Risk Disclosure

Investors in the Scheme are advised that all investments in mutual funds and securities are subject to market risks. Risks include but are not limited to:

1.1.1    Interest Rate Risk

As interest rates rise, the values of fixed income securities held by the Scheme are likely to decrease and reduce the value of the Scheme’s portfolio. The Scheme shall try to minimize this risk by investing in floating rate securities.

1.1.2    Credit Risk

The issuer or guarantor of a security owned by the Scheme could default on its payment obligations, become insolvent or its credit rating could be downgraded. The Management Company shall carefully evaluate the instruments and the issuers before making any commitments for investment. Issuer and instrument ratings by independent credit rating agencies shall also be considered before taking investment decisions.

1.1.3    Selection Risk

The judgment about the attractiveness or value of particular issuer’s securities could be incorrect. The Management Company has a professional investments team having expertise and track record in fixed income investments which will be responsible for conducting an independent analysis of the issuer’s securities.

1.1.4    Foreign Securities Risk

Prices of the Scheme’s foreign securities holdings may go down because of unfavorable foreign government actions, political instability or the more limited availability of accurate information about foreign issuers.

1.1.5    Currency Risk

The Scheme may be affected favorably or unfavorably by changes in currencies and exchange control regulations. The income earned by the Scheme may also be affected by foreign exchange rates.

1.1.6    Government Regulation Risk

Government policies or regulations are more prevalent in some sectors than in others. Schemes that invest in these sectors may be affected due to change in these regulations or policies, which directly or indirectly affect the earnings and / or the cash flows, and / or any governmental or court orders restraining payment of capital, principal or income.

1.1.7    Derivative Risk

Derivatives may be used to limit or hedge potential fund losses associated with capital markets and return/mark-up/coupon rates. This process is called “hedging”. Any use of derivatives has risks, including:

  1. The hedging strategy may not be effective.
  2. There is no guarantee that a market shall exist when the Scheme wants to buy or sell the derivative contract.
  3. A large percentage of the assets of the Scheme may be placed on deposit with one or more counter parties.
  4. There is no guarantee that an acceptable counterpart shall be willing to enter into a derivative contract.
  5. The counter party to the derivative contract may not be able to meet its obligations.
  6. The Stock Exchange(s) on which the derivative contracts are traded may set daily trading limits, preventing the Scheme from closing out a particular contract.
  7. If a Stock Exchange halts trading in any particular derivative contract, the Scheme may not be able to close out its position in that contract.
  8. The price of the derivative may not accurately reflect the value of the underlying security or index.

1.1.8    Voluminous Purchase / Redemption of the Scheme Units Risk

Any significant transaction made by an investor could significantly impact the Scheme’s cash flow. If the investor(s) buys a large number of Units of the Scheme, the Scheme may temporarily have a high cash balance. Conversely, if the Unit Holder(s) redeems a large number of Units, the Scheme may be required to fund the redemption by selling securities at an inopportune price. This unexpected sale may have a negative impact on the performance of the Investment.

1.1.9    Other Risks Involved

  1. Mismanagement of the investee company, third party liability whether through class action or otherwise or occurrence of other events such as strikes, fraud etc., in the company in which the investment is made.
  2. Breakdown of law and order, war, terrorist activity, natural disasters etc. c) Senior rights of some creditors over other creditors in the event of winding up.

The Management Company shall adopt a risk management framework under which it can, among other things, diversify the Scheme’s portfolio and alter the various types of Investments depending on market conditions. The Management Company shall introduce adequate safeguards for controlling the risks in security selection and portfolio construction process.

The Units of the Scheme are not Bank deposits and are neither issued by, or insured by, obligations of, nor otherwise supported by the Commission, any Government agency, the Trustee (except to the extent specified herein or in the Trust Deed) or any of the shareholders of the Management Company or any of the Core Investors or any other Bank or Financial Institution.