Mafatlal Cetre, 10th Floor, Narima Poit, Mumbai - 400 021 CIN: U65991MH1996PTC100444 Tel.: 91-22 66578000 Fax: 91-22 66578181 www.dspblackrock.com Jauary 8, 2018 Dear Uit Holder, Sub: Chage i Fudametal Attributes of DSP BlackRock Moey Maager Fud ( Scheme Thak you for ivestig i DSP BlackRock Mutual Fud. We appreciate your trust i us. The Scheme is a ope eded icome scheme of DSP BlackRock Mutual Fud ( Fud. Securities ad Exchage Board of Idia ( SEBI vide its Circular SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017 (Circular issued directios for Categorizatio ad Ratioalizatio of all the Mutual Fud Schemes i order to brig about uiformity i the practice across Mutual Fuds ad to stadardize the scheme categories ad characteristics of each category. I this regard, i order to stadardize our schemes i lie with the categories as prescribed by SEBI i the said circular, certai chages eeds to be carried out i the features of the Scheme. Such chages shall result i chage i the fudametal attribute of the Scheme, which will attract compliace of Regulatio 18 (15A of the SEBI (Mutual Fud Regulatios, 1996 (MF Regulatios read alogwith Circular. DSP BlackRock Trustee Compay Pvt. Ltd., Trustee to the Fud, has approved the followig chages to the existig features/provisios of the Scheme: Sr. No. Particulars Existig Proposed 1. Type of Scheme A Ope eded Icome Scheme A ope eded ultra-short term debt scheme ivestig i debt ad moey market securities such that the Macaulay duratio of the portfolio is betwee 3 moths ad 6 moths (please refer page o. uder the sectio Where will the Scheme ivest? for details o Macaulay s Duratio 2 Asset Allocatio Uder ormal circumstaces, the asset allocatio of each of the Scheme will be as follows: Uder ormal circumstaces, the asset allocatio of the Scheme will be as follows: Istrumets Moey market securities ad/or debt securities* with residual maturity of less tha or equal to 6 moths Moey market ad/or debt securities* with residual maturity of greater tha 6 moths Idicative allocatios (% of total assets Miimum Maximum Risk Profile 80% 100% Low 0% 20% Low to Medium *Debt securities may iclude securitised debts up to 50% of the et assets. The weighted average maturity of the Scheme will be less tha or equal to 6 moths. The weighted average maturity will be reckoed o: (a Maturity date for fixed rate securities (b Iterest reset date or repricig date for floatig rate securities The cumulative gross exposure through debt securities, moey market securities/ istrumets ad derivatives will ot exceed 100% of the et assets of the Scheme. The Scheme shall ot ivest i foreig debt securities. The Scheme will participate i repo of moey market ad corporate debt securities. The Scheme will ot egage i short sellig of securities ad securities ledig ad borrowig. The Scheme may ivest i derivatives upto 100% of et assets. Pedig deploymet of fuds of the Scheme, the AMC may ivest fuds of the Scheme i short-term deposits of scheduled commercial baks, subject to the followig coditios: Istrumets Debt* ad Moey market securities Idicative allocatios (% of total assets Miimum Maximum Risk Profile 0% 100% Low to Medium *Debt securities may iclude securitised debts up to 50% of the et assets. The Scheme will ivest i Debt ad Moey Market istrumets such that the Macaulay duratio of the portfolio is betwee 3 moths ad 6 moths. The cumulative gross exposure through debt securities, moey market securities/ istrumets ad derivatives will ot exceed 100% of the et assets of the Scheme. The Scheme shall ot ivest i foreig debt securities. The Scheme will participate i repo of moey market ad corporate debt securities. The Scheme will ot egage i short sellig of securities ad securities ledig ad borrowig. The Scheme may ivest i derivatives upto 100% of et assets. Pedig deploymet of fuds of the Scheme, the AMC may ivest fuds of the Scheme i short-term deposits of scheduled commercial baks, subject to the followig coditios: Page 1 of 8
(i Short Term for such parkig of fuds by mutual fuds shall be treated as a period ot exceedig 91 days. (ii Such short term deposits shall be held i the ame of the Scheme (iii The Scheme shall ot park more tha 15% of its et assets i the short term deposit(s of all the scheduled commercial baks put together. However, it may be raised to 20% with the prior approval of the Trustee. Also, parkig of fuds i short term deposits of associate ad sposor scheduled commercial baks together shall ot exceed 20% of total deploymet by the Mutual Fud i short term deposits. (iv The Scheme shall ot park more tha 10% of its et assets i short term deposit(s with ay oe scheduled commercial bak icludig its subsidiaries. (v The Trustee shall esure that the fuds of the Scheme are ot parked i the short term deposits of a bak which has ivested i the Scheme. (vi AMC will ot charge ay ivestmet maagemet ad advisory fees for parkig of fuds i short term deposits of scheduled commercial baks. I the evet of ay deviatios below the miimum limits or beyod the maximum limits as specified i the sectio, C. How will the Schemes allocate their assets? ad subject to the otes metioed therei, the Ivestmet Maager shall rebalace the portfolio withi 30 days from the date of said deviatio. Where the portfolio is ot rebalaced withi 30 Days, justificatio for the same shall be placed before the Ivestmet Committee ad reasos for the same shall be recorded i writig. The Ivestmet Committee shall the decide o the course of actio. However, at all times the portfolio will adhere to the overall ivestmet objectives of the Schemes. Such chages i the ivestmet patter will be for a short term ad for defesive cosideratios ad the itetio beig at all times to seek to protect the iterests of the Uit Holders (i Short Term for such parkig of fuds by mutual fuds shall be treated as a period ot exceedig 91 days. (ii Such short term deposits shall be held i the ame of the Scheme (iii The Scheme shall ot park more tha 15% of its et assets i the short term deposit(s of all the scheduled commercial baks put together. However, it may be raised to 20% with the prior approval of the Trustee. Also, parkig of fuds i short term deposits of associate ad sposor scheduled commercial baks together shall ot exceed 20% of total deploymet by the Mutual Fud i short term deposits. (iv The Scheme shall ot park more tha 10% of its et assets i short term deposit(s with ay oe scheduled commercial bak icludig its subsidiaries. (v The Trustee shall esure that the fuds of the Scheme are ot parked i the short term deposits of a bak which has ivested i the Scheme. (vi AMC will ot charge ay ivestmet maagemet ad advisory fees for parkig of fuds i short term deposits of scheduled commercial baks. I the evet of ay deviatios, the Ivestmet Maager shall rebalace the portfolio withi 30 days from the date of said deviatio. Where the portfolio is ot rebalaced withi 30 Days, justificatio for the same shall be placed before the Ivestmet Committee ad reasos for the same shall be recorded i writig. The Ivestmet Committee shall the decide o the course of actio. However, at all times the portfolio will adhere to the overall ivestmet objectives of the Schemes. Such chages i the ivestmet patter will be for a short term ad for defesive cosideratios ad the itetio beig at all times to seek to protect the iterests of the Uit Holders Cocept of Macaulay Duratio I the bod market, securities are commoly referred to by their maturities. While this is a useful bechmark, it is deficiet, because it measures oly whe the fial cash flow is paid ad igores all of the iterim flows. Duratio was first described by Frederick Macaulay i 1938. I the last 50 years, it has become oe of the most commoly used tools for fixed icome portfolio maagers. Macaulay s duratio of a fixed icome security is the weighted average life of the security, where weights are give to preset value of each cashflows. It is a measure of sesitivity to iterest rate chages i.e. it relates the percet chage i the price of a cash flow to the percet chage i the yield to maturity. Fixed icome securities with higher duratio have higher iterest rate sesitivity i.e. the chages i price of higher duratio bods are higher as compared to lower duratio oes. A zero coupo bod is oe which does ot pay ay iterest ad all paymets are received at maturity. For a zero coupo bod, the duratio is same as residual maturity. The formula for Macaulay s Duratio is as follows: Macaulay's Duratio t1 * = (1 + t * + 1 ^ t 2 1 1 1 ^ t1 + r1 2 ^ t 2 2 2 ^ t 2 2 + t3 * (1 + 3 ^ t 3 + r3 3 + ^ t 3 3 +... + t *... + ^ t ^ t I other words, Macaulay s Duratio ca be expressed as: Macaulay' s Duratio i= 1 = t * i= 1 ^ t ^ t Please ote that the deomiator is also the formula for Preset Value of cash flows of a security i.e. Price of the Bod. where t i is time i years at poit i i is the Cash Flow at time, t i r i is the iterest rate used for discoutig cash flow at time, t i Page 2 of 8
3 Where will the Scheme ivest? Refer existig disclosure o example o Iterest Rate Futures Aother measure of iterest rate risk for securities ad other iterest bearig istrumets is Modified Duratio. With a slight modificatio, Macaulay s Duratio is coverted ito Modified Duratio; it provides a good estimate of the volatility or sesitivity of the market value of a bod portfolio to chages i iterest rates. The formula for Modified Duratio is: Macaulay' s Duratio Modified Duratio = YTM [1 + ] where, YTM = Yield to maturity = umber of cash flows i a year Chage i Price of Bod = -Modified Duratio *bp Modified Duratio assumes that the price chages are liear with respect to chages i the yield to maturity. However the true relatioship betwee the bod s price ad the yield to maturity is ot liear. The existig disclosure o example o Iterest Rate Futures will be replaced as uder: Iterest Rate Futures A Iterest Rate Futures ( IRF cotract is a agreemet to buy or sell a debt istrumet at a specified future date at a price that is fixed today. The uderlyig security for Iterest Rate Futures is either Govermet Bod or T-Bill. Iterest Rate Futures are Exchage traded ad stadardized cotracts based o 6 year, 10 year ad 13 year Govermet of Idia Security ad 91-day Govermet of Idia Treasury Bill (91DTB. These future cotracts are cash settled. These istrumets ca be used for hedgig the uderlyig cash positios. The overall gross exposure for a fud is computed as sum of exposure to equity, cash, debt istrumets ad derivatives (other tha for hedgig purposes ad it should ot be more tha 100%. Derivative positio is cosidered to be for hedgig purposes oly if the followig coditios are met: 1. Perfect Hedgig - We hedge the uderlyig usig IRF cotract of same uderlyig 2. Imperfect hedgig the Uderlyig beig hedged ad the IRF cotract has a 90 day correlatio of closig prices of more tha 90%. I case of correlatio breakig at ay time the derivative positio would be couted as a exposure. SEBI allows maximum of 20% imperfect hedgig. For example, assume a portfolio comprisig the followig structure: Security Amout (crs Price (Rs IGB 6.79% 2027 100 100.40 IGB 6.79% 2029 50 98.35 IGB 7.72% 2025 25 104.55 Cash 25 Total 200 Assumig the fud maager iteds to hedge the portfolio usig IRF ad uses cotracts o IGB 6.79% 2027 as it is most liquid. Maximum imperfect hedgig allowed, based o SEBI limit of 20% for the above fud is 200*20% = 40 crs Maximum perfect hedgig usig 6.79% 2027 is 100 crs (as amout of 6.79% 2027 i the fud is 100 crs Total hedge the fud ca do = 100 crs + 40 crs =140 crs Assumig the 90 day historical correlatio betwee the istrumets i the portfolio are as follows 90 day historical IGB 6.79% 2027 IGB 6.79% 2029 IGB 7.72% 2025 correlatio IGB 6.79% 2027 1 0.95 0.80 IGB 6.79% 2029 0.95 1 0.75 IGB 7.72% 2025 0.80 0.75 1 Page 3 of 8
Give that we are usig IRF o 6.79% 2027, we ca hedge 6.79% 2029 usig IRFs as correlatio is more tha 90% upto 40 crs (based o the 20% limit of imperfect hedgig. Sice oe cotract of IRF has a otioal of Rs. 2 lakhs, i this example the fud maager sells Rs. 140 crores/2 lakhs = 7000 cotracts, to hedge his positio. Hece after hedgig the fud is as show below: Security Amout (crs Price (Rs Commets IGB 6.79% 2027 100 100.40 100% hedged Perfect hedgig IGB 6.79% 2029 50 98.35 40% hedged Imperfect hedgig IGB 7.72% 2025 25 104.55 Uhedged Cash 25 Uhedged IRF 6.79% 2027 140 100.35 Total 200 At maturity of the Iterest Rate Futures Case 1: bods close higher tha at the time the hedge was etered ito Security Amout (crs Price before hedgig(rs Price o maturity of hedge (Rs Gai Net Gai (lakhs IGB 100 100.4 100.5 0.1 10.00 6.79% 2027 IGB 50 98.35 98.5 0.15 7.50 6.79% 2029 IGB 25 104.55 104.6 0.05 1.25 7.72% 2025 Cash 25 - Without 18.75 IRF IRF 140 100.35 100.5-0.15 (21.00 6.79% 2027 Total With IRF 200 (2.25 Case 2: bods close lower tha at the time the hedge was etered ito Security Amout (crs Price before hedgig Price o maturity of hedge (Rs Gai Net Gai (lakhs IGB 6.79% 100 100.4 100.3-0.1 (10.00 2027 IGB 6.79% 50 98.35 98.23-0.12 (6.00 2029 IGB 7.72% 25 104.55 104.5-0.05 (1.25 2025 Cash 25 - Without IRF (17.25 IRF 6.79% 140 100.35 100.3 0.05 7.00 2027 Total with IRF 200 (10.25 As ca be see i the cases above, i case yields move higher, IRFs help i reducig the loss to the fud. Page 4 of 8
4. Risk factors Refer existig disclosure i SID uder Sectio IV. A. Risk factors The followig shall be added uder Risk factors: Risk Factors Associated with Imperfect Hedgig usig Iterest Rate Futures 1. Basis Risk risk associated with divergece i the price movemet of the portfolio beig hedged ad the price movemet of the derivative servig as the hedge e.g. a loss (gai i the market value of bods i the portfolio (or the part thereof that is beig hedged, may be accompaied by a disproportioate gai (loss i the market value of the derivatives beig used to serve as the hedge. This imperfect correlatio betwee the two ivestmets creates the potetial for excess gais or losses i a hedgig strategy, thus addig risk to the positio. 2. Mispricig Risk, or improper valuatio market circumstaces may ecessitate uwidig the derivative positios at sub-optimal prices durig periods of market dislocatio triggered by cotagio or tumult e.g. if the expected upward trajectory of yields reverses course ad begis to spiral dowward, most participats with short Iterest Rate Futures positios are likely to seek a uwidig, leadig to a potetial amplificatio i the adverse price movemet, ad impact therefrom. 3. Correlatio weakeig, ad cosequet risk of regulatory breach SEBI regulatio madates a miimum correlatio criteria of 0.9 (calculated o a 90 day basis betwee the portfolio beig hedged ad the derivative servig as the hedge; i cases where this limit is breached (i.e. whe the 90-day correlatio falls below 0.9, a rebalacig period of 5 workig days has bee permitted. Iability to satisfy this requiremet withi the stipulated period due to difficulties i re-balacig would lead to a lapse of the exemptio i gross exposure computatio. The etire derivative exposure would the eed to be icluded i gross exposure, which may result i gross exposure i excess of 100% of et asset value; leverage is ot permitted as per SEBI guidelies. 5 Who will maage the Scheme? Mr. Kedar Karik & Mr. Laukik Bagwe Mr. Kedar Karik & Mr. Rahul Vekaria 6 NAV as o December 29, 2017 (i Rs. 7. No. of folios as December 31, 2017 8 AUM as o December 31, 2017 (i crores DSP BlackRock Moey Maager Fud - Direct Pla - Daily Divided -1004.2306 DSP BlackRock Moey Maager Fud - Direct Pla Divided - 1064.0922 DSP BlackRock Moey Maager Fud - Direct Pla Growth - 2345.7530 DSP BlackRock Moey Maager Fud - Direct Pla - Mothly Divided - 1043.9352 DSP BlackRock Moey Maager Fud - Direct Pla - Weekly Divided - 1004.3400 DSP BlackRock Moey Maager Fud - Regular Daily Divided - 1004.2306 DSP BlackRock Moey Maager Fud - Regular Divided - 1059.3790 DSP BlackRock Moey Maager Fud - Regular Growth - 2277.6818 DSP BlackRock Moey Maager Fud - Regular Pla - Mothly Divided - 1040.9423 DSP BlackRock Moey Maager Fud - Regular Weekly Divided - 1004.3191 Direct Pla: 4970 Regular Pla: 55207 Direct Pla: 1470.71 Regular Pla: 2392.83 Apart from above, there will be o chage i ay other features of the Scheme. Page 5 of 8
EXIT OPTION As the above proposal is a chage i Fudametal Attributes of the Scheme, i accordace with Regulatio 18(15A of the SEBI (Mutual Fuds Regulatios, 1996 read alogwith SEBI Circular o. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017, the existig uitholders uder the Scheme are hereby give a optio to exit, i.e. either redeem their ivestmets or switch their ivestmets to ay other scheme of the Fud, withi the 30 days exit period startig from Jauary 16, 2018 till February 14, 2018 (both days iclusive ad upto 3.00 pm o February 14, 2018 at applicable NAV, without paymet of ay exit load, by filig up the requisite trasactio slip ad submittig the same at ay of our desigated Official Poits of Acceptace (list available o www.dspblackrock.com. If you have o objectio to the proposed chage, o actio eeds to be take ad it would be deemed that you have coseted to the above chage. The offer to exit from the Scheme is optioal, at the discretio of the Uit Holder, ad ot compulsory. The Scheme will adopt the proposed chage with effect from February 14, 2018. Thus, all the applicatios for redemptios/switch-outs received uder the Scheme shall be processed at applicable NAV of the day of receipt of such redemptio / switch request, without paymet of ay exit load, provided the same is received durig the exit period of 30 days metioed above. Uit Holders who have pledged their uits will eed to procure a release of pledge prior to submittig their redemptio request. I case a lie is marked o uits held by a uit holder or uits have bee froze/locked pursuat to a order of a govermetal authority or a court, redemptio/switch-out ca be executed oly after the lie/order is vacated/revoked withi the period specified above. Uitholders should esure that their chage i address or pay-out bak details are updated i records of DSP BlackRock Mutual Fud as required by them, prior to exercisig the exit optio for redemptio of uits. The redemptio proceeds shall be dispatched withi 10 busiess days of receipt of valid redemptio request to those uitholders who choose to exercise the exit optio. TAX IMPLICATIONS Redemptio / switch-out of uits from the Scheme, durig the exit period, may etail capital gai/loss i the hads of the uitholder. Similarly, i case of NRI ivestors, TDS shall be deducted i accordace with the applicable Tax laws, upo exercise of exit optio ad the same would be required to be bore by such ivestor oly. I view of idividual ature of tax implicatios, uitholders are advised to cosult their tax advisors. For details o Tax implicatios, please refer to SID of the Scheme ad Statemet of Additioal Iformatio available o our website www.dspblackrock.com. We look forward to your cotiued support. Yours sicerely, For ad o behalf of DSP BlackRock Trustee Compay Pvt. Ltd. Sd/- Director Page 6 of 8
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This page is left Itetioally blak If udelivered, please retur to: DSP BlackRock Mutual Fud Computer Age Maagemet Services Pvt Ltd Uttam Buildig, 2d Floor, New No 24/22 & Old No 38 ad 39 Whites Road, Royapettah, Cheai 600 014. Page 8 of 8