INTERNSHIP REPORT ON IDFC MUTUAL FUNDS Submitted in partial fulfillment of the requirements for the award of the Degree

of Bachelor of Business Management Of Christ University By Dhruv Garg (Reg. No. 1011205) Under the guidance of Prof. Malbika P

Department of Management Studies CHRIST UNIVERSITY BANGALORE 2012

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DECLARATION

I, Dhruv Garg, hereby declare that the internship report on IDFC MUTUAL FUNDS submitted to Christ University, in partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Management is a record of original and independent research work done by us during 2011 2012 under the supervision and guidance of Prof Malbika P, Department of Management Studies and it has not formed the basis for the award of any Degree/ Diploma/ Associate ship/ Fellowship or other similar title of recognition to any candidate of any University.

Date:

Dhruv Garg

CERTIFICATE

This is to certify that the internship report on IDFC MUTUAL FUNDS submitted to Christ University, in partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Management, is a record of original research work done by Dhruv Garg, during the period 2012 2013 of their study in the Department of Management Studies at Christ University, Bangalore, under my supervision and guidance and the report has not formed the basis for the award of any Degree/ Diploma/ Associate ship/ Fellowship or other similar title of recognition to any candidate of any University.

Date:

Prof. Malbika P

ACKNOWLEDGEMENT

I would like to express our profound gratitude to all those who have been instrumental in the preparation of this Internship Report. I wish to place on records, our deep gratitude to our project guide, Prof. Malbika P, for guiding us through this project with valuable and timely advice. I would like to thank Dr. (Fr). Thomas. C. Mathew, Vice Chancellor and Dr. Jain Mathew, HOD, for their encouragement. I would also like to thank my internship guide Mr Manav Duggal, for his continuous support and guidance. Last but not the least, I would like to thank my parents and friends for their constant help and support.

Dhruv Garg

TABLE OF CONTENTS

Serial Number
1

Topic
Introduction to Mutual Fund Industry Brief History of the Parent company-IDFC Brief History about IDFC Mutual Funds Product Line Business Volume Main Offices of IDFC Mutual Funds Marketing Strategy Promotional Strategy Distributional Strategy

Page number
7

18

4 5 6

23

31

7 8 9

36 54

10 11 12

IDFC Top Competitors Conclusion & Recommendations References

55 57 59

Introduction of the mutual fund industry

The bookish definition of mutual funds is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short term money instruments and/or other securities. What is a Mutual Fund?

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

History of the Indian Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India . In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
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Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993 The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

Working of Mutual Fund

Regulatory Authorities To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.
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According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

Diversification Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks. Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, emerging or mid size companies, low-grade corporate bonds, etc). Types of Mutual Funds Schemes in India Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

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Overview of existing schemes existed in mutual fund category: BY STRUCTURE 1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unitholder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. 3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

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The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. Overview of existing schemes existed in mutual fund category: BY NATURE 1. Equity fund:
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These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs)
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and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. By investment objective:

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

Income Schemes:Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by
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periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Other schemes

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

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Types of returns There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Pros & cons of investing in mutual funds: For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund. Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for

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their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis. Disadvantages of Investing Mutual Funds: 1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks. 2. Costs The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

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IDFC
IDFC has been an integral part of the country's development story since 1997, when the company was formed with the specific mandate to build the nation. Since 2005, they have built on their vision to be the 'one firm' that looks after the diverse needs of infrastructure development. Whether it is financial intermediation for infrastructure projects and services, adding value through innovative products to the infrastructure value chain or asset maintenance of existing infrastructure projects, they focus on supporting companies to get the best return on investments. Their growth has been driven by the substantial investment requirements of the infrastructure sector in India combined with the growth in the Indian economy over the last several years. The ability to tap global as well as Indian financial resources makes them the acknowledged experts in infrastructure finance. This, coupled with a strong synergy between the company management and key shareholders, and a dedicated team of over 550 people makes them an organization that is committed to improving the face of India's infrastructure sector. At IDFC, our commitment to building India's infrastructure goes beyond business. They work closely with government entities and regulators to advise and assist them in formulating policy and regulatory frameworks that support private investment and public-private partnerships in infrastructure development.

Mission To be the leading knowledge-driven financial services platform, creating enduring value, promoting infrastructure and nation building, in India and beyond Values

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Integrity IDFC engages in honest and straight forward communication with all stakeholders and adhere to the highest ethical standards in everything They do. Our reputation is paramount. They will act in the best interests of our clients but without compromising their values and principles. Nurturing Humility IDFC is modest enough to know that they can be wrong and smart enough to learn from their mistakes. They treat everyone as an equal no task is beneath them. Stewardship IDFC acts as custodians of our firm and accept the charge of passing on a better business than the one they inherited. Their actions will be guided by rules and ethical principles creating long term value with due care for society and environment. Partnership IDFC emphasizes a ONE FIRM culture. They foster mutual respect and proactively collaborate with each other, with clients, and with partners keeping just one thing in mind to be the best at what they do. Initiative IDFC encourages new ideas and independent action within a culture that fosters sharing knowledge and information, critical debate and constructive dissent. Responsibility IDFC takes complete ownership for our actions, emphasizing a results-oriented and problemsolving approach to business. They are personally accountable to the communities that they serve. Excellence IDFC constantly strive to raise industry standards, be the employer of choice, and work to be the best rather than the biggest. Dedication to excellence results in superior execution and generates creative, imaginative and innovative outcomes. History & Timelines The Group was born out of the need for a specialized financial intermediary for infrastructure. Incorporated on January 30, 1997 in Chennai, the company was set up on the recommendations

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of the 'Expert Group on Commercialisation of Infrastructure Projects' under the Chairmanship of Dr. Rakesh Mohan. Since then, they have been a leading catalyst for providing private sector infrastructure development in India. They focus on developing and leveraging our knowledge base in the infrastructure space to devise and provide appropriate financing solutions to our customers. Our strong capitalization reflects the crucial role that they play in infrastructure development.

1997

IDFC is founded on the recommendations of the 'Expert Group on Commercialization of Infrastructure Projects' under the Chairmanship of Dr. Rakesh Mohan. The group is conceptualized to channel private capital into commercially viable projects.

1999

Is notified as a Public Financial Institution under Section 4A of the Companies Act.

2000

Gets registered with SEBI as a merchant banker.

2001

Gets registered with SEBI as a debenture trustee. Sets up Infrastructure Development Corporation (Karnataka) Limited (iDeCK).

2002

Sets up IDFC Private Equity as an investment manager for private equity funds. Sets up Uttaranchal Infrastructure Development Company Limited (UDEC).

2003

Successfully raises $200 million for the India Development Fund, the first infrastructurefocused private equity fund.
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2005

Becomes a public company after listing its shares on NSE and BSE.

2006

Successfully raises $450 million for its second infrastructure - focused private equity fund.

2007

Raises Rs. 2,100 crore through QIP. Sets up IDFC Project Equity Company Limited as a specialized project finance entity focused on developing Indian infrastructure projects. Establishes IDFC Projects to develop, implement, own and operate projects in the infrastructure space.

2008

Successfully raises $930 million through the India Infrastructure Fund to invest equity capital in infrastructure projects and $700 million in its third private equity fund. Enters into asset management by acquiring the AMC business of Standard Chartered Bank in India. Incorporates IDFC Capital (Singapore) Pte Limited, for an emerging markets private equity fund-of-funds business.

2009

The company's loan book crosses Rs. 20,000 crore with more than 200 infrastructure projects funded. Establishes IDFC Foundation to focus on capacity building, policy advisory and sustainability initiatives. Becomes part of Nifty 50.

2010

Raises additional capital of Rs. 26,542 million through a Qualified Institution Placement at Rs.168.25 per share and CCPS at a conversion price of Rs.176 per share. Government shareholding reduces to 18% Classified as an Infrastructure Finance Company (IFC) Raises Rs. 480 crores in the first tranche of its Long Term Infrastructure Bonds

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IDFC mutual fund

Brief history IDFC is a leading private sector diversified financial institution established by a consortium of strong global and local institutions with the support and sponsorship of the Government of India. A majority of IDFCs shareholding (67% as of March 31, 2008) is held by reputed global stalwarts that include respectable names like Government of India, International Finance Corporation (IFC) - a member of the World Bank Group, Government of Singapore, AIG, Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan among others. The best Indian financial institutions such as HDFC, LIC, SBI, and IDBI are owners in IDFC, making it an institution of high repute and standing. Sponsors IDFC Mutual Fund is sponsored by Infrastructure Development Finance Company Limited (IDFC). The sponsor is the settler of the Mutual Fund Trust. The sponsor has entrusted a sum of Rs. 30,000 to the Trustees as its contribution towards the corpus of the Mutual Fund. IDFC is a leading diversified financial institution providing a wide range of financing products and fee-based services with infrastructure as its focus area. IDFCs key businesses include project finance, investment banking, asset management, principal investments and advisory services. IDFC also works closely with government entities and regulators in India to advise and assist in formulating policy and regulatory frameworks that support private investment and public-private partnerships in infrastructure development. IDFC was established in 1997 as a private sector enterprise by a consortium of public and private investors and operates as a professionally managed commercial entity. IDFC listed its equity shares in India pursuant to an initial public offering in August 2005. As on March 31, 2011, IDFCs shareholders included the Government of India 17.89%, FII/FDI 51.10% and public / others 31.01%. As on March 31, 2011, IDFC had an asset base of over USD 10.62billion, net worth of USD 2.48billion and market capitalization of Rs 5.07billion (calculate at USD = Rs. 44.5875.) Financial Performance of the Sponsor (past three years) (Rs. in crores): Particulars Net Worth Total Income Profit after tax Assets Under Management 31.03.11 11,070.15 4,560.35 1277.15 33076 31.03.10 6823.11 3597.11 1012.84 35408 31.03.09 6029.19 3322.70 735.91 24018

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IDFC MUTUAL FUNDS PRODUCT LINE

Product Line Equity Products Debt Products Hybrid Products

EQUITY PRODUCTS

IDFC Tax Advantage (ELSS) Fund IDFC Infrastructure Fund IDFC Strategic Sector 50-50 Equity Fund IDFC Classic Equity Fund IDFC Imperial Equity Fund IDFC Premier Equity Fund

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IDFC Arbitrage Fund IDFC India GDP Growth Fund IDFC Tax Saver (ELSS) Fund IDFC Sterling Equity (SEF) Fund IDFC Nifty Fund Scheme IDFC Arbitrage Plus Fund IDFC Equity Fund

IDFC Classic Equity Fund Are you looking for an investment instrument that can generate long-term capital growth from a diversified equity portfolio? Are you looking for an investment which is not restricted to any particular market sector or company size, thereby investing across all sectors without market capitalization bias covering large-cap, small-cap and mid-cap companies? If you are, IDFC Classic Equity Fund offers you a portfolio whose core is invested in fundamentally strong companies that may or may not be in current market favour. The remainder of the portfolio is invested in companies / sectors that attempt to capture an oncoming market bias ahead of the market rally. IDFC Imperial Equity Fund Are you a cautious / first time investor who seeks the security of a completely recognised portfolio of companies? Do you feel that companies having the potential to exhibit high growth outside India and establishing themselves as global players present a great investment opportunity? If you do, IDFC Imperial Equity Fund offers you an attractive investment solution as it focuses on outstanding and high quality Indian companies with proven track records and strong brands.

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IDFC Premier Equity Fund Where do we invest your money?

1. The money is invested in companies that are at an early stage in their life-cycle and are at the start of a period of high growth and profitability. 2. The investments will attempt to capture shifts in the business environment with regard to new business opportunities, new technologies, new trends, etc. 3. The fund has a bias towards a portfolio of companies which are going to undergo transformational changes in their business prospects. What fund strategies do we use? They rely predominantly on in-house primary research of companies in this portfolio. This requires meeting up with top management, employees, dealers, trade bodies, etc. Investing in infrastructure gives us an opportunity to benefit from the huge demand for infrastructure that exists today and will exist in the future. While they pay for use of infrastructure through toll, user taxes and charges, here is an opportunity to benefit from these collections by owning companies that are beneficiaries. Features The IDFC Infrastructure Fund invests in companies that create infrastructure as well as companies that support infrastructure, such as:

Roads, bridges, power, real estate and ports Supply of raw material to infrastructure companies viz. steel, cement, capital goods etc. Finance infrastructure companies Infrastructure design and engineering

IDFC India GDP Growth Fund Investment Objective The investment objective of the scheme is to seek to generate long-term capital appreciation by investing in Equity and Equity related instruments. The scheme aims to capture the growth in Indias Gross Domestic Product (GDP). The scheme would endeavor to represent the growth in GDP by capturing the growth in the constituents of the GDP. The scheme may also invest in debt and money market instruments. There is no assurance or guarantee that the objectives of the scheme will be realized and the scheme does not assure or guarantee any returns. The benchmark is BSE 500

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IDFC Sterling Equity (SEF) Fund Investment Objective The investment objective of the scheme is to seek to generate capital appreciation from a diversified portfolio of equity and equity related instruments. However, there is no assurance or guarantee that the objectives of the scheme will be realized. Investment Style The scheme will predominantly invest in Small and Midcap equity and equity related instruments. Small and Midcap equity and equity related instruments will be the stocks included in the CNX Midcap index or equity and equity related instruments of such companies which have a market capitalization lower than the highest components of CNX Midcap Index.

LIQUID/INCOME FUNDS Liquid Funds What are they? Income funds that invest in fixed Income instruments of very short maturity (less than one year). They have no exposure to equities and also have no mark to market* exposure. And are among the least risky type of funds. Our offerings in this category IDFC Cash Fund Short Term Income Funds Income funds that invest in fixed income instruments of higher maturity than liquid funds. They can have significant mark-tomarket* exposure and hence can face significant short term volatility. Long Term Income Funds Income funds that actively take a stance on interest rates and hence look to earn returns from interest income and capital gains/losses through mark to market *exposures.

IDFC Ultra Short term Fund

IDFC Super Saver Income FundInvestment Plan

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 IDFC Super Saver Income Fund-Short term Plan IDFC Super Saver Income FundMedium term IDFC Money Manager Fund Treasury Plan IDFC Government Securities FundShort term When to invest? Ensure stability in the principal amount Need to access this money in the very short term (varying from 1 day up to 90 days or even a year) Are looking for potentially principal better returns than a savings or current account Want potentially better returns than liquid funds. Need to access this money in the very short term. Best suited for an investment horizon of 60 to 120 days, however, investors can invest for higher tenures too if the interest rate scenario in the market is rising or volatile.

IDFC Dynamic Bond Fund IDFC Money Manager Fund Investment Plan IDFC Government Securities FundInvestment Plan IDFC Government Securities FundProvident Fund

Best suited for long term investors who seek to diversify their portfolio and are seeking to balance their equity exposure. Ideal investment horizon of more than 2

IDFC Super Saver Income Fund- Short Term IDFC Super Saver Income Fund- Short Term plan is a plan that typically invests in corporate bonds with high credit rating with a residual maturity between 6 months to 2 years with an average maturity of around 1 year. This fund makes its returns primarily from a mix of interest accrual and some amount of capital gains. Ideal Investment Horizon This plan is ideal for

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investors looking for stable income with an investment horizon of over 3 months or more. Asset Allocation Pattern

Type of Investments

Normal Asset Allocation (% of Net Assets) 0%-60%

Risk Profile

Debt instruments with maturity more than one year Debt and money market instruments with maturity less than one year

Low to Medium

40%-100%

Low

IDFC Super Saver Income fund- Medium Term plan IDFC Super Saver Income fund- Medium Term plan is a plan that typically invests in corporate bonds with high credit rating with a residual maturity between 6 months to 2 years with an average maturity of around 9 months. This fund makes its returns primarily from interest accrual. Ideal Investment Horizon This plan is ideal for investors looking for stable income with an investment horizon of over 6 months or more. Asset Allocation Pattern Type of Investments Normal Asset Allocation (% of Net Assets) 0%-75% Risk Profile

Debt instruments with maturity more than one year Debt and money market instruments with maturity less than one year

Low to Medium

25%-100%

Low

IDFC Dynamic Bond fund Is a fund that actively manages the interest rate risk of the portfolio. In a falling interest rate environment the fund manager would increase the interest rate risk and minimize it to money market fund levels in a bearish environment. The fund would typically be invested in government securities and money market instruments.
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It has the ability to mimic a Cash Fund when interest rates are rising thereby preserving capital and it can generate the attractive returns of an Income Fund when interest rates are declining. It is thus ideal for investors who are on the look out for extra returns with no exposure to equities in an otherwise benign interest rate scenario. Ideal Investment Horizon This plan is ideal for investors looking for stable income with an investment horizon of over 1 year or more. Asset Allocation Pattern Type of Investments Normal Asset Allocation (% of Net Assets) 10%-100% Risk Profile

Money market and Debentures with residual maturity of less than 1 year Debt instruments with maturity more than one year

Low to Medium

0%-90%

Low

IDFC Asset Allocation Fund IDFC Capital Protection Fund Series I IDFC Monthly Income Fund

IDFC Asset Allocation Fund The primary objective of Scheme is to generate capital appreciation through investment in different mutual fund schemes primarily local funds based on a defined asset allocation model. However, there can be no assurance that the investment objective of the scheme will be realized.

Investment Style The scheme will be a Fund of Fund scheme that can invest in a mix of ETFs, domestic and offshore Mutual Fund schemes. The FoF will use a multi-manager approach and can invest in
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schemes of IDFC MF as well as other mutual funds. The scheme will offer 3 different plans Conservative Asset Allocation plan (Conservative AA Plan), Moderate Asset Allocation plan (Moderate AA Plan) and Aggressive Asset Allocation plan (Aggressive AA plan) that will offer 3 different risk profiles for investors. Conservative AA Plan will target the lowest risk profile followed by Moderate AA Plan. Aggressive AA will be the highest risk profile asset allocation. The asset allocation under the scheme will be as follows: Conservative AA Plan:

Equity Funds Debt Funds Liquid Fund Alternate Money market securities

% to net assets 10 - 15 45 - 50 45 -50 0 0-15

Risk profile Low to Medium Low to Medium Low to Medium Low

Moderate AA Plan: Equity Funds Debt Funds Liquid Fund Alternate Money market securities % to net assets 25 - 30 60-70 0 -5 5 -10 0-15 Risk profile Medium Medium to High Low to Medium Low to medium Low

Aggressive AA Plan : Equity Funds Debt Funds Liquid Fund Alternate Money market securities % to net assets 45 - 50 35-45 0 -5 10 - 15 0-15 Risk profile High Medium Low to Medium Low to medium Low

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Business Volume
IDFC has a business volume of Rs 28,000 crores as of May 2012

IDFC AMC OFFICES

Ahmedabad Ground Floor, Zodiac Avenue, Opp. Mayors Bunglow, Near Law Garden, Ahmedabad - 380 006. Tel.: +91-79-64505881/ 5857. Amritsar 6-FUF, 4th Floor, Central Mall, 32, Mall Road, Amritsar - 143 001. Mobile: 09356126222, Tel.: +91-183-5030393 . Bangalore 6th Floor, East Wing, Raheja Towers, #26 & 27, M. G. Road, Bangalore - 560 001. Tel.: +91-80-66111504/ 05/ 06. Bhopal Plot No. 49, First Floor, Above Tata Capital Limited, M P Nagar, Zone 2, Bhopal [ M.P], Pin 462011 Bhubaneswar Shop No. 208, 2nd Floor, Janpath Tower, Ashok Nagar, Bhubaneswar - 751002. Chandigarh SCO 2475-76, 1st Floor, Sector 22, Chandigarh - 160 022. Tel.: +91-172-5071918/ 19/ 21/ 22, Fax: +91-172-5071918. Chennai KRM Tower, 8th floor, No. 1, Harrington Road, Chetpet, Chennai - 600 031. Tel.: +91-44-45644201/ 202. Cochin 39/3993 B2, Gr. Floor, Vantage Point, VRM Rd, Ravipuram, Cochin - 682 016. Tel: +91-484-3012639/ 4029291, Fax: +91-484-2358639. Coimbatore Red Rose Plaza, 509 H, II Floor, D. B. Road, R. S. Puram, Coimbatore - 641 002. Tel.: +91-422-2542645 , 2542678. Dehradun C/o. EBD BUSINESS CENTRE, Cubicle No. 3, 49, Rajpur Road, Dehradun - 248 001. Mobile.:
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+91-8859222287 Goa Advani Bussiness Centre, Neelkamal Arcade, A. B. Road, Panjim, Goa - 403 001.Tel.: +91-832-6650403 , Fax: +91-832-6650310. Mobile: 9823289903 .

+91-

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Jalandhar 1st floor, Satnam Complex, BMC Chowk, G.T.Road, Jalandhar-144001. Punjab-India. Tel.: 01815018264/ 01815061378/ 88. Jamshedpur Room No 111, Ist Floor, Yash Kamal Complex, Main Road, Bishtupur, Jamshedpur 831001. Mobile 9431102883 Kanpur Office No. 214-215, IInd Floor, KAN Chambers, 14/113, Civil Lines, Kanpur - 208 001. Tel.: +91-512-2331071 , 2331119. Kolkata Oswal Chambers, 1st Floor, 2 Church Lane, Kolkata - 700 001. Tel.: +91-33-40171000/ 1005. Lucknow Flat No. 2, 1st Floor, SAS House, 6B, Tej Bhadur Sapru Marg, Lucknow - 226 001. Tel.: +91522-3056900/ 01/ 02/ 03/ 04/ 05.Fax: +91-522-3056900. Ludhiana SCO 122, 2nd Floor, Feroze Gandhi Market, Ludhiana - 140 001. Tel.: 5022155 , 5022156.

+91-161-

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Madurai Shop No 9, 2nd Floor, Ram Niwas, Door No. 279, Goodshed Street, Madurai 625001, Tel.: +91 98943 69124 Mangalore Raj Business Centre, 3rd Floor, Raj Towers, Balmatta Road, Manglore - 575001. Tel. : +91 99010 33822 Mumbai 17/18, 3rd Floor, Vasvani Mansion, 120, Dinshaw Vachha Road, Opp. K. C. College, Churchgate, Mumbai - 400 020. Tel.: +91-22-22876419 . Mumbai (Thane) Shop No. 25, Rajdeep Society, Gokhale Road, Opp. Income Tax Office, Thane (West) - 400 602. Nagpur Fortune Business Centre, First Floor, 6, VasantVihar, W. H. C. Rd., Shankar Nagar, Nagpur 440 010. Tel.: +91-712-6451428/ 2525657. Nashik Kavita Complex, 2nd Floor, Madan Services, Near Big Bazar, College Road, Nasik - 422 005. Mobile: +91-9970625856 . New Delhi 4th Floor, NarainManzil, 23, Barakhamba Road, New Delhi - 110 001. Tel.: +91-11-47311301/ 02/ 03/ 04/ 05. Patna 406, AshianaHariniwas, New Dakbanglow Road, Patna - 800 001. Tel.: 6510353 .

+91-612-

Pune 1st Floor, Dr. Herekar Park Building, Next to Kamala Nehru Park, Off. Bhandarkar Road, Pune 411 004. Tel.: +91-20-66020965/ 4. Raipur 227-228, 2nd Floor, Lalganga Shopping Mall, G. E. Road, Raipur - 492 001. Mobile: +91-9926908790 . Rajkot Office No:201, Star Plaza, Phulchab Chowk, Rajkot 360001 Surat U 15/16, Jolly Plaza, Athvagate, Surat - 395 001. Tel.: Trivandrum :
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+91-261-2475060

, 2475070.

Cabin No.502, 5th Floor, Karimpanal Statue Avenue, G.H.Road, Statue, TRIVANDRUM695001 (Contact No. : Raj Narayanan - 094470 48028) Vadodara Ground Floor, Akash Ganga Complex, Adjacent to Vanijya Bhavan, Race Course Circle,Vadodara - 390 007. Tel.: +91-265-6620919/ 39.

Visakhapatnam Visakha Executive Centre, 47-11-1/5, Eswar Arcade, Dwarakanagar,1st Lane, Visakhapatnam530016, Tel.: +91 9701163444

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Marketing strategy
1. IDFC m-transact IDFC m-transact is an easy way to invest using only your mobile phone. No matter where you are, you can now buy or redeem mutual fund units by just sending an SMS. This facility is available for IDFC Money Manager Fund Treasury Plan (Plan A ) To invest, SMS INV <space> Amount to 56767267 To redeem, SMS RED <space> Amount to 56767267

2. Online transaction
IDFC MF gives you online service to Purchase Redeem Switch in & out You can also view your account details or check & print your investment portfolio.

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Promotional strategy
1. IDFC produced a movie called Bachat Nivesh Badhat.

2. IDFC also believes that over the last two years, the MF industry has been gradually shrinking instead of being a party to the India Growth Story. Household savings are growing, but less and less of those savings seem to be coming towards the fund industry. Its over 15 years since private sector players entered this industry, yet collective penetration into household savings is abysmally low. What is clear is that the industry needs to reinvent itself and find a new way to connect with investors and help them understand the relevance of mutual funds in their financial lives. This battle cannot be won by playing the old game. It is time to change the game - and win. IDFC MF is doing just that - with its innovative Gamechangers initiative. The initial set of tools rolled out which offers a peek into the future plans of this exciting initiative are

1. The first step is the most important one

The first one talks about how taking the first correct step makes your investment journey a lot simpler. It stresses on the first step - and the first step is getting yourself a good advisor who can help you plan for and achieve all your financial goals. Its easy - only if you get the first step right - otherwise, what looks easy may sometimes become quite difficult to achieve. A proficient advisor like you foresees your investors growing needs in the future. Investors very often dont see the importance of an SIP and are at risk of not being able to meet their financial goals. You can educate them that an SIP is just what they need. This may help them meet their future financial goals easily.
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IDFC Presents T puzzle Getting one step right solves the T puzzle. With this puzzle, your investors will realize that, getting an SIP is one of the most important steps in life to meet their financial goals in the future.

2. The future is not as simple as it looks

This gets investors to understand that the future may not be as simple as they think. There is a need to plan carefully for the future and execute their plan in a systematic manner. Many things in life appear simple at first, its only when we get on to doing that we realize how difficult it could get. That's where an advisor can guide them towards financial success. A proficient advisor like you foresees future financial issues like inflation and price rise. You know that it will be difficult for your investors to meet their future financial goals because of these issues. Investors very often become too late to realise that an investment like SIP is important and are at risk of not being able to meet their future needs. You can help them start a smart investment like SIP to meet their future goals without any compromise. IDFC presents Pyramid puzzle When the investor starts to solve the puzzle, it looks easy but he struggles to solve it. Similarly, some of our lives puzzles seem easy to solve, but turn out to be difficult when you face it. With this puzzle, your investor will realize that Investing in SIP is the right step to meet his financial goals in the future.

3. Joshi Bank
It is aimed primarily at IFAs it is called "Joshi Bank". One feedback IDFC got from their IFA partners was that when they benchmark themselves to banks they possibly may not look as competitive because they do not have access to either the technology banks have or access to the pool of money which is lying with the banks. IDFC tries to help IFAs appreciate that they could themselves become a banker to their clients. By becoming active in advising clients on utilization of money market and fixed income funds for idle balances, they could compete with banks. As we all know that there is huge scope to popularize fixed income funds among retail clients - but for that, the first bridge to be crossed is to help IFAs appreciate how it can enhance their own business. IDFC identified 1200 of their distribution partners across the country and created a lot of point-of-sale material including posters, badges, cards etc which carried the name of the advisor followed by "Bank". So, for example, Mr. Joshi's cards and badges would say "Joshi Bank". When customers saw this, naturally their curiosity would be aroused - which gives the IFA an opportunity to explain how he can offer many more products and services than he was previously offering, engage the clients more and become a more integral part of their financial decisions.

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4. Are midcaps really more risky?

It makes a strong case for one of IDFCs flagship funds - the IDFC SME fund - by trying to bust some myths surrounding midcaps. There is a general perception that in volatile times, midcaps underperform significantly. But, we have seen in recent times, well managed midcap oriented funds have done quite well and have actually outperformed their large cap peers - even during volatile times. So, the idea was to help advisors to communicate to their clients that what matters is the quality of companies that a fund chooses, not the size of the company. If you pick the right fund, the notion of market cap sizes is actually far less relevant. IDFC presents SME Card Game to explain the above

5. How well do you understand risk?

It attempts to explain in simple language what the real risk is in various investment avenues whether real estate or equity funds. There is a lot of fine print that goes into scheme literature which is seldom read - IDFC attempt here is to bring that fine print out into a conversation piece, with the help of which advisors can clearly help their clients understand the risk of taking a short term view with equity investments.

6. Rear view mirror concept or tool

The rear view mirror concept or tool reinforces the argument that don't always look at historical returns to form your opinion on future prospects. It is more important to look forward than behind - just like you would drive looking forward rather than at the rear view mirror.

7. investments ka geometry
With a simple tool that looks like a student's compass box, IDFC is trying to bring out simple yet powerful messages for investors. One key insight is that in the last 20 years in our market, whenever we have seen long periods of bad performance, the next few years have invariably been very good. This tool is useful in the context of a phase of poor equity performance. 8. Challenges that advisors face One of the biggest challenges that advisors are now facing is how to address the fact that equities have given little or no returns over the last 4 years. That is a big challenge coming in the way of converting new clients as well as convincing existing clients to put in more money into equity funds.
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The fact is that while IDFC may show 10 year historical return charts and demonstrate that markets have given 16% CAGR returns and that equity funds have done even better, but for an average investor, equity funds have perhaps delivered only single digit returns. IDFC make this statement on the basis of cash flows. If IDFC plot the inflows into equity funds across the industry over the last 10 years and the outflows over the same period, the weighted average comes to around 7 to 8%. Equity funds have the ability of delivering 15-16% compounded returns but yet the large part of our investor pool has got sub optimal returns for various historical reasons. And that's possible because somewhere the signals of the markets are not adequately taken into consideration.

What are the market signals ?

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Our markets historically have traded within a broad PE band of 10 to 28. Based on historical trends, IDFC has broadly classified this into three discreet bands : Green zone : inexpensive valuations - where trailing PE is between 10 and 16 Amber zone : fair valuations - where trailing PE is between 16 and 19 Red zone : expensive valuations - where trailing PE is between 19 and 28 IDFC has used trailing PE - not forward PEs which tend to be subjective. As we can see, from a PE perspective, about 60% of the band (green + amber) represents the zones where valuations support your decision to buy and 40% of the band is where you are buying without valuation support.

How does valuation at entry point impact your returns?

What this table shows is the actual returns that investors would have got over a three year period by investing in the Sensex at different valuation levels. Over the last 15 years, on an average, if an investor had invested in the Sensex when it was in the red zone (valuations above 19), over the next 3 years, his return would have been only around 2%.
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If on the other hand, he had invested at a time when market valuations were in the amber zone (PE between 16 and 19), his returns over the next three years would have jumped up to a very healthy 15%. And, if he had actually invested in the green zone - when markets were cheap, his returns over the next 3 years on average would have been around 21% CAGR. We all know that investing when markets are low gives you the best chance to create wealth and that investing when markets are richly valued is often not a rewarding experience, as the table above clearly shows.

What have been our markets signals over time?

This chart clearly shows exactly when our markets were trading in the red, amber and green zones. As we all know, bulk of the inflows into the industry have come when markets were in the red zone. Whether the 1999-2000 period or the 2006-2008 period, money has chased recent equity market performance, without paying too much attention to valuations. That is the reason why there have so many dissatisfied customers in our industry.

9. Concept of Advance Ticket

As mentioned earlier, whenever markets go into green zone, they tend to remain there for some time before accelerating into amber and then red. Markets tend to take off when they are done with the green zone. The time to get in is when it is in the green, not when it has taken off. When you board a plane, you have to wait patiently until it finishes taxiing - only then it can take off. STPs and SIPs are the best way to make sure you board the plane in time for the take off, which will eventually happen. Nobody can predict exactly when the market will take off. It may take 6 months, 1 year or even more. That is where the concept of Advance Ticket comes in. What IDFC is saying is that advisors must ensure that their clients book advance tickets onto the flight. Book now, to ensure that your seat is guaranteed whenever the take off happens. Don't miss the flight because
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you wanted to get in at the last possible minute, just before take off - because you don't know exactly when it will take off. The advance ticket works like an STP for investors - allocating money into equity funds over 12 instalments - which could be weekly, fortnightly or monthly. So you could have the STP getting fully allocated into equity funds over 12 weeks or 12 months - that is your call. In order to get investors to connect with the idea of booking your ticket in advance, IDFC has made the creatives to look very similar to an airline ticket.

The other big learning which IDFC has incorporated into Advance Ticket is the fact that historically, most of the money not only came in during the red zone, but also came into the theme that had the best recent performance to show for itself. Rarely does a theme / sector that led one rally, remain the favourite in the next rally. This is the other big cause for investor disappointment - as they often see that their funds take much longer than the market to recover because they bought thematic funds which are no longer leaders of the next rally.

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This table clearly shows why investors get so disenchanted with their equity funds. We have shown here three broad categories in which equity fund money was raised in the industry. Infra and related sectors is a big category, midcaps is another important category and the third is the large caps - which is represented by S&P Nifty in the table above. Large caps were the best performers - relative to the others - in 2000 and 2001 - and then took a full six years to regain the pole position in 2008. Midcaps were the best performers in 2002 and 2003 - and then took five years to come back to the top of the charts in 2009 and 2010. Infra was the best performer 4 years in a row until 2007, but has since been a relative underperformer for the next 3 years and the story continues in 2011 as well. Investors who bought infra funds in 2007 and the first half of 2008 are obviously a very disappointed lot. We launched our infrastructure fund only recently, at a time when we believe valuations are attractive. But, the point is that just as it is difficult to predict when the market will take off, it is equally difficult to predict which theme will lead a market rally. In our view, all these three major themes are relevant in an investor's portfolio. Diversification across all these themes will enable the investor to participate in the next take off, without putting all eggs in one basket. So, the Advance Ticket Plan starts off by getting investors to allocate lumpsums into the IDFC All Seasons Bond Fund - which is currently enjoying the benefits of a high interest rate environment. While the plane is taxiing on the runway, you are getting attractive yields thanks to the current market environment. From here, you can opt for 12 equal instalments - weekly / forthnightly or monthly into any or all of our four flagship products that enable participation into the major equity themes that has been described above. The first is IDFC Imperial Fund - large cap fund, which is doing exceedingly well in the recent one year cycle. Second is IDFC Small and Midcap - SME Fund, which over all cycles is one of the best performing funds then we have IDFC Infra, which IDFC cautiously delayed the launch over the last cycle and launched only in the month of March recently when the category was in
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deep green not even in green. IDFC feels that now the category is almost bottoming out we are fairly positive that in the next cycle that should be one of the fund to be overweight on. And the fourth is IDFC GDP which is nothing but a diversified equity fund, which captures real time GDP weightages and raises the portfolio automatically. All these four funds have reasonably good performance. Just a comment to add, 86% of Equity AUM is in Quartile one, and all the funds barring Infra have at least a 3 year track record. 86% in Quartile 1 is a big number - one that IDFC is very proud about. IDFC launchs fewer funds, but they try and do justice to all. In the Advance Ticket Plan, by just giving a single cheque, you have the convenience of allocating money first to our All Seasons Bond Fund and then moving it in 12 instalments to all our 4 equity funds or to any one or two or three of them. Again, in keeping with the theme and to help improve investor connect, this has been designed to look like a boarding pass - where you choose which flights you would like to board.

10. Why do I need an advisor ?

IDFC has created a small tool; it is a yellow page with few things written on it. They show this to investor and tell him : today the biggest feeling that most investors have when it comes to giving fees, is that they would say that they get 10 advisors who tell me that this fund is good or that fund is good, newspapers give headlines that this fund has done well. There are many websites keep saying this, lot of TV channels communicate every day that this fund is good or that fund is good. So why do they need an advisor to tell me. For that if you are asking me a fees, I don't think it is valuable enough.

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So what IDFC is trying do here it to break that barrier, and help investors understand that information is not necessarily insight. As your advisor, IDFC can help you build a strong and a robust financial plan. And extra information may actually create noise for you which can sometimes make you take wrong decision. For instance, today everyone screams from the roof top saying that gold has given best returns in the last 5 or 10 years. And if you go and allocate substantially into gold without realizing how cycles move, you will again do what happened equity funds in 2006 and 2007. So information necessarily does not mean that you have chosen the right plan.

When you show this to a client, there are a few words that he can't read and he can't even comprehend. And the advisor then says all these words come to you from different sources are nothing but noises. Can we open this, and when we open it there is a mirror inside. And then you ask the client to read the mirror.

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This is the starting point of the conversation an advisor can have in terms of setting the context that where will he play a role, in terms of converting all these noise, data, information into what is right for you, from a plan point of view. IDFC has designed this as an ice-breaker - as something that enables an advisor to begin a conversation on the value he adds to his clients - and therefore puts him in a position to seek fees. Clearly, the kind of fees he will be able to seek will be a function of his competence, his service etc. But, this will hopefully help clients get the conversation started, and makes the client a little more open to what you have to say.

11. The new cigarette pack concept

The idea of cigarette pack basically came in from a valuable statutory warning which is inscribed in every pack, which says that smoking is injurious to health. IDFC mapped that warning to what they tend to do most of the times in our business - predicting market performance. Very often in our business, the greater part of our conversations relate to incremental market view, market cycles, performing and non-performing asset classes and so on. Making predictions is in itself a challenge in the best of times. What makes it a bigger issue is that the transmission time from the stage of setting a view to the time the money is actually accumulated into that view is significantly large. We therefore end up accumulating assets in the last phase of the cycle, by which time most of the returns of that cycle are behind us rather than ahead of us. For instance, if we talk about equity as an asset class; typically in a ten year period, IDFC has observed that four years tend to be a huge bull run and remaining 6 years sport average or bearish market conditions. So it is important to understand when in the cycle you are giving a view on the asset class and when is it that money actually comes into that view. Right now, for example, IDFC saw a lot of money come into gold funds in 2011 - at a time after it has posted a very strong performance over the last few years and is now struggling to perform this year.
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Whether we look at equity or income funds, MIP's, short term funds and now possibly gold, most investors end up meeting the same fate in all the asset classes. Every theme has had cycles and with the benefit of hindsight, most investors try to catch a cycle in its prime but often end up investing closer to the end of the cycle rather than the beginning of the cycle.

What's in the cigarette pack, what comes out when you open the pack?
If you open the cigarette pack, there are two very simple and very powerful insightful charts that we have incorporated.

As the above data shows, various asset classes have delivered significantly high returns for short periods of time in the last decade. Returns shown here are 5 year rolling returns. In 2003 2007, equity delivered superlative returns. Prior to this period was the phase when fixed income delivered the best relative returns. The last few years have been the "golden phase" when gold has outperformed other asset classes. So, different asset classes have yielded good returns sequentially. Now, if you were not in the asset class during its peak performance period, your experience, even as a long term investor with a five year horizon, was not a happy one. This is one message that comes out of the cigarette pack, when you open it and see why predictions are injurious to wealth. Prediction is injurious to wealth because predictions have generally gone wrong in the near term - not because the predictions themselves were wrong but because the time to accept the
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predictions and carve portfolios around it were significantly long and consequently the right amount of benefit of that asset class in the cycle did not ensue to the end investor. The other key insight is that over long periods of time, returns from all asset classes converge back to the mean returns - and the gap between the mean returns across asset classes is really very small.

The chart above shows how the three mean asset classes have behaved since 1994. The green line is the fixed income line; the blue one is the equity represented by sensex and the red line is gold. There is a purple line which is an asset allocation line. IDFC has mapped three different asset allocation ideas with a moderate line keeping in mind the asset allocation typical of an average Indian. Moderate asset allocation would typically mean about 70% in debt, 25-30% in equity and the rest in gold. IDFC has tried to keep equity lower because that is how the Indian investor has allocated it in his portfolio. In the last 17 years, there is some point in time where different asset classes have done well. The question to ask is whether I held that asset class in my portfolio at the point in time when it had delivered the best performance phase. All predictions are with intent of playing the best asset class at the best point in time. History evidences that few investors are actually able to achieve this sense of perfect timing. Timing is of essence when making predictions and choosing the best asset class at the right time is difficult. So here the attempt is to say that if we
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can't really participate in the best days of an asset class, let's work the other way around and buy all of them today in a certain ratio. The rationale behind this is that whenever one of them does well, the portfolio would have owned that and at one point of time, one of them definitely does well. In the last 17 years, we have witnessed that all the three asset classes have given an average of 10 to 12% return. And the range is very narrow over long periods of time. So if you invest in that proportion, the asset allocation concept also gives your roughly around 11.3% return. The best performing asset class during this phase is gold which gives you 12.2% and the second best performing asset class is not any single asset class but a combination of all asset classes. IDFC has tried to highlight here not in a technical manner but in a layman's manner that trying to predict the asset class that will do well in the next cycle is very difficult. Instead, it is easier is to own all of them. Basically here, IDFC intends to communicate two messages - predicting market for asset class is difficult and the best way to make money over long periods of time is by implementing the simple logic of buy low and sell high. So the best way to invest is to first allocate the assets and then constantly rebalance them. The ratio of assets will depend on the time horizon and risk appetite. Rebalancing effectively ensures that you sell the asset that has gone up and buy the one that has moved down. So these two themes ensure that asset allocation model ends up delivering adequate returns to the investor and helps him achieve his long term destination which a single asset class because of its sharp volatility, does not. The third message that's actually there at the back side of the cigarette pack says this :

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IDFC starts off with a statement which says "A fund that will never give you the best return". This message plays an underdog style to deliver a distinctive message. This was again an endeavor to break through the clutter because typically most products that we try to sell in our industry always boast that I am the best fund. When 40 funds say that I am the best fund, there is confusion as to which is actually the best fund. So here IDFC is trying to say that the attempt is never to be the best performing fund for you but to offer you - through the IDFC Asset Allocation Fund - an exposure to the best performing asset classes, in all market cycles. And, in doing so, as the chart of long term returns suggests, you capture the mean returns of the various asset classes, and avoid some of the disappointments of going through long periods of underperformance of any one asset class. So, really what IDFC is trying to communicate through this cigarette pack idea is that investing based on predicting which asset class is going to be in favour can be injurious to wealth - it's a far better idea to stay away from predictions and focus on asset allocation and disciplined rebalancing - which a fund like the IDFC Asset Allocation Fund does for you. So, next time IDFCs advisor friends are asked by their clients to predict markets or take market calls, they can use our cigarette pack to show their clients why making predictions is injurious to their wealth.

12. Macropoly

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Over the last two-three years, IDFC has observed that the investor allocations towards fixed income have gone up significantly whether it is through fixed income funds or through tax free bonds or indirectly because of lower exposure to equity as a consequence of market volatility. By default, the pie has swung in favor of fixed income. It is historically known that fixed income is relatively safer and easier for allocation. So that trend has been playing out very aggressively from last two to three years. Historically, fixed income funds were the domain of institutional players. But from the last two- three years, even the retail and HNI community is meaningfully participating in fixed income funds because of market environment. So whether we consider FMP's or short term bond funds or even long bond funds, more or less the allocation of the HNI & retail community versus the institutional community is 50-50. Earlier, the ratio used to be skewed towards institutional treasuries at 80% and retail at 20%. The question is whether we have capacitized our distribution partners to meaningfully guide their clients in this asset class. We know that the herd mentality is often at play where investors flock into an asset class after it has produced handsome returns - which sometimes leads to disappointments as the theme may have largely played out. Investors are increasingly looking for mechanisms where they can be shielded from this volatility and this disappointment. Two things can be done : one, we ourselves can launch such funds which shield the investors and the distributors from the cyclicality and we can manage funds as all seasons funds and navigate portfolio strategies accordingly. Secondly, there are expectations of customers as well that their advisors should help them pick the right theme within the fixed income space, which is appropriate for the prevailing market conditions and their own needs. This is where the whole debate comes in : shorter end of the yield curve or at the longer end? Corporate bond funds or G-Sec funds? Outlook in the fixed income space and therefore product alternatives are significantly shaped by policy action. It is the policy action which determines how the yield curve will move and in which direction. There have been periods where short term rates have gone down and long term rates have gone up. And the newspaper headlines will articulate that interest rates are going up but on the other hand, we have short term rates collapsing and the short term fund delivering greater returns. There are times when long term rates are constant for almost two years or in a narrow band and short term rates actually double and that is the period when short term funds actually underperform dramatically. As investors appetite for fixed income funds increases, it is necessary for our distribution partners to be in a good position to offer quality advice on this space. IDFC has realized that these are all very heavy concepts and classroom sessions done over the years have had limited success in terms of their ability to help distributors explain fixed income market dynamics to their clients and guide them towards appropriate product choices. There is also this dilemma that when a typical fixed income fund manager speaks to distributors, there is often a lot of jargon that they do not readily understand, and therefore the communication becomes less effective. The investment team talks its own language, advisors need a different language and customers need a third set of language.
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That's what led IDFC to think about Macropoly. We realized that the best way to transmit certain difficult concepts in a manner in which people understand is through a game. There is a child in all of us and we all like to play games. And there is a spirit of competitiveness when we make teams and then participate. So IDFC went back to a game called monopoly which we have all grown up upon. It's a game which makes us understand various financial concepts and brings in a spirit of achieving excellence over other teams. So IDFC mapped the game of monopoly to the concepts of macro economy and created a game called Macropoly. The idea was to move away from the current approach of using products to explain concepts. Product selection should be the outcome of the concepts unlike how conventionally we used the products to explain the concepts. In the industry IDFC used to start by explaining why a GSec fund is right and why short term fund is right. But they felt that to make a sustainable impact, it is important that they get the foundation right on the concepts. Product selection and fund selection should be left to the distribution community. IDFCs endeavor, through Macropoly, is to empower them to make their fund selection in a much better manner rather than giving them a product to push today which can keep changing every cycle. They intend to explain the variables which can make the product selection their decision rather than our decision.

How to play this game?

IDFC has designed the board of Macropoly similar to the board of monopoly. There are 25 concepts around the board. One would roll the dice and the dice would go and fall on one concept.

Before we start, we create five teams. Each team sits on a separate table; each of these tables are given names of some economist and we try to create an environment where we try to get
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some concepts of history and some linkages with the origin of each one. We start with team one. They roll the dice and the dice will go on to a certain box which will have a concept. For example, the concept could be reporting Friday or issuance of the state development loans or constitution of India's import basket across oil and fuel or OMO's or forex intervention or ways and means advances of the government with the RBI. So, these are essentially the concepts which are seen very frequently but not clearly understood. What we are trying to do is that as you go into any of these concepts, the team is asked to present their understanding of the concept. We have two people; one a facilitator who runs the whole program and an expert who understands each of these concepts. One person from the team would explain and discuss the concept for two minutes such as what does OMO mean. If the answer is right, we give them scores in the form of Macropoly currency from 100 rupees to 500 rupees. If we feel that we have any value to add to that answer, we will give explanation as to what exactly is OMO and how does it impact yields and what is the need of it, whey does RBI undertakes OMO, how do they carry out security selection for OMO's etc. Then, the dice goes to the next team and then the whole game starts again. What IDFC has also realized is that when you are running a distribution partnership, a lot of them have huge amounts of experience and deep knowledge, so it might be just that they need to polish it. It's not a class room session where we are teaching some concepts IDFC is using their own understanding of it and making them talk about it. If required, they add value by showing data, breaking up the balance sheet of the GoI and they show how the right hand side and the left hand side looks. So if the government has announced almost 6 lakhs of borrowing this year, where is the source of borrowing coming from and where is that money getting allocated to. So they have a lot of back up data then which is all very technical but explained in a highly engaging and a simple manner. So that's the way they blend theory, real life and day to day interactions amongst people.

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Distribution Strategy

Distribution Channel

Financial Institution

Bankers

IFA's

IDFC mutual fund notices that revolutions are taking place in the world by simply communicating online. IDFC mutual funds have decided to go digital with our communication efforts too. If they were to conduct road shows for 25000 registered distributors, the time and cost will be prohibitive. So, they have created special emailers in which they embed online videos and have been reaching out to our distribution partners with this. One of the other benefits of going digital is a standardization in the delivery of the message across the country.

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IDFCs TOP COMPETITORS

IDFC has a lot many competitors to contend with in the mutual fund industry. It has many competitors like DSP BlackRock, Kotak Mahindra and Franklin Templeton which are the more nearer competitors when it comes to the AAUM. However, the top two competitors which IDFC should aim for should be the ones which have the largest amount of AAUM-which is Reliance and HDFC. HDFC Mutual Fund has been a top performing mutual fund house for the past seven years now. It has some well performing funds in all kinds and in all sectors-Equity , debt , balanced , exchange traded funds(ETF) and Tax Saver. HDFCs Top 3 performing funds in equity category are: a. HDFC Equity Fund b. HDFC Top 200 Fund c. HDFC MidCap Opportunities Fund In the balanced fund category, HDFC funds have performed well and given IDFC an incentive to enter the segment. The Top 2 HDFC funds in that segment are : a. HDFC Prudence Fund b. HDFC Balanced Fund On the other hand Reliance has also been a strong performer in the Gold ETF Funds. Its Gold ETF Fund seeks to provide returns that closely correspond to returns provided by price of gold by investing in physical gold and gold related securities. It is giving a return of 20.94% against the price of gold in the 3 year category .This is the reason enough for IDFC to consider entering the Gold ETF segment. Reliance does not offer much competition in the equity segment be it large cap or small and mid cap with its best performer being Reliance Equity Opportunities Fund (as on 31st May 2012). However, Reliance is one mutual fund which is quite strong in its sectors. The following are its two schemes which are doing well in its respective sectors. a.Reliance Banking Fund b.Relaince Pharma Fund

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The above figures are proof that IDFC would do well to enter into the sector funds as it has been able to easily overcome the competition of Reliance in the large cap and small & midcap equity segment and also performed well. Also, the pharma and FMCG sectors are also giving good performance of late - so it will be a good opportunity for IDFC.

Balanced Funds A balanced fund is geared toward investors who are looking for a mixture of safety, income and modest capital appreciation. It is also known as hybrid funds and combines the equity and debt component in almost same proportion in the same fund. IDFCs competitor HDFC is doing well in this fund segment with their funds.

Sector Funds Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. They are also known as Thematic Funds, these funds concentrate on one sector such as infrastructure, banking, technology, energy, real estate, power, healthcare, FMCG, pharmaceuticals, etc. The idea is to allow the investors to invest on specific industry or sector, which have strong growth potential. These funds tend to be more volatile than funds holding a diversified portfolio of securities in many industries. Such concentrated portfolios can produce tremendous gains or losses, depending on whether the choosing sector is in or out of favour. Sector mutual funds come in the high risk high reward category and are not suitable for investors having low risk appetite. Usually, mutual funds avoid launching sector funds as they are seasonal in nature and do well only in cycles. Since these funds focus on just one sector of the economy, they limit diversification and the fund managers ability to capitalise on other sectors , if the specific sectors are not doing well. FMCG and Pharmaceuticals sector are doing well individually, so investing in sector funds which invest most of its investments in a particular sector would give good returns. Reliance Mutual Fund is performing well in its pharma fund and in banking fund, so it would an incentive for IDFC to venture into sector funds. However, sector returns may fluctuate as it did with the banking sector recently . Hence, starting a sector fund would be a risky decision and it is one which should be taken after giving due consideration to the performance of various sectors of the Indian economy.

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CONCLUSION AND RECOMMENDATIONS

Mutual Fund Industry is one which has a lot of growth potential. It is one sector which can grow a lot provided people at large are informed and made aware of its presence and its uses and benefits. A large chunk of the population still thinks of mutual fund as a synonym or alternate version of insurance. Similarly, the term mutual fund give some people an impression of a fraud scheme. Therefore, a huge number of population of india is not aware of mutual funds and its importance as a long term or medium term investment avenue or its benefits of higher , though unsure , returns. Now, the Indian Mutual Fund market has been opened up to investments from foreign individual investors. Till June 2011, only FIIs (Foreign Institutional Investors) registered with SEBI and NRIs were allowed to invest in Indian mutual finds sector. The governments decision to allow foreign investors, besides FIIs, to invest up to $ 10 billion (R45000 crore) in equity schemes of mutual funds has come as a welcome break for the industry. Qualified foreign investors (QFIs), which include individuals as well as funds, will be allowed to invest under this category even as these investments will be regulated by the Securities and Exchange Board of India (SEBI). Mutual Funds is ideal for the following kinds of people:a. Those people who do not have the right kind or amount of knowledge about the stock market to invest in it. b. Those people who do not have the required time to monitor the performance of their investments in the stock market. c. Those people who are averse to the high risk associated with individual investments in the stock market. d. Those people who do not have an individual huge corpus to achieve diversification in investments.

So, if the above mentioned customer profiles are targeted, the mutual funds can get a whole new lot of investors and help increase the Asset Under Management (AUM) of any fund house.

Following are the recommendations: a. Mutual Fund Houses and companies need to give more publicity to their product i.e. mutual funds and inform potential customers about the benefits and needs of
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investments in mutual funds. They need to educate investors to the opportunity available to them to invest in stocks indirectly and at a lower risk than the direct investment in stocks. b. Mutual Fund companies should closely look at having tie-ups with banks, post offices and other investments houses to establish a point of contact with potential customers. c. A majority of the population believes in investing only in bank deposits .Mutual Fund companies should concentrate on providing incentives to the Relationship/Marketing Managers of the banks so that they can help advise or encourage their customers to think about mutual funds as an investment avenue.

Following are the recommendations for IDFC in specific a. IDFC should try and reduce the minimum amount of subscriptions for SIP to Rs. 500 per month instead of the current Rs.1000 per month. This will encourage many low income earners to subscribe to the mutual fund schemes. b. IDFC can think of having a Gold ETF or Savings Fund as a part of its schemes. This is because the gold market is going very strong and can give good returns. Also, many people prefer investing in gold or Gold Funds. This step can also provide completion to the Gold ETF schemes of competitors like Reliance Gold ETF Funds, which are also doing well. c. To target all the sections of the society-there are many people who want to invest in shares to generate good returns, but are risk averse. Mutual funds can target such investors as they provide the solution of a comparatively less risky source of investment and also more diversification along with professional management of their corpus. d. IDFC may also start a new balanced fund scheme so as to compare with the HDFC and other top competitors in the balanced fund category. Also some investors are risk averse ; a balanced fund may suit their needs more than equity funds. e. IDFC can also enter into the sector funds category of mutual fund scheme. Although , sector funds are more risky in nature because they are less diversified , it can also generate good returns if that particular sector is performing better than their sectors of an economy . It also offers variety in its basket of fund schemes to its customers to choose from. f. With the Direct Tax Code set to start from next financial year , the tax saver funds will also come under the purview of taxation. Hence , IDFC should shift its focus from ELSS schemes to its large cap and small midcap segment where SME fund and Premier Equity are performing well and also think about entering new segments like the above mentioned sectors funds , gold ETF and global funds as well.

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REFERENCES
www.idfc.com www.idfcmf.com www.wealthforumezine.com

www.valueresearch.com www.amphiindia.com
IDFC FactSheet

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