (plan wise) March 31, March 31, March 31, March 31, Individual/HUF Others Returns (%)* March 31, 2018 March 31, 2017 March 31, 2018 March 31, 2017 a. Last One Year Benchmark b. Since Inception Benchmark Benchmark 60% CRISIL Short Term Bond Fund Index & 40% Nifty 50 Index** Past performance may or may not be sustained in the future *NAV of growth option is considered for computation of returns without considering load. Returns are calculated on the basis of CAGR. For computation of since inception returns the allotment NAV has been taken as ` 10 Performance figures have been computed based on the last declared NAV. Returns have been calculated based on NAV of Growth option, wherever applicable. ** The performance of all the schemes of Principal Mutual Fund have been benchmarked to the Total Return Index variant (wherever available) of respective benchmark index, as against the Price Return variant of respective benchmark Index. - indicated NIL 1. Gross income = amount against (A) in the Revenue account i.e. Income. 2. Net income = amount against (C) in the Revenue account i.e. NET REALISED GAINS / (LOSSES) FOR THE YEAR / PERIOD 3. Portfolio Turnover = Lower of sales or purchase divided by the Average AuM for the year/period. Annexure I to the Trustee Report : Redressal of Complaints received against Mutual Funds (MFs) during Total Number of Folios : 5,13,140 Complaint Type of Complaint # (a) No. of (b) No. of Action on (a) and (b) Code complaints complaints Resolved Non Pending pending at the received Actionable* beginning of during the Within Beyond the year Total year Total 30 days days days 180 days months months months months I A Non receipt of Dividend on Units I B Interest on delay payment of dividend I C Non receipt of Redemption Proceeds I D Interest on delay payment of redemption II A Non receipt of Statement of Account/Unit Certificate II B Discrepancy in Statement of Account II C Non receipt of Annual Report/Abridged Summary III A Wrong switch between Schemes III B Unauthorized switch between Schemes III C Deviation from Schemes attributes III D Wrong or excess charges/load III E Non updation of changes viz. address, PAN, bank details, nomination, etc IV Others Total # Notes: including against its authorised persons/distributors/employees etc. *Non actionable means the compliants that are incomplete/outside the scope of Mutual Fund Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 7

8 BOOK POST If undelivered, please return to: Principal Pnb Asset Management Company Pvt. Ltd., Exchange Plaza, 'B' wing, Ground Floor, NSE Building, Bandra Kurla Complex, Bandra (East), Mumbai