TERM FUND. An Open Ended Debt Scheme

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1 KOTAK MEDIUM TERM FUND An Open Ended Debt Scheme is suitable for investors who are seeking*: Income over a medium term investment horizon Investment in debt, government securities & money market instruments with a portfolio weighted average maturity between 3-7 years Low risk (Blue) * Investors should consult their financial advisors if in doubt about whether the product is suitable for them. Note: Risk may be represented as: Investors understand that their principal will be at Low Risk (Blue) Medium Risk (Yellow) High Risk (Brown)

2 What you will find here MR. CONSERVATIVE & HIS STORY KOTAK MEDIUM TERM FUND ABOUT THE SCHEME WHERE DOES IT FIT IN? HOW WILL THE SCHEME INVEST? SCENARIO ANALYSIS SCHEME DETAILS 2

3 Hello I am Mr. Conservative I LIKE Planning for a holiday 1 year in advance Drinking boiled water Carrying 3 pens always Paneer chilly without chilly 3

4 Mr. Conservative & his current investment options Options Risk Returns Investment Approach Volatility Fixed Deposit Credit Risk Fixed at the time of investment Fixed Interest rate Nil of the Bank* Fixed Maturity Low Yield levels prevalent for 2-3 Accrual Approach/ Low Plans year papers minus the expense accumulate the portfolio yield Income Funds Relatively Depends on duration of the Active Approach / increase or High High portfolio & interest rate decrease duration depending movement in the economy on the interest rate outlook *FDs are insured by RBI to the tune of Rs. 1 Lakh I have some surplus money which I want invest for 2-3 years!!! But don t want to take much risk. What do I do in the current debt market scenario? 4

5 So what is Mr Conservative thinking? hould I Just invest in an 2-3 year FMP and lock in the high yield levels Scurrently in the market? But then I may lose out on mark to market gains if interest rates ease in 2 years hould I Just Invest in an income fund and hope to gain Sfrom an expected ease in interest rates in 2 years? But its more volatile & risky Mr. Conservative Investor ant I invest in a fund which has moderate volatility, has an accrual approach and Cwould have the potential to benefit if interest rates ease 5

6 The answer to Mr. Conservative Accrual Approach Accumulating the yields in the portfolio Potential for Mark to Market gains If yields ease in the future A scheme that focuses on accrual approach. It invests in d e b t & m o n e y m a r k e t instruments at the current yield levels to accumulate the yields in the portfolio In addition to accrual, the portfolio would have the potential to benefit from capital gains if interest rates ease in the future 6

7 The Kotak Medium term Fund is an open ended debt scheme which seeks to generate regular income and capital appreciation by investing in a portfolio of medium term debt & money market instruments 7

8 Where does it fit in? Suitable for conservative investors who seek regular income over a medium term horizon Ideal investment horizon 2 years & above Risk (Interest rate sensitivity/credit risk Income & Gilt Scheme Short Term Debt Scheme Ultra Short Term Scheme Liquid Scheme Return Potential 8

9 How will the scheme invest? The fund would invest in medium term debt & money market securities so as to generate regular income and capital appreciation. The fund will optimize returns by keeping its weighted average maturity anywhere between 3 years & 7 years. The fund seeks to generate income through investments in a range of debt & money market instruments with a view to maximize income while maintaining an optimum balance of yield, safety & liquidity 9

10 Scenario Analysis The below table is to understand the impact of a change in yield levels on a hypothetical fixed income portfolio Assumed Fixed Income portfolio with an YTM of 11.5% (YTM post expense of 10%) Average maturity of 5 years and modified duration of 3.5 Expense p.a. assumed at 1.5% Holding period of 2 years Assumed Investment Accumulation of MTM gain/ Amount Annualised portfolio Yield levels yield after loss after after return after after 2 years 2 years 2 years 2 years 2 years Rs. Rs. Rs. Rs. 9.5% % 10.0% % 10.5% % 11.0% % 11.5% % 12.0% % 12.5% % Even in the case of MTM losses due to yields moving up, a portfolio may still have positive returns in the medium to long term because it continues to accrue the portfolio yield The above calculation is for illustrative purpose only and for getting a better perspective of the yield fluctuations on the performance of a fixed income portfolio. This should not be construed as any kind of assurance or confirmation about the expected scheme returns. 10

11 Scheme Details FEATURE Load structure DETAILS Entry Load: Exit load: NIL For exit on or before 18 months from date of allotment of units: 2% For exit after 18 months from the date of allotment of units: Nil Benchmark Plans Available Options Available Minimum Application Amount CRISIL Composite Bond Fund Index Regular Plan and Direct Plan. The portfolio of both plans will be unsegregated Growth Quarterly Dividend (Payout and Reinvestment Option) Annual Dividend (Payout and Reinvestment Option) Initial Purchase (Non-SIP) - Rs. 5,000/- and in multiples of Rs 1 for purchases and of Re 0.01 for switches. Additional Purchase (Non-SIP) - Rs. 1000/- and in multiples of Rs 1 for purchases and of Re 0.01 for switches SIP purchase - Rs. 1000/- (Subject to a minimum of 6 SIP installments of Rs. 1000/- each) Asset Allocation under normal circumstances Investments Indicative Allocation Risk Profile Debt Instruments 60% - 100% Low Medium Government Securities 0% - 40% Low Medium Money Market Instruments 0% - 40% Low 11

12 Thank you. Says Mr Conservative. Today while I sit down and have my paneer chilly without chilly, I am writing a cheque for my investment. Are You? 12

13 For more details, Contact your investment advisor today. Toll free number Visit: assetmanagement.kotak.com Mutual Fund investments are subject to market risks, read all scheme related documents carefully. 13