Reliance Dual Advantage Fixed Tenure Fund III Plan D

(A Close Ended Hybrid Scheme)

NFO Opens: 17 June 2013 NFO Closes: 28 June 2013 NFO Price: Rs.10 Per Unit
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Background Investments into equity, either through direct stocks or through mutual funds that invest into a portfolio of stocks, would be subject to volatility. Although there is a possibility of earning relatively higher returns from equity markets, a possibility of capital erosion cannot be ruled out. Investments into fixed income instruments, on the other hand, tend to provide relatively lower returns. However, the possibility of capital erosion is far lesser in portfolios that are having a large exposure to fixed income instruments. Investors having a positive view of the equity markets and desirous of gaining from their view would have no choice but to take necessary risk exposure to the equity markets. Such a strategy of investing (possibly completely) into equity markets, while increasing the possibility of investors earning relatively higher returns would also be subjecting the capital to possible losses and therefore could be risky. An ideal scenario for investors would be to gain from the equity markets while minimizing their losses on the downside. A strategy of investing predominantly into fixed income instruments and equity & equity related instruments which may include investments into long call options has the potential to deliver equity market returns on the upside (when equity markets are positive) while attempting to limit the loss on the downside (when equity markets are flat-to-negative). Introducing Reliance Dual Advantage Fixed Tenure Fund - III- Plan D Reliance Dual Advantage Fixed Tenure Fund III Plan D is a 36 months, close-ended hybrid scheme that seeks to generate returns and reduce interest rate volatility, through a portfolio of fixed income securities that are maturing on or before the maturity of the Scheme along with capital appreciation through equity exposure.


Investment Philosophy of the Scheme The investment philosophy of the scheme would be to invest into a combination of fixed income instruments maturing on or before the maturity of the scheme and equity & equity related instruments which may also include long call options.

How does the Fund work? The fixed income allocation to the portfolio would be predominantly deployed into securities maturing on or before the maturity of the fund. The strategy would be to buy-and-hold the securities, thereby minimizing any interest rate volatility. Therefore, the fixed income portion of the investment would be largely on an accrual basis. The equity portfolio exposure would be in equity & equity-related instruments, primarily through long call options on Nifty, expiry of which would be near to the maturity of the scheme. In case if investments are made in long call options, it would allow investors to participate in the underlying equity market (Nifty), often in multiple times due to the benefits of leverage. A combination of investments into fixed income instruments and long call option would allow investors to gain from the upside in the equity markets while attempting to limit the loss on the downside.
Back-testing of the strategy

A strategy of investing approximately 80% of the portfolio in fixed income securities and the remaining 20% in long call options maturing in line with the maturity of the scheme is considered. An actual example of Nifty price movements and the corresponding options premium price along with the respective strike price is shown in the following table to illustrate how such a strategy may work in the future.

Please note that although we have considered an actual example of Nifty providing positive returns during the considered period, the actual Nifty returns may also be negative. In such a scenario, investors would lose out the entire premium paid to buy the long-call options. However, the fixed income investments would provide accrual returns, essentially minimizing the losses for the investors.

Details Total Amount of Investment (in Rs.) Investment in Fixed Income Instruments (in Rs.) Investment in Long Call Options

Value 100 80 20

Details Nifty value at beginning of period - June 30,2008 Nifty value at end of period June 30, 2011 Nifty Returns for 3 years (in CAGR) Nifty Option Strike Price at beginning of period June 30, 2008

Value 4040 5647 11.81%

No. of Years Rate of Return in Fixed Income Instruments, subject to credit risks (in CAGR) AAA yields on June 30, 2008 has been considered for the example Value of Fixed Income Investment at the end of tenure (in Rs.)

4000

10.70% 108.53

Option Premium Price (in Rs.) Value of Options at end of period (in Rs.) June 30, 2011 Gain in Options (in Rs.) Equivalent total value of investment for Rs. 20 invested in options (in Rs.)

900 1647 747

36.6

Total Value of Investment at end of Tenure (in Rs.) Total Absolute Return at end of Tenure Total Return on Investment (in CAGR)

145.13 45% 13.22%

Data Source: Bloomberg Note: The above table is only for illustration purposes, purely to explain the concept of the scheme and should not be taken as any indication of either
capital protection or equity market returns. Long call options were available only since March 2008. Nifty returns for a 3 year period since then have only been positive and hence the above back-testing example shown is only for a scenario when Nifty returns have been positive. However, in the future, the Nifty returns could be flat or negative and the scheme returns would vary accordingly. The yield considered for the fixed income investments is that of AAA-rated securities. However, the scheme may also invest into securities rated below AAA. Further the calculation excludes the scheme expenses as well. The actual allocation can be different within the Asset Allocation and Investment Pattern mentioned in the SID. RCAM does not recommend any action based on the above illustration. The investment decision of RCAM is based on several factors including research, market potential, future outlook etc. Please read the SID of the Scheme and detailed risk factors carefully before investing.

As it is evident from the above Table, by employing the strategy of investing approximately 80% of the portfolio in fixed income securities and the rest in long call options (20%), the portfolio endeavors to provide similar returns as that of Nifty in a scenario where market returns are positive. However, during the considered period, if the Nifty return is flat or negative, investors would lose the premium they


have paid to buy options entirely. However, in such a scenario, they would earn the returns emanating from the fixed income securities, as demonstrated in the above table. It may be noted that despite losing options premium entirely, the investors could endeavor to keep their capital protected by employing such a strategy.
ISIN Details
ISIN Plan

INF204K01O11 INF204K01O03 INF204K01N95 INF204K01N87

DirectplanDividendPayoutoption DirectplanGrowthoption DividendPayoutoption Growthoption

Who should invest?

Ideal for investors who can lock-in their capital for 36 months and seeking equity market returns on the upside with an endeavor to minimize losses on the downside. The Scheme seeks to generate returns and reduce interest rate volatility, through a portfolio of fixed income securities that are maturing on or before the maturity of the Scheme along with capital appreciation through equity exposure. CRISIL MIP Blended Fund Index. Krishan Daga & Anju Chajjer 36 months from the date of allotment Rs 5000/- per option and in multiples of Re.1 thereafter 1) Growth Option, 2) Dividend Payout Option, 3) Direct Plan - Growth Option, 4)Direct Plan - Dividend Payout Option Entry Load: Nil Exit Load: Nil
(In accordance with the requirements specified by the SEBI circular no.SEBI/IMD/CIRNo.4/168230/09 dated June 30, 2009 no entry load will be charged for purchase / additional purchase / switch in accepted by RMF with effect from August 01, 2009. The upfront commission on investment made by the investor, if any, will be paid to the ARN Holder(AMFI registered Distributor) directly by the investor, based on the investors assessment of various factors including service rendered by the ARN Holder. Since the scheme shall be listed on any of the recognized Stock Exchange, exit load shall also be not applicable. Units issued on reinvestment of dividends shall not be subject to entry and exit load

Investment Objective Benchmark Fund Manager Tenure Minimum Application Amount Plans & Options

Load Structure

Scheme specific Risk:

Trading volumes and settlement periods may restrict liquidity in equity and debt investments. The investments in debt instruments carry various risks like interest rate risk, liquidity risk, credit risk, reinvestment risk, risk associated with derivatives, risk associated with listing of units etc. For detail scheme/securities related risk factors refer Scheme Information Document.

Disclaimers


Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

NSE Disclaimer: It is to be distinctively understood that the permission given by the NSE should not in any way be deemed or construed that the Scheme Information Document has been cleared or approved by NSE nor does it certify the correctness or completeness of any of the contents of Draft Scheme Information Document. The investors are advised to refer to the Scheme Information Document for the full text of Disclaimer Clause of NSE. The views expressed herein constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Certain factual and statistical (both historical and projected) industry and market data and other information was obtained by RCAM from independent, third-party sources that it deems to be reliable, some of which have been cited above. However, RCAM has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained in these materials reflect the belief of RCAM, which belief may be based in whole or in part on such data and other information.

The Sponsor, the Investment Manager, the Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given are fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice, verify the contents and arrive at an informed investment decision before making any investments. None of the Sponsor, the Investment Manager, the Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. The Sponsor, the Investment Manager, the Trustee, any of their respective directors, employees including the fund managers, affiliates, representatives including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific economic sectors mentioned herein. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.