• Standard Risk Factors


• Scheme Specific Risk Factors


• Other Risk Factors


• Special Considerations

• The AMC has no previous experience in managing a mutual fund in India and the Scheme being offered is the first scheme being launched under its management.
• Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee against loss in the Scheme or that the Scheme's objectives will be achieved.
• As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.
• Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme.
• Investors in the Scheme are not being offered a guaranteed or assured rate of return.
• JPMorgan India Equity Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns.
• Mutual funds invest in securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme’s value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.
• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

• Equity securities and equity related securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made by the Scheme may be restricted by trading volumes and settlement periods. This may impact the ability of the Unit Holders to redeem their Units. In view of this, the Trustee has the right, in its sole discretion to limit Redemptions (including suspending Redemption) under certain circumstances. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. Similarly, the inability to sell securities held in the Scheme's portfolio could result at times, in potential losses to the Scheme, should there be a subsequent decline in the value of securities held in the Scheme's portfolio.
• The liquidity and valuation of the Scheme's investments due to its holdings of unlisted securities may be affected if they have to be sold prior to the target date for disinvestment.
• Investments in money market instruments would involve a moderate credit risk i.e. risk of an issuer's liability to meet the principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme's Units, to the extent that the Scheme is invested in money market instruments, will be affected by the changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

• The Scheme may invest in derivative products in accordance with and to the extent permitted under the Regulations. The use of derivatives requires an understanding of the underlying instruments and the derivatives themselves. The risk of investments in derivatives includes mispricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices.
• Trading in derivatives carries a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount.
• The Scheme may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limits or circuit breakers, the Scheme may face a liquidity issue.
• The option buyer’s risk is limited to the premium paid, while the risk of an option writer is unlimited. However, the gains of an option writer are limited to the premiums earned. Since in case of the Scheme all option positions will have underlying assets, all losses due to price-movement beyond the strike price will actually be an opportunity loss.
• The relevant stock exchange may impose restrictions on exercise of options and may also restrict the exercise of options at certain times in specified circumstances.
• The writer of a put option bears the risk of loss if the value of the underlying asset declines below the exercise price. The writer of a call option bears a risk of loss if the value of the underlying asset increases above the exercise price.
• Investments in index futures face the same risk as investments in a portfolio of shares representing an index. The extent of loss is the same as in the underlying stocks.
• The Scheme bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indexes or other financial or economic factors in establishing derivative positions for the Scheme.
• The risk of loss in trading futures contracts can be substantial, because of the low margin deposits required, the extremely high degree of leverage involved in futures pricing and the potential high volatility of the futures markets.

2. Risk Factors Associated with Stock Lending

The risks in lending portfolio securities, as with other extensions of credit, consist of the failure of another party, in this case the approved intermediary, to comply with the terms of the agreement entered into between the lender of securities, i.e. the Scheme, and the approved intermediary. Such failure to comply can result in a possible loss of rights in the collateral put up by the borrower of the securities, the inability of the approved intermediary to return the securities deposited by the lender and the possible loss of any corporate benefits accruing to the lender from the securities deposited with the approved intermediary. The Mutual Fund may not be able to sell such securities and this can lead to temporary illiquidity.

3. Risk Factors Associated with Debt Securities

The Scheme may invest in Debt Securities which may involve a degree of risk.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of the issuer’s inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated securities offering higher yields.

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh) made by them towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting form the operation of the Scheme.
• Neither this Offer Document nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this Offer Document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this Offer Document are required to inform themselves about, and to comply with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this Offer Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• The Mutual Fund / the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this Offer Document in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Mutual Fund nor the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this Offer Document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.
• From time to time, funds managed by the affiliates /associates of the Sponsor may invest either directly or indirectly in the Scheme. The funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme's investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme's portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances - please refer Section XVII.G - Right to limit Redemption. Investors are urged to study the terms of the offer carefully before investing in the Scheme and to retain this Offer Document for future reference.

• Standard Risk Factors


• Scheme Specific Risk Factors


• Risk Factors Associated with Securitised Debts


• Risk Factors Associated with the use of Derivatives


• Other Risk Factors


• Special Considerations

• Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee against loss in the Scheme or that the Scheme's objectives will be achieved.
• As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.
• Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme.
• Investors in the Scheme are not being offered a guaranteed or assured rate of return.
• JPMorgan India Liquid Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns.
• Mutual funds invest in securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme’s value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.
• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

As per SEBI circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003, and SEBI/IMD/CIR No. 1/42529/05 dated June 14, 2005 the Scheme should have a minimum of 20 unit holders and no single unit holder should account for more than 25% of the corpus of the Scheme. In case of non-fulfilment with either of the aforesaid conditions in a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the NFO of the Scheme, the Scheme shall be wound up by following the guidelines prescribed by SEBI. The aforesaid conditions should also be met in each subsequent calendar quarter thereafter on an average basis. SEBI has further prescribed that if any investor breaches the 25% limit over a calendar quarter, a rebalancing period of one month will be allowed to the investor and thereafter the investor who is in breach of the limit shall be given 15 days notice to redeem his exposure over the 25% limit. In the event of failure on part of the said investor to redeem the excess exposure, the excess holding over the 25% limit will be automatically redeemed by the Mutual Fund on the Applicable NAV on the 15th day of the notice period.

The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The Trustee has the right, in its sole discretion, to limit Redemptions (including suspending Redemption) under certain circumstances. There may be temporary periods when the monies of the Scheme are un- invested and no return is earned thereon. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. By the same token, the inability to sell Securities held in the Scheme’s portfolio due to the absence of a well developed and liquid secondary market for debt Securities could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of the Securities held in the Scheme’s portfolio.

The liquidity and valuation of the Scheme’s investments due to its holdings of unlisted securities may be affected if they have to be sold prior to their target date of divestment.

Securities, which are not quoted on the stock exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to Securities that are listed on the exchanges or offer other exit options to the investor, including a put option. Within the Regulatory limits, the AMC may choose to invest in unlisted securities that offer attractive yields.

While Securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges. Money market Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the Security is finally sold.

Money market Securities and debt securities are subject to the risk of an issuer’s inability to meet interest and principal payments on its debt obligations (credit risk). These securities may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of the creditworthiness of the issuer, among others (market risk). The Investment Manager will endeavour to manage credit risk through in-house credit analysis. The Scheme may also, but is not obliged to, use various hedging products from time to time, as are available and permitted by SEBI, to attempt to reduce the impact of undue market volatility on the Scheme’s portfolio. There is no guarantee that hedging techniques will achieve the desired result.

The investments made by the Scheme are subject to reinvestment risk. This risk refers to the interest rate levels at which cash flows received from the Securities in the Scheme are reinvested. The additional income from reinvestment is the “interest on interest” component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed.

The NAV of the Scheme’s Units, to the extent that the Scheme is invested in fixed income Securities, will be affected by changes in the general level of interest rates. When interest rates decline, the value of a portfolio of fixed income Securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio of fixed income Securities can be expected to decline.

To the extent the Scheme’s investments are in floating rate debt instruments or fixed debt instruments swapped for floating rate return, they will be affected by interest rate movement (basis risk) - coupon rates on floating rate securities are reset periodically in line with the benchmark index movement. Normally, the interest rate risk inherent in a floating rate instrument is limited compared to a fixed rate instrument. Changes in the prevailing level of interest rates will likely affect the value of the Scheme’s holdings until the next reset date and thus the value of the Scheme’s Units. The value of securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The Fund could be exposed to interest rate risk:

1. due to the time gap in the resetting of the benchmark rates, and
2. Spread Risk: to the extent the benchmark index fails to capture interest rate changes appropriately: though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period return of floating rate instruments. Settlement Risk (counterparty risk): Specific floating rate assets may also be created by swapping a fixed return into a floating rate return. In such a swap, there is the risk that the counterparty (who will pay floating rate return and receive fixed rate return) may default;
   Liquidity Risk: The market for floating rate securities is still in its evolutionary stage and therefore may render the market illiquid from time to time, for such Securities that the Scheme is invested in.

Different types of Securities in which the Scheme may invest as given in the Offer Document carry different levels and types of risk. Accordingly the Scheme’s risk may increase or decrease depending upon its investment pattern. E.g. corporate bonds carry a higher amount of risk than government securities. Further even among corporate bonds, bonds which are rated AAA or equivalent are comparatively less risky than bonds which are AA rated.

Investments in the Scheme made in foreign currency by a Unit Holder are subject to the risk of fluctuation in the value of Indian Rupee.

C. Risk Factors Associated with Securitised Debts

Generally available asset classes for securitisation in India:

• Commercial vehicles
• Auto and two wheeler pools
• Mortgage pools (residential housing loans)
• Personal loan, credit card and other retail loans
• Corporate loans / receivables

In terms of specific risks attached to securitisation, each asset class would have different underlying risks, however, residential mortgages typically have lower default rates as an asset class. On the other hand, repossession and subsequent recovery of commercial vehicles and other auto assets is normally easier and better compared to mortgages. Some of the asset classes such as personal loans, credit card receivables etc., being unsecured credits in nature, may witness higher default rates. As regards corporate loans/ receivables, depending upon the nature of the underlying security for the loan or the nature of the receivable the risks would correspondingly fluctuate. However, the credit enhancement stipulated by rating agencies for such asset class pools is typically much higher and hence their overall risks are comparable to other AAA or equivalent rated asset classes.

Some of the factors, which are typically analyzed for any pool, are as follows:
Size of the loan: this generally indicates the kind of assets financed with loans. Also indicates whether there is excessive reliance on very small ticket size, which may result in difficult and costly recoveries. To illustrate, the ticket size of housing loans is generally higher than that of personal loans. Hence in the construction of a housing loan asset pool for say Rs.1,00,00,000/- it may be easier to construct a pool with just 10 housing loans of Rs.10,00,000/- each rather than to construct a pool of personal loans as the ticket size of personal loans may rarely exceed Rs. 5,00,000/- per individual.

Average original maturity of the pool: this indicates the original repayment period and whether the loan tenors are in line with industry averages and borrower’s repayment capacity. To illustrate, in a car pool consisting of 60 month contracts, the original maturity and the residual maturity of the pool viz. number of remaining instalments to be paid gives a better idea of the risk of default of the pool itself. If in a pool of 100 car loans having original maturity of 60 months, more than 70% of the contracts have paid more than 50% of the monthly instalments and if no default has been observed in such contracts, this pool should have a lower probability of default than a similar car loan pool where 80% of the contracts have not yet paid 5 instalments.

Loan to value ratio (“LTV”): indicates how much of the value of the asset is financed by borrower’s own equity. The lower the LTV, the better it is. This ratio stems from the principle that where the borrower’s own contribution of the asset cost is high, the chances of default are lower. To illustrate: for a truck costing Rs. 20 lakh, if the borrower has himself contributed Rs. 10 lakh and has taken Rs. 10 lakh as a loan, he is going to have lesser propensity to default as he would lose an asset worth Rs. 20 lakh if he defaults in repaying an instalment. This is as against a borrower who may meet only Rs. 2 lakh out of his own equity for a truck costing Rs. 20 lakh. Between the two scenarios given above, as the borrower’s own equity is lower in the latter case, it would typically have a higher risk of default than the former.

Average seasoning of the pool: this indicates whether borrowers have already displayed repayment discipline. To illustrate, in the case of a pool of personal loans, if a pool of assets consist of borrowers who have already repaid 80% of the instalments without default, the probability of default is lower than for a pool where only 10% of instalments have been repaid.

Default rate distribution: this indicates how much % of the pool and overall portfolio of the originator is current, how much is in 0-30 DPD (days past due), 30-60 DPD, 60-90 DPD and so on. The rationale here is that, as against 0-30 DPD, the 60-90 DPD is a higher risk category. Unlike in plain vanilla instruments, in securitisation transactions it is possible to work towards a target credit rating, which could be much higher than the originator’s own credit rating.

In the Indian scenario, also, more than 95% of issuances have been AAA or equivalent rated issuances indicating the strength of the underlying assets as well as adequacy of credit enhancement.

Investment exposure of the Fund with reference to securitised debt:

• The Scheme will predominantly invest only in those securitisation issuances which have AAA or equivalent rating indicating the highest level of safety from credit risk point of view at the time of making an investment. The Scheme will not invest in foreign securitised debt.
• The Scheme may invest in various types of securitisation issuances, including but not limited to asset backed securitisation, mortgage backed securitisation, personal loan backed securitisation, collateralized loan obligation / collateralized bond obligation and so on.
• The Scheme does not propose to limit its exposure to only one asset class or to have asset class based sub-limits as it will primarily look towards the AAA or equivalent rating of the offering.
• The Scheme will conduct an independent due diligence on the cash margins, collateralisation, guarantees and other credit enhancements and the portfolio characteristic of the securitisation to ensure that the issuance fits into the overall objective of the investment in high investment grade offerings irrespective of underlying asset class.
  

Risk Factors specific to investments in securitised papers:
Types of securitised debt vary and carry different levels and types of risks. Credit risk on securitised bonds depends upon the originator and varies depending on whether they are issued with recourse to the originator or otherwise. Even within securitised debt, AAA or equivalent rated securitised debt offers lesser risk of default than AA rated securitised debt. A structure with recourse will have a lower credit risk than a structure without recourse.

As underlying assets in securitised debt may assume different forms and the general types of receivables include auto finance, credit cards, home loans or any such receipts, credit risks relating to these types of receivables depend upon various factors including macro economic factors of these industries and economies. Specific factors like nature and adequacy of property mortgaged against these borrowings, nature of loan agreement / mortgage deed in case of home loan, adequacy of documentation in case of auto finance and home loans, capacity of borrower to meet its obligation on borrowings in case of credit cards and the intention of the borrower influence the risks relating to the asset borrowings underlying the securitised debt.

Changes in market interest rates and pre-payments may not change the absolute amount of receivables for the investors, but may have an impact on the reinvestment of the periodic cash flows that the investor receives in the securitised paper.

Limited Liquidity & Price Risk:
Presently, the secondary market for securitised papers is not very liquid. There is no assurance that a deep secondary market will develop for such securities. This could limit the ability of the Fund to resell them. Even if a secondary market develops and sales were to take place, these secondary transactions may be at a discount to the initial issue price due to changes in the interest rate structure.

Risks due to possible prepayments: Weighted Tenor / Yield:
Asset securitisation is a process whereby commercial or consumer credits are packaged and sold in the form of financial instruments. Full prepayment of underlying loan contract may arise under any of the following circumstances:

• Obligor pays the receivable due from him at any time prior to the scheduled maturity date of that receivable; or
• Receivable is required to be repurchased by the seller consequent to its inability to rectify a material misrepresentation with respect to that receivable; or
• The servicer recognizing a contract as a defaulted contract and hence repossessing the underlying asset and selling the same.

In the event of prepayments, investors may be exposed to changes in tenor and yield.

Bankruptcy of the originator or seller:
If the originator becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the sale from originator to Trust was not a sale then the Fund could experience losses or delays in the payments due. All possible care is generally taken in structuring the transaction so as to minimize the risk of the sale to Trust not being construed as a “True Sale”. Legal opinion is normally obtained to the effect that the assignment of Receivables to Trust in trust for and for the benefit of the investors, as envisaged herein, would constitute a true sale.

Bankruptcy of the investor’s agent:
If Investor’s agent becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the recourse of Investor’s Agent to the assets / receivables is not in its capacity as agent / Trustee but in its personal capacity, then an Investor could experience losses or delays in the payments due under the swap agreement. All possible care is normally taken in structuring the transaction and drafting the underlying documents so as to provide that the assets / receivables if and when held by Investor’s Agent is held as agent and in Trust for the Investors and shall not form part of the personal assets of Investor’s Agent. Legal opinion is normally obtained to the effect that the Investors Agent’s recourse to assets / receivables is restricted in its capacity as agent and trustee and not in its personal capacity.

Credit Rating of the Transaction / Certificate:
The credit rating is not a recommendation to purchase, hold or sell the Certificate in as much as the ratings do not comment on the market price of the Certificate or its suitability to a particular investor. There is no assurance by the rating agency either that the rating will remain at the same level for any given period of time or that the rating will not be lowered or withdrawn entirely by the rating agency.

Risk on Servicers:
The Servicers normally deposit all payments received from the Obligors into the Collection Account. However, there could be a time gap between collection by a Servicer and depositing the same into the Collection account especially considering that some of the collections may be in the form of cash. In this interim period, collections from the Loan Agreements may not be segregated from other funds of the Servicer. If the Servicer fails to remit such funds, including due to his bankruptcy or failure, due to Investors, the Investors may be exposed to a potential loss. Due care is normally taken to ensure that the Servicer enjoys highest credit rating on stand alone basis to minimize Co-mingling risk.

D. Risk Factors Associated with the use of Derivatives

Derivatives products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decisions of a fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.

As and when the Scheme trades in derivative products, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivatives require the maintenance of adequate controls to monitor the transactions and the embedded market risks that a derivative adds to the portfolio.

Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to:

1. Credit Risk – this occurs when a counterparty defaults on a transaction before settlement and, therefore, the Scheme is compelled to negotiate with another counterparty at the then prevailing (possibly unfavourable) market price, in order to maintain the validity of the hedge.
2. Market Liquidity Risk – this is where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices.
3. Model Risk – this is the risk of mis-pricing or improper valuation of derivatives.
4. Basis Risk – this is when the instrument used as a hedge does not match the movement in the instrument / underlying asset being hedged. The risks may be inter–related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer / industry assets.
5. Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends on the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involves uncertainty and the decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.
6. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.

E. Other Risk Factors

1. Risk Factors Associated with Debt Securities

The Scheme may invest in Debt Securities which may involve a degree of risk.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of the issuer’s inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated securities offering higher yields.

2. Risk Factors Associated with Overseas Investment

Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, restrictions on repatriation of capital due to exchange controls and the political environment. Further the repatriation of capital to India may also be hampered by and changes in Regulations or political circumstances. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration, bi-lateral conflict lending to immobilisation of overseas financial assets and the prevalent tax laws of the respective jurisdiction for the execution of trades or otherwise.

F. Special Considerations

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh) made by them towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.
• Neither this Offer Document nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this Offer Document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this Offer Document are required to inform themselves about, and to comply with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this Offer Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• The Mutual Fund / the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this Offer Document in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Mutual Fund or the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this Offer Document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.
• From time to time, funds managed by the affiliates /associates of the Sponsor may invest either directly or indirectly in the Scheme. The funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme's investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme's portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances - please refer Section XVII.G - Right to limit Redemption.

Investors are urged to study the terms of the offer carefully before investing in the Scheme and to retain this Offer Document for future reference.

• Risk Factors


• Requirement of Minimum Investors in the Scheme


• Special Considerations

• Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.
• As the price / value / interest rates of the Securities in which the Scheme invests fluctuates, the value of your investment in the Scheme may go up or down.
• Mutual funds, like Securities investments, are subject to market and other risks and there can be no guarantee against loss resulting from an investment in the Scheme nor can there be any assurance that the Scheme's objectives will be achieved.
• Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the Scheme.
• JPMorgan India Treasury Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or its future prospects and returns.
• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of Rs. 1,00,000 (One Lakh Rupees) made by it towards setting up the Mutual Fund.
• The present Scheme is not a guaranteed or assured return scheme.

• Investments in money market instruments would involve a moderate credit risk, i.e. risk of an issuer's inability to meet the principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme's Units, to the extent that the Scheme is invested in money market instruments, will be affected by changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of the issuer's inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated Securities offering higher yields.
• The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The Trustee has the right, in its sole discretion, to limit Redemptions (including suspending Redemption) under certain circumstances. There may be temporary periods when the monies of the Scheme are un-invested and no return is earned thereon. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. By the same token, the inability to sell Securities held in the Scheme's portfolio due to the absence of a well developed and liquid secondary market for Debt Securities could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of the Securities held in the Scheme's portfolio.
• The liquidity and valuation of the Scheme's investments due to its holdings of unlisted Securities may be affected if they have to be sold prior to their target date of divestment.
• Debt Securities, which are not quoted on the stock exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to Debt Securities that are listed on the exchanges or offer other exit options to the investor, including a put option. The AMC may choose to invest in unlisted Debt Securities that offer attractive yields within regulatory limits. This may however increase the risk of the portfolio. Additionally, the liquidity and valuation of the Scheme's investment due to its holdings of the unlisted Securities may be affected if they have to be sold prior to the target date of investment.
• While Debt Securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is 6 limited by the overall trading volume on the stock exchanges. Money market Securities, while fairly liquid, lacks a welldeveloped secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the Security is finally sold.
• Money market Securities and debt Securities are subject to the risk of an issuer's inability to meet interest and principal payments on its debt obligations (credit risk). Credit risk or default risk refers to the risk which may arise due to default on the part of the issuer of the fixed income security (i.e., will be unable to make timely principal and interest payments on the security). Because of this risk debentures are sold at a yield spread above those offered on treasury securities, which are sovereign obligations and generally considered to be free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the actual changes in the perceived level of credit risk as well as the actual event of default. These Securities may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of the creditworthiness of the issuer, among others (market risk). The Liquidity Risk refers to the ease at which a Security can be sold at or near its true value. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is characteristic of the Indian fixed income market. The Investment Manager will endeavour to manage credit risk through in-house credit analysis. The Scheme may also, but is not obliged to, use various hedging products from time to time, as are available and permitted by SEBI, to attempt to reduce the impact of undue market volatility on the Scheme's portfolio. There is no guarantee that hedging techniques will achieve the desired result.
• The investments made by the Scheme are subject to reinvestment risk. This risk refers to the interest rate levels at which cash flows received from the Securities in the Scheme are reinvested. The additional income from reinvestment is the "interest on interest" component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed. The risk refers to the fall in the rate for reinvestment of interim cash flows.
• The NAV of the Scheme's Units, to the extent that the Scheme is invested in fixed income Securities, will be affected by changes in the general level of interest rates. When interest rates decline, the value of a portfolio of fixed income Securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio of fixed income Securities can be expected to decline.
• To the extent the Scheme's investments are in floating rate debt instruments or fixed debt instruments swapped for floating rate return, they will be affected by interest rate movement (basis risk) - coupon rates on floating rate securities are reset periodically in line with the benchmark index movement. Normally, the interest rate risk inherent in a floating rate instrument is limited compared to a fixed rate instrument. Changes in the prevailing level of interest rates will likely affect the value of the Scheme's holdings until the next reset date and thus the value of the Scheme's Units. The value of Securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The Mutual Fund could be exposed to interest rate risk: (i) due to the time gap in the resetting of the benchmark rates, and (ii) to the extent the benchmark index fails to capture interest rate changes appropriately (spread risk): though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period return of floating rate instruments.
• Settlement Risk (counterparty risk): Specific floating rate assets may also be created by swapping a fixed return into a floating rate return. In such a swap, there is the risk that the counterparty (who will pay floating rate return and receive fixed rate return) may default;
• Liquidity Risk: The market for floating rate Securities is still in its evolutionary stage and therefore may render the market illiquid from time to time, for such Securities that the Scheme is invested in.
• Prepayment Risk: The Borrower may prepay the receivables prior to their respective due dates. This may result in change in the yield and tenor for the Scheme.
• Different types of Securities in which the Scheme may invest as given in the SID carry different levels and types of risk. Accordingly the Scheme's risk may increase or decrease depending upon its investment pattern. E.g. corporate bonds carry a higher amount of risk than government Securities. Further even among corporate bonds, bonds which are rated AAA are comparatively less risky than bonds which are AA rated.
• Investments in the Scheme made in foreign currency by a Unit Holder are subject to the risk of fluctuation in the value of Indian Rupee.

• Credit Risk - this occurs when a counterparty defaults on a transaction before settlement and, therefore, the Scheme is compelled to negotiate with another counterparty at the then prevailing (possibly unfavourable) market price, in order to maintain the validity of the hedge.
• Market Liquidity Risk - this is where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices.
• Model Risk - this is the risk of mis-pricing or improper valuation of derivatives.
• Basis Risk - this is when the instrument used as a hedge does not match the movement in the instrument / underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer / industry assets.

• Commercial vehicles
• Auto and two wheeler pools
• Mortgage pools (residential housing loans)
• Personal loan, credit card and other retail loans
• Corporate loans / receivables

• The Scheme will predominantly invest only in those securitisation issuances which have AAA or equivalent rating indicating the highest level of safety from credit risk point of view at the time of making an investment. The Scheme will not invest in foreign securitised debt.
• The Scheme may invest in various types of securitization issuances, including but not limited to asset backed securitisation, mortgage backed securitisation, personal loan backed securitisation, collateralised loan obligation / collateralized bond obligation and so on.
• The Scheme does not propose to limit its exposure to only one asset class or to have asset class based sub-limits as it will primarily look towards the AAA or equivalent rating of the offering.
• The Scheme will conduct an independent due diligence on the cash margins, collateralisation, guarantees and other credit enhancements and the portfolio characteristic of the securitisation to ensure that the issuance fits into the overall objective of the investment in high investment grade offerings irrespective of underlying asset class.

• obligor pays the receivable due from him at any time prior to the scheduled maturity date of that receivable; or
• receivable is required to be repurchased by the seller consequent to its inability to rectify a material misrepresentation with respect to that receivable; or
• the servicer recognizing a contract as a defaulted contract and hence repossessing the underlying asset and selling the same. In the event of prepayments, investors may be exposed to changes in tenor and yield.

B. Requirement of Minimum Investors in the Scheme

C. Special Considerations

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh) made by it towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.
• Neither this SID nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this SID in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this SID are required to inform themselves about, and to comply with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this SID and the SAI carefully and in their entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch, Redemption or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• Neither the Mutual Fund nor the AMC nor the Sponsor have authorized any person to give any information or make any representations, either oral or written, not stated in this SID in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this SID as the same have not been authorised by the Mutual Fund, the AMC or the Sponsor. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this SID or which are inconsistent with the information contained herein shall be solely at the risk of the investor.
• From time to time, funds managed by the affiliates /associates of the Sponsor may invest either directly or indirectly in the Scheme. The mutual funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme's investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Mutual Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme's portfolio. In view of this, the Trustee has the right, in its sole di s c ret ion, to l imi t Redempt ions under cer tain circumstances.(Please also refer to Section - 'Right to limit Redemption')
• The tax benefits described in this SID are as available under the prevailing taxation laws. Investors / Unit Holders should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Unit Holder is advised to consult his / her / their own professional tax advisor.
• Mutual funds invest in Securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme's value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.
• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

• Standard Risk Factors


• Scheme Specific Risk Factors


• Other Risk Factors


• Special Considerations

• Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved.
• As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.
• Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Investors in the Scheme are not being offered a guaranteed or assured rate of return.
• JPMorgan India Smaller Companies Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns.

As per SEBI Circular Nos. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003, and SEBI/IMD/CIR No. 1/42529/05 dated June 14, 2005 the Scheme should have a minimum of 20 unit holders and no single unit holder should account for more than 25% of the corpus of the Scheme. In case of non-fulfilment of either of the aforesaid conditions in a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the NFO of the Scheme, the Scheme shall be wound up by following the guidelines prescribed by SEBI. The aforesaid conditions should also be met in each subsequent calendar quarter thereafter, on an average basis. SEBI has further prescribed that if any investor breaches the 25% limit over a calendar quarter, a rebalancing period of one month will be allowed to the investor and thereafter the investor who is in breach of the limit shall be given 15 days notice to redeem his exposure over the 25% limit. In the event of failure on part of the said investor to redeem the excess exposure, the excess holding over the 25% limit will be automatically redeemed by the Mutual Fund at the Applicable NAV on the 15th day of the notice period.

Investments in equity and equity related securities involve a degree of risk.

• Equity securities and equity related securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made by the Scheme may be restricted by trading volumes and settlement periods. This may impact the ability of the Unit Holders to redeem their Units. In view of this, the Trustee has the right, in its sole discretion to limit Redemptions (including suspending Redemption) under certain circumstances. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended securities purchases, due to settlement problems, could cause the Scheme to forego certain investment opportunities. Similarly, the inability to sell securities held in the Scheme’s portfolio could result at times, in potential losses to the Scheme, should there be a subsequent decline in the value of securities held in the Scheme’s portfolio.
• The liquidity and valuation of the Scheme’s investments due to its holdings of unlisted securities may be affected if they have to be sold prior to the target date for disinvestment. While smaller and medium size companies may offer substantial opportunities for capital appreciation, they also involve substantial risks.
• Investments in money market instruments would involve a moderate credit risk i.e. risk of an issuer’s liability to meet the principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme’s Units, to the extent that the Scheme is invested in money market instruments, will be affected by the changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

C. Other Risk Factors

1. Risk Factors Associated with Derivatives

• The Scheme may invest in derivative products in accordance with and to the extent permitted under the Regulations. The use of derivatives requires an understanding of the underlying instruments and the derivatives themselves. The risk of investments in derivatives includes mis-pricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices.
• Trading in derivatives carries a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount.
• The Scheme may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limits or circuit breakers, the Scheme may face a liquidity issue.
• The option buyer’s risk is limited to the premium paid, while the risk of an option writer is unlimited. However, the gains of an Option writer are limited to the premiums earned. Since in case of the Scheme all Option positions will have underlying assets, all losses due to price-movement beyond the strike price will actually be an opportunity loss.
• The relevant stock exchange may impose restrictions on exercise of Options and may also restrict the exercise of options at certain times in specified circumstances.
• The writer of a Put option bears the risk of loss if the value of the underlying asset declines below the exercise price. The writer of a call Option bears a risk of loss if the value of the underlying asset increases above the exercise price.
• Investments in index futures face the same risk as investments in a portfolio of shares representing an index. The extent of loss is the same as in the underlying stocks.
• The Scheme bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indexes or other financial or economic factors in establishing derivative positions for the Scheme.
• The risk of loss in trading futures contracts can be substantial, because of the low margin deposits required, the extremely high degree of leverage involved in Futures pricing and the potential high volatility of the Futures markets.
• Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends on the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involves uncertainty and the decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.
• The risks associated with the use of derivatives are different from or possibly grater than, the risks associated with investing directly in securities and other traditional investments.

2. Risk Factors Associated with Stock Lending

The risks in lending portfolio securities, as with other extensions of credit, consist of the failure of another party, in this case the approved intermediary, to comply with the terms of the agreement entered into between the lender of securities, i.e. the Scheme, and the approved intermediary. Such failure to comply can result in a possible loss of rights in the collateral put up by the borrower of the securities, the inability of the approved intermediary to return the securities deposited by the lender and the possible loss of any corporate benefits accruing to the lender from the securities deposited with the approved intermediary. The Mutual Fund may not be able to sell such securities and this can lead to temporary illiquidity.

3. Risk Factors Associated with Debt Securities

The scheme may invest in Debt schemes which may involve a degree of risk.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of the issuer’s inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated securities offering higher yields.

4. Risk Factors Associated with Overseas Investment

Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, restrictions on repatriation of capital due to exchange controls and the political environment. Further the repatriation of capital to India may also be hampered by and changes in Regulations or political circumstances. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration, bi-lateral conflict leading to immobilisation of overseas financial assets and the prevalent tax laws of the respective jurisdictions for the execution of trades or otherwise.

5. Disclaimer with respect to the use of CNX Midcap as benchmark:

“The JPMorgan India Smaller Companies Fund is not sponsored, endorsed, sold or promoted by India Index Services & Products Limited (IISL). IISL makes no representation or warranty, express or implied to the owners of the Product or any member of the public regarding the advisability of investing in securities generally or in the Product particularly or the ability of the CNX Midcap Index to track general stock market performance in India. The relationship of IISL to the JPMorgan Asset Management India Pvt. Ltd. trade name of CNX Midcap Index for benchmarking purposes, which is determined, composed and calculated by IISL without regard to the JPMorgan Asset Management India Pvt. Ltd. IISL has no obligation to take the needs of JPMorgan Asset Management India Pvt. Ltd. or the owners of the Product into consideration in determining, composing or calculating the CNX Midcap Index. IISL is not responsible for nor has participated in the determination of the timing of, prices at, or quantities of the Product to be issued or in determination or calculation of the equation by which the product is to be converted into cash. IISL has no obligation or liability in connection with the administration, marketing or trading of the Product.”

“IISL does not guarantee the accuracy and/or the completeness of the CNX Midcap Index or any data included therein and they shall have no liability for any errors, omissions, or interruptions therein. IISL makes no warranty, express or implied, as to the results to be obtained by the Principal JPMorgan Asset Management India Pvt. Ltd., owners of the Product, or any other persons or entities from the use of the CNX Midcap Index or any data included therein. IISL makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the CNX Midcap Index or any data included therein. Without limiting any of the foregoing, in no event shall IISL have any liability for any special, punitive, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages”.

D. Special Considerations

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh nly) made by them towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.
• Neither this Offer Document nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this Offer Document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this Offer Document are required to inform themselves about, and to comply with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this Offer Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• The Mutual Fund / the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this Offer Document in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Mutual Fund nor the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this Offer Document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.
• From time to time, funds managed by the affiliates /associates of the Sponsor may invest either directly or indirectly in the Scheme. The funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme’s investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme’s portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances - please refer Section XVIII.G - Right to limit Redemption.
• Mutual funds invest in securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme’s value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.
• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

Investors are urged to study the terms of the offer carefully before investing in the Scheme and to retain this Offer Document for future reference.

• Standard Risk Factors


• Scheme Specific Risk Factors


• Risk Factors Associated with Securitised Debt


• Risk Factors Associated with the use of Derivatives


• Other Risk Factors


• Special Considerations

• Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved.
•  As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.
• Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme.
• Investors in the Scheme are not being offered a guaranteed or assured rate of return.
• JPMorgan India Active Bond Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns.

As per SEBI circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003, and SEBI/IMD/CIR No. 1/42529/05 dated June 14, 2005 the Scheme should have a minimum of 20 Unit Holders and no single Unit Holder should account for more than 25% of the corpus of the Scheme. In case of non-fulfilment with either of the aforesaid conditions in a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the NFO of the Scheme, the Scheme shall be wound up by following the guidelines prescribed by SEBI. The aforesaid conditions should also be met in each subsequent calendar quarter thereafter on an average basis. SEBI has further prescribed that if any investor breaches the 25% limit over a calendar quarter, a rebalancing period of one month will be allowed to the investor and thereafter the investor who is in breach of the limit shall be given 15 days notice to redeem his exposure over the 25% limit. In the event of failure on part of the said investor to redeem the excess exposure, the excess holding over the 25% limit will be automatically redeemed by the Mutual Fund on the Applicable NAV on the 15th day of the notice period.

The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The Trustee has the right, in its sole discretion, to limit Redemptions (including suspending Redemption) under certain circumstances. There may be temporary periods when the monies of the Scheme are uninvested and no return is earned thereon. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. By the same token, the inability to sell Securities held in the Scheme’s portfolio due to the absence of a well developed and liquid secondary market for debt Securities could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of the Securities held in the Scheme’s portfolio.

The liquidity and valuation of the Scheme’s investments due to its holdings of unlisted securities may be affected if they have to be sold prior to their target date of divestment.

Securities, which are not quoted on the stock exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to Securities that are listed on the exchanges or offer other exit options to the investor, including a put option. Within the Regulatory limits, the AMC may choose to invest in unlisted securities that offer attractive yields.

While Securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges. Money market Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the Security is finally sold.

Money market Securities and debt Securities are subject to the risk of an issuer’s inability to meet interest and principal payments on its debt obligations (credit risk). Credit risk or default risk refers to the risk which may arise due to default on the part of the issuer of the fixed income security (i.e., will be unable to make timely principal and interest payments on the security). Because of this risk debentures are sold at a yield spread above those offered on treasury securities, which are sovereign obligations and generally considered to be free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the actual changes in the perceived level of credit risk as well as the actual event of default. These securities may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of the creditworthiness of the issuer, among others (market risk). The Liquidity Risk refers to the ease at which a security can be sold at or near its true value. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is characteristic of the Indian fixed income market. The Investment Manager will endeavour to manage credit risk through in-house credit analysis. The Scheme may also, but is not obliged to, use various hedging products from time to time, as are available and permitted by SEBI, to attempt to reduce the impact of undue market volatility on the Scheme’s portfolio. There is no guarantee that hedging techniques will achieve the desired result.

The investments made by the Scheme are subject to reinvestment risk. This risk refers to the interest rate levels at which cash flows received from the Securities in the Scheme are reinvested. The additional income from reinvestment is the “interest on interest” component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed. The risk refers to the fall in the rate for reinvestment of interim cash flows.

The NAV of the Scheme’s Units, to the extent that the Scheme is invested in fixed income Securities, will be affected by changes in the general level of interest rates. When interest rates decline, the value of a portfolio of fixed income Securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio of fixed income Securities can be expected to decline.

To the extent the Scheme’s investments are in floating rate debt instruments or fixed debt instruments swapped for floating rate return, they will be affected by interest rate movement (basis risk) - coupon rates on floating rate securities are reset periodically in line with the benchmark index movement. Normally, the interest rate risk inherent in a floating rate instrument is limited compared to a fixed rate instrument. Changes in the prevailing level of interest rates will likely affect the value of the Scheme’s holdings until the next reset date and thus the value of the Scheme’s Units. The value of securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The Fund could be exposed to interest rate risk:

(i) due to the time gap in the resetting of benchmark rates, and (ii) Spread Risk: to the extent the benchmark index fails to capture interest rate changes appropriately though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period return of floating rate instruments.

Settlement Risk (counterparty risk): Specific floating rate assets may also be created by swapping a fixed return into a floating rate return. In such a swap, there is the risk that the counterparty (who will pay floating rate return and receive fixed rate return) may default;

Liquidity Risk: The market for floating rate securities is still in its evolutionary stage and therefore may render the market illiquid from time to time, for such Securities that the Scheme is invested in.

Different types of Securities in which the Scheme may invest as given in the Offer Document carry different levels and types of risk. Accordingly the Scheme’s risk may increase or decrease depending upon its investment pattern. E.g. corporate bonds carry a higher amount of risk than government securities. Further even among corporate bonds, bonds which are rated AAA or equivalent are comparatively less risky than bonds which are AA or equivalent rated.

Investments in the Scheme made in foreign currency by a Unit Holder are subject to the risk of fluctuation in the value of Indian Rupee.

C. Risk Factors Associated with Securitised Debt

Generally available asset classes for securitisation in India:

• Commercial vehicles
• Auto and two-wheeler pools
• Mortgage pools (residential housing loans)
• Personal loan, credit card and other retail loans
• Corporate loans / receivables

In terms of specific risks attached to securitisation, each asset class would have different underlying risks. However, residential mortgages typically have lower default rates as an asset class. On the other hand, repossession and subsequent recovery of commercial vehicles and other auto assets is normally easier and better compared to mortgages. Some of the asset classes such as personal loans, credit card receivables etc., being unsecured credits in nature, may witness higher default rates. As regards corporate loans/ receivables, depending upon the nature of the underlying security for the loan or the nature of the receivable the risks would correspondingly fluctuate. However, the credit enhancement stipulated by rating agencies for such asset class pools is typically much higher and hence their overall risks are comparable to other AAA or equivalent-rated asset classes.

Some of the factors, which are typically analyzed for any pool, are as follows:

Size of the loan:
This generally indicates the kind of assets financed with loans. Also indicates whether there is excessive reliance on very small ticket size, which may result in difficult and costly recoveries. To illustrate, the ticket size of housing loans is generally higher than that of personal loans. Hence, in the construction of a housing loan asset pool for say Rs.1,00,00,000/- it may be easier to construct a pool with just 10 housing loans of Rs.10,00,000/- each rather than to construct a pool of personal loans as the ticket size of personal loans may rarely exceed Rs. 5,00,000/- per individual.

Average original maturity of the pool:
This indicates the original repayment period and whether the loan tenors are in line with industry averages and borrower’s repayment capacity. To illustrate, in a car pool consisting of 60 month contracts, the original maturity and the residual maturity of the pool viz. number of remaining instalments to be paid gives a better idea of the risk of default of the pool itself. If in a pool of 100 car loans, having an original maturity of 60 months, more than 70% of the contracts have paid more than 50% of the monthly instalments and if no default has been observed in such contracts, this pool should have a lower probability of default than a similar car loan pool where 80% of the contracts have not yet paid five instalments.

Loan-to-value ratio (“LTV”):
This indicates how much of the value of the asset is financed by borrower’s own equity. The lower the LTV, the better it is. This ratio stems from the principle that where the borrower’s own contribution of the asset cost is high, the chances of default are lower. To illustrate, for a truck costing Rs. 20 lakh, if the borrower has himself contributed Rs. 10 lakh and has taken Rs. 10 lakh as a loan, he is going to have lesser propensity to default as he would lose an asset worth Rs. 20 lakh if he defaults in repaying an instalment. This is as against a borrower who may meet only Rs. 2 lakh out of his own equity for a truck costing Rs. 20 lakh. Between the two scenarios given above, as the borrower’s own equity is lower in the latter case, he would typically have a higher risk of default than the former.

Average seasoning of the pool:
This indicates whether borrowers have already displayed repayment discipline. To illustrate, in the case of a pool of personal loans, if a pool of assets consist of borrowers who have already repaid 80% of the instalments without default, the probability of default is lower than for a pool where only 10% of instalments have been repaid.

Default rate distribution:
This indicates what percentage of the pool and overall portfolio of the originator is current, how much is in 0-30 DPD (days past due), 30-60 DPD, 60-90 DPD and so on. The rationale here is that, as against 0-30 DPD, the 60-90 DPD is a higher risk category. Unlike in plain vanilla instruments, in securitisation transactions it is possible to work towards a target credit rating, which could be much higher than the originator’s own credit rating.

In the Indian scenario, also, more than 95% of issuances have been AAA or equivalent-rated issuances indicating the strength of the underlying assets as well as adequacy of credit enhancement. Investment exposure of the Fund with reference to securitised debt:

• The Scheme will predominantly invest only in thosesecuritisation issuances which have AAA or equivalent rating indicating the highest level of safety from a credit risk point of view at the time of making an investment. The Scheme will not invest in foreign securitised debt.

• The Scheme may invest in various types of securitisationissuances, including but not limited to asset backed securitisation, mortgage backed securitisation, personal loan backed securitisation, collateralized loan obligation / collateralized bond obligation and so on.

• he Scheme does not propose to limit its exposure to onlyone asset class or to have asset class based sub-limits as it will primarily look towards the AAA or equivalent rating of the offering.

• The Scheme will conduct an independent due diligence onthe cash margins, collateralisation, guarantees and other credit enhancements and the portfolio characteristic of the securitisation to ensure that the issuance fits into the overall objective of the investment in high investment grade offerings irrespective of underlying asset class.

Risk Factors specific to investments in securitised papers:
Types of securitised debt vary and carry different levels and types of risks. Credit risk on securitised bonds depends upon the originator and varies depending on whether they are issued with recourse to the originator or otherwise. Even within securitised debt, AAA or equivalent -rated securitised debt offers lesser risk of default than AA or equivalent-rated securitised debt. A structure with recourse will have a lower credit risk than a structure without recourse. As underlying assets in securitised debt may assume different forms and the general types of receivables include auto finance, credit cards, home loans or any such receipts, credit risks relating to these types of receivables depend upon various factors including macro economic factors of these industries and economies. Specific factors like nature and adequacy of property mortgaged against these borrowings, nature of loan agreement / mortgage deed in case of home loan, adequacy of documentation in case of auto finance and home loans, capacity of borrower to meet his obligation on borrowings in case of credit cards and the intention of the borrower influence the risks relating to the asset borrowings underlying the securitised debt.

Changes in market interest rates, pre-payments may not change the absolute amount of receivables for investors, but may have an impact on the reinvestment of the periodic cash flows that the investor receives in securitised paper.

Limited Liquidity & Price Risk:
Currently, the secondary market for securitised papers is not very liquid. There is no assurance that a deep secondary market will develop for such securities. This could limit the ability of the Fund to resell them. Even if a secondary market develops and sales were to take place, these secondary transactions may be at a discount to the initial issue price due to changes in the interest rate structure.

Risks due to possible prepayments: Weighted Tenor / Yield:
Asset securitisation is a process whereby commercial or consumer credits are packaged and sold in the form of financial instruments. Full prepayment of underlying loan contract may arise under any of the following circumstances:

• Obligor pays the receivable due from him at any time prior to the scheduled maturity date of that receivable; or

• Receivable is required to be repurchased by the seller consequent to his inability to rectify a material misrepresentation with respect to that receivable; or

• The servicer, recognizing a contract as a defaulted contract,hence repossesses the underlying asset and sells the same. In the event of prepayments, investors may be exposed to changes in tenor and yield.

Bankruptcy of the originator or seller:
If the originator becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the sale from originator to trust was not a sale then the Fund could experience losses or delays in the payments due. All possible care is generally taken in structuring the transaction so as to minimize the risk of the sale to the trust not being construed as a “True Sale”. Legal opinion is normally obtained to the effect that the assignment of receivables to the trust in trust for and for the benefit of the investors, as envisaged herein, would constitute a true sale.

Bankruptcy of the investor’s agent:
If an investor’s agent becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the recourse of the investor’s agent to the assets / receivables is not in his capacity as agent / trustee but in his personal capacity, then an investor could experience losses or delays in the payments due under the swap agreement. All possible care is normally taken in structuring the transaction and drafting the underlying documents so as to provide that the assets / receivables if and when held by an investor’s agent are held as agent and in trust for the investors and shall not form part of the personal assets of the investor’s agent. Legal opinion is normally obtained to the effect that the investors agent’s recourse to assets / receivables is restricted in his capacity as agent and trustee and not in his personal capacity

Credit Rating of the Transaction / Certificate:
The credit rating is not a recommendation to purchase, hold or sell the certificate in as much as the ratings do not comment on the market price of the certificate or its suitability to a particular investor. There is no assurance by the rating agency either that the rating will remain at the same level for any given period of time or that the rating will not be lowered or withdrawn entirely by the rating agency.

Risk of Co-mingling:
The servicers normally deposit all payments received from the obligors into the collection Account. However, there could be a time gap between collection by a Servicer and depositing the same into the collection account especially considering that some of the collections may be in the form of cash. In this interim period, collections from the loan agreements may not be segregated from other funds of the servicer. If the servicer fails to remit such funds due to investors, the investors may be exposed to a potential loss. Due care is normally taken to ensure that the servicer enjoys the highest credit rating on a standalone basis to minimize co-mingling risk.

D. Risk Factors Associated with the use of Derivatives

• Credit Risk: This occurs when a counterparty defaults on a transaction before settlement and, therefore, the Scheme is compelled to negotiate with another counterparty at the then prevailing (possibly unfavourable) market price, in order to maintain the validity of the hedge.
• Market Liquidity Risk: This is where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices.
• Model Risk: This is the risk of mis-pricing or improper valuation of derivatives.
• Basis Risk: This is when the instrument used as a hedge does not match the movement in the instrument / underlying asset being hedged. The risks may be inter–related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer / industry assets.
  

E. Other Risk Factors

Risk Factors Associated with Debt Securities
The Scheme may invest in Debt Securities which may involve a degree of risk.

• The NAV of the Scheme, to the extent invested in DebtSecurities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.

• Debt Securities, while fairly liquid, lack a well-developedsecondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.

• Debt Securities are subject to the risk of the issuer’s inabilityto meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.

• The AMC may, considering the overall level of risk of theportfolio, invest in lower rated / unrated securities offering higher yields.

• Investments in money market instruments would involve amoderate credit risk i.e. risk of an issuer’s liability to meet the principal payments.

• Money market instruments may also be subject to pricevolatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.

• The NAV of the Scheme’s Units, to the extent that the Schemeis invested in money market instruments, will be affected by the changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

Risk Factors Associated with Overseas Investment
Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, restrictions on repatriation of capital due to exchange controls and the political environment. Further the repatriation of capital to India may also be hampered by and changes in Regulations or political circumstances. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration, bi-lateral conflict leading to immobilisation of overseas financial assets and the prevalent tax laws of the respective jurisdictions for the execution of trades or otherwise.

F. Special Considerations

• The Sponsor is not responsible or liable for any loss resultingfrom the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh) made by them towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.

• Neither this Offer Document nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this Offer Document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this Offer Document are required to inform themselves about, and to comply with, any such restrictions.

• Before making an application for Units, prospective investorsshould review / study this Offer Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the tax treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.

• The Mutual Fund / the AMC have not authorised any personto give any information or make any representations, either oral or written, not stated in this Offer Document in connection with the issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Mutual Fund or the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this Offer Document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.

• From time to time, funds managed by the affiliates /associatesof the Sponsor may invest either directly or indirectly in the Scheme. The funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.

• As the liquidity of the Scheme’s investments may sometimesbe restricted by trading volumes and settlement periods, the time taken by the Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme’s portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances - please refer Section XVII.G - Right to limit Redemption.

• Mutual funds invest in securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme’s value may beimpacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc. Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

Investors are urged to study the terms of the offer carefully before investing in the Scheme and to retain this OfferDocument for future reference.

• Standard Risk Factors


• Scheme Specific Risk Factors


• Other Risk Factors


• Special Considerations

• Mutual funds and Securities investments are subject to marketrisks and there is no assurance or guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved.

• As with any investment in securities, the NAV of the Unitsissued under the Scheme can go up or down depending on various factors and forces affecting capital markets.

• Past performance of the Sponsor / AMC / Mutual Fund doesnot indicate the future performance of the Scheme.

• Investors in the Scheme are not being offered a guaranteedor assured rate of return.

• JPMorgan India Alpha Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns.
  

As per SEBI circular no. SEBI/IMD/CIR No. 10/22701/03 dated December 12, 2003, and SEBI/IMD/CIR No. 1/42529/05 dated June 14, 2005 the Scheme should have a minimum of 20 Unit Holders and no single Unit Holder should account for more than 25% of the corpus of the Scheme. In case of non-fulfilment with either of the aforesaid conditions in a three months time period or the end of succeeding calendar quarter, whichever is earlier, from the close of the NFO of the Scheme, the Scheme shall be wound up by following the guidelines prescribed by SEBI. The aforesaid conditions should also be met in each subsequent calendar quarter thereafter on an average basis. SEBI has further prescribed that if any investor breaches the 25% limit over a calendar quarter, a rebalancing period of one month will be allowed to the investor and thereafter the investor who is in breach of the limit shall be given 15 days notice to redeem his exposure over the 25% limit. In the event of failure on part of the said investor to redeem the excess exposure, the excess holding over the 25% limit will be automatically redeemed by the Mutual Fund on the Applicable NAV on the 15th day of the notice period.

Risks in the strategies of the fund
Risk of losses in the one position may be in excess of the gains in the second position and as a consequence resulting in a net loss on the particular pair strategy. One position in isolation may suffer substantial losses. The positions may suffer the risk of substantial losses since the market movement is in the exact opposite direction of the Fund Manager’s initial view on both legs. Since the long and short positions are in different securities, these trades are not risk free and there is a potential for loses in case the fund managers view does not turn correct. Investments in equity and equity related Securities involve a degree of risk.

• Equity Securities and equity related Securities are volatile andprone to price fluctuations on a daily basis. The liquidity of investments made by the Scheme may be restricted by trading volumes and settlement periods. This may impact the ability of the Unit Holders to redeem their Units. In view of this, the Trustee has the right, in its sole discretion to limit Redemptions (including suspending Redemption) under certain circumstances. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to forego certain investment opportunities. Similarly, the inability to sell Securities held in the Scheme’s portfolio could result at times, in potential losses to the Scheme, should there be a subsequent decline in the value of Securities held in the Scheme’s portfolio.

• The liquidity and valuation of the Scheme’s investments dueto its holdings of unlisted Securities may be affected if they have to be sold prior to the target date for disinvestment. While smaller and medium size companies may offer substantial opportunities for capital appreciation, they also involve substantial risks.

• Investments in money market instruments would involve amoderate credit risk i.e. risk of an issuer’s liability to meet the principal payments.

• Money market instruments may also be subject to pricevolatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.

• The NAV of the Scheme’s Units, to the extent that the Schemeis invested in money market instruments, will be affected by the changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

• Redemption risk: As the Scheme is an interval scheme, UnitHolders can make Redemptions/switch-outs only during the Specified Redemption Period. As the liquidity of the investments made by the Scheme could, at times, be restricted by trading volumes and settlement periods, the time taken by the Mutual Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or a restructuring of the Scheme.

• Failure to achieve market neutrality due to incompletecorrelation, in particular when individual stocks are offset by an index future.

• Stock borrowing risk: there is a risk that the stock borrowedby the Scheme may be recalled by the stocklender and the Scheme is unable to replace the stocks due to the liquidity of the stock in the short term

• Unusual market conditions result in normal correlations nolonger existing.

• Suspensions in trading: Each securities exchange typically hasthe right to suspend or limit trading in the securities which it lists. Such a suspension may render it impossible for the Fund to liquidate positions, and accordingly, expose the Fund to losses and delays in its ability to unwind positions and redeem Units.

C. Other Risk Factors

1. Risk Factors Associated with Derivatives

• The Scheme may invest in derivative products in accordance with and to the extent permitted under the Regulations. The use of derivatives requires an understanding of the underlying instruments and the derivatives themselves. The risk of investments in derivatives includes mis-pricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices.

• Trading in derivatives carries a high degree of risk although they are traded at a relatively small amount of margin which provides the possibility of great profit or loss in comparison with the principal investment amount.

• The Scheme may find it difficult or impossible to execute derivative transactions in certain circumstances. For example, when there are insufficient bids or suspension of trading due to price limits or circuit breakers, the Scheme may face a liquidity issue.

• The option buyer’s risk is limited to the premium paid, while the risk of an option writer may be substantial. However, the gains of an option writer are limited to the premiums earned.

• The relevant stock exchange may impose restrictions on exercise of options and may also restrict the exercise of options at certain times in specified circumstances.

• The writer of a put option bears the risk of loss if the value of the underlying asset declines below the exercise price. The writer of a call option bears a risk of loss if the value of the underlying asset increases above the exercise price.

• Investments in index futures face the same risk as investments in a portfolio of shares representing an index. The extent of loss is the same as in the underlying stocks.

• The Scheme bears a risk that it may not be able to correctly forecast future market trends or the value of assets, indexes or other financial or economic factors in establishing derivative positions for the Scheme.

• The risk of loss in trading futures contracts can be substantial, because of the low margin deposits required, the extremely high degree of leverage involved in futures pricing and the potential high volatility of the futures markets.

• Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends on the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involves uncertainty and the decision of fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies.

• The risks associated with the use of derivatives are different from or possibly grater than, the risks associated with investing directly in Securities and other traditional investments.

• Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. As and when the Scheme trades in derivative products, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivatives require the maintenance of adequate controls to monitor such transactions and the embedded market risks that a derivative adds to the portfolio. Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to: (b) Market Liquidity Risk: This is where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices. (c) Model Risk: This is the risk of mis-pricing or improper valuation of derivatives. (d) Basis Risk: This is when the instrument used as a hedge does not match the movement in the instrument / underlying asset being hedged. The risks may be inter–related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer / industry assets.

2. Risk Factors Associated with Stock Lending

The risks in lending portfolio Securities, as with other extensions of credit, consist of the failure of another party, in this case the approved intermediary, to comply with the terms of the agreement entered into between the lender of Securities, i.e. the Scheme, and the approved intermediary. Such failure to comply can result in a possible loss of rights in the collateral put up by the borrower of the Securities, the inability of the approved intermediary to return the Securities deposited by the lender and the possible loss of any corporate benefits accruing to the lender from the Securities deposited with the approved intermediary. The Mutual Fund may not be able to sell such Securities and this can lead to temporary illiquidity.

3. Risk Factors Associated with Debt Securities
The Scheme may invest in Debt Securities which may involve a degree of risk.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.

• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.

• Debt Securities are subject to the risk of the issuer’s inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.

• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated securities offering higher yields.

4. Risk Factors Associated with Overseas Investment
Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme may invest in overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, restrictions on repatriation of capital due to exchange controls and the political environment. Further the repatriation of capital to India may also be hampered by changes in Laws or political circumstances. In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration, bilateral conflict leading to immobilisation of overseas financial assets and the prevalent tax laws of the respective jurisdictions for the execution of trades or otherwise.

5. Risk Factors Associated with Securitised Debt
Generally available asset classes for securitisation in India:

• Commercial vehicles
• Auto and two-wheeler pools
• Mortgage pools (residential housing loans)
• Personal loan, credit card and other retail loans
• Corporate loans / receivables

In terms of specific risks attached to securitisation, each asset class would have different underlying risks. However, residential mortgages typically have lower default rates as an asset class. On the other hand, repossession and subsequent recovery of commercial vehicles and other auto assets is normally easier and better compared to mortgages. Some of the asset classes such as personal loans, credit card receivables etc., being unsecured credits in nature, may witness higher default rates. As regards corporate loans/ receivables, depending upon the nature of the underlying security for the loan or the nature of the receivable the risks would correspondingly fluctuate. However, the credit enhancement stipulated by rating agencies for such asset class pools is typically much higher and hence their overall risks are comparable to other AAA-rated asset classes. Some of the factors, which are typically analyzed for any pool, are as follows:

Size of the loan:
This generally indicates the kind of assets financed with loans. Also indicates whether there is excessive reliance on very small ticket size, which may result in difficult and costly recoveries. To illustrate, the ticket size of housing loans is generally higher than that of personal loans. Hence, in the construction of a housing loan asset pool for say Rs.1,00,00,000/- it may be easier to construct a pool with just 10 housing loans of Rs.10,00,000/- each rather than to construct a pool of personal loans as the ticket size of personal loans may rarely exceed Rs. 5,00,000/- per individual.

Average original maturity of the pool:
This indicates the original repayment period and whether the loan tenors are in line with industry averages and borrower’s repayment capacity. To illustrate, in a car pool consisting of 60 month contracts, the original maturity and the residual maturity of the pool viz. number of remaining instalments to be paid gives a better idea of the risk of default of the pool itself. If in a pool of 100 car loans, having an original maturity of 60 months, more than 70% of the contracts have paid more than 50% of the monthly instalments and if no default has been observed in such contracts, this pool should have a lower probability of default than a similar car loan pool where 80% of the contracts have not yet paid five instalments.

Loan-to-value ratio (“LTV”):
Indicates how much of the value of the asset is financed by borrower’s own equity. The lower the LTV, the better it is. This ratio stems from the principle that where the borrower’s own contribution of the asset cost is high, the chances of default are lower. To illustrate, for a truck costing Rs. 20 lakh, if the borrower has himself contributed Rs. 10 lakh and has taken Rs. 10 lakh as a loan, he is going to have lesser propensity to default as he would lose an asset worth Rs. 20 lakh if he defaults in repaying an instalment. This is as against a borrower who may meet only Rs. 2 lakh out of his own equity for a truck costing Rs. 20 lakh. Between the two scenarios given above, as the borrower’s own equity is lower in the latter case, he would typically have a higher risk of default than the former.

Average seasoning of the pool:
This indicates whether borrowers have already displayed repayment discipline. To illustrate, in the case of a pool of personal loans, if a pool of assets consist of borrowers who have already repaid 80% of the instalments without default, the probability of default is lower than for a pool where only 10% of instalments have been repaid.

Default rate distribution:
This indicates what percentage of the pool and overall portfolio of the originator is current, how much is in 0-30 DPD (days past due), 30-60 DPD, 60-90 DPD and so on. The rationale here is that, as against 0-30 DPD, the 60-90 DPD is a higher risk category. Unlike in plain vanilla instruments, in securitisation transactions it is possible to work towards a target credit rating, which could be much higher than the originator’s own credit rating.

In the Indian scenario, also, more than 95% of issuances have been AAA-rated issuances indicating the strength of the underlying assets as well as adequacy of credit enhancement. Investment exposure of the Fund with reference to securitised debt: n The Scheme will predominantly invest only in those securitisation issuances which have AAA rating indicating the highest level of safety from a credit risk point of view at the time of making an investment. The Scheme will not invest in foreign securitised debt.

n The Scheme may invest in various types of securitisation issuances, including but not limited to asset backed securitisation, mortgage backed securitisation, personal loan backed securitisation, collateralized loan obligation / collateralized bond obligation and so on. n The Scheme does not propose to limit its exposure to only one asset class or to have asset class based sub-limits as it will primarily look towards the AAA rating of the offering. n The Scheme will conduct an independent due diligence on the cash margins, collateralisation, guarantees and other credit enhancements and the portfolio characteristic of the securitisation to ensure that the issuance fits into the overall objective of the investment in high investment grade offerings irrespective of underlying asset class.

Risk Factors specific to investments in securitised papers:
Types of securitised debt vary and carry different levels and types of risks. Credit risk on securitised bonds depends upon the originator and varies depending on whether they are issued with recourse to the originator or otherwise. Even within securitised debt, AAArated securitised debt offers lesser risk of default than AA-rated securitised debt. A structure with recourse will have a lower credit risk than a structure without recourse.

As underlying assets in securitised debt may assume different forms and the general types of receivables include auto finance, credit cards, home loans or any such receipts, credit risks relating to these types of receivables depend upon various factors including macro economic factors of these industries and economies. Specific factors like nature and adequacy of property mortgaged against these borrowings, nature of loan agreement / mortgage deed in case of home loan, adequacy of documentation in case of auto finance and home loans, capacity of borrower to meet his obligation on borrowings in case of credit cards and the intention of the borrower influence the risks relating to the asset borrowings underlying the securitised debt.

The case of changes in market interest rates, pre-payments may not change the absolute amount of receivables for investors, but may have an impact on the reinvestment of the periodic cash flows that the investor receives in securitised paper.

Limited Liquidity & Price Risk:
Currently, the secondary market for securitised papers is not very liquid. There is no assurance that a deep secondary market will develop for such securities. This could limit the ability of the Fund to resell them. Even if a secondary market develops and sales were to take place, these secondary transactions may be at a discount to the initial issue price due to changes in the interest rate structure.

Risks due to possible prepayments: Weighted Tenor / Yield:
Asset securitisation is a process whereby commercial or consumer credits are packaged and sold in the form of financial instruments. Full prepayment of underlying loan contract may arise under any of the following circumstances: n Obligor pays the receivable due from him at any time prior to the scheduled maturity date of that receivable; or n Receivable is required to be repurchased by the seller consequent to his inability to rectify a material misrepresentation with respect to that receivable; or n The servicer, recognizing a contract as a defaulted contract, hence repossesses the underlying asset and sells the same. In the event of prepayments, investors may be exposed to changes in tenor and yield.

Bankruptcy of the originator or seller:
If the originator becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the sale from originator to Trust was not a sale then the Fund could experience losses or delays in the payments due. All possible care is generally taken in structuring the transaction so as to minimize the risk of the sale to the Trust not being construed as a “True Sale”. Legal opinion is normally obtained to the effect that the assignment of receivables to the Trust in trust for and for the benefit of the investors, as envisaged herein, would constitute a true sale.

Bankruptcy of the investor’s agent:
If an investor’s agent becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the recourse of the investor’s agent to the assets / receivables is not in his capacity as agent / Trustee but in his personal capacity, then an investor could experience losses or delays in the payments due under the swap agreement. All possible care is normally taken in structuring the transaction and drafting the underlying documents so as to provide that the assets / receivables if and when held by an investor’s agent is held as agent and in Trust for the Investors and shall not form part of the personal assets of the investor’s agent. Legal opinion is normally obtained to the effect that the investors agent’s recourse to assets / receivables is restricted in his capacity as agent and trustee and not in his personal capacity.

Credit Rating of the Transaction / Certificate:
The credit rating is not a recommendation to purchase, hold or sell the Certificate in as much as the ratings do not comment on the market price of the Certificate or its suitability to a particular investor. There is no assurance by the rating agency either that the rating will remain at the same level for any given period of time or that the rating will not be lowered or withdrawn entirely by the rating agency.

Risk of Co-mingling:
The servicers normally deposit all payments received from the obligors into the collection account. However, there could be a time gap between collection by a servicer and depositing the same into the collection account especially considering that some of the collections may be in the form of cash. In this interim period, collections from the loan agreements may not be segregated from other funds of the servicer. If the servicer fails to remit such funds due to investors, the investors may be exposed to a potential loss. Due care is normally taken to ensure that the servicer enjoys the highest credit rating on a standalone basis to minimize co-mingling risk.

D. Special Considerations

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs 1,00,000 (Rupees One Lakh Only) made by them towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.

• Neither this Offer Document nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this Offer Document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this Offer Document are required to inform themselves about, and to comply with, any such restrictions.

• Before making an application for Units, prospective investors should review / study this Offer Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.

• The Mutual Fund / the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this Offer Document in connection with the issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this Offer Document as the same have not been authorised by the Mutual Fund or the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this Offer Document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.

• From time to time, funds managed by the affiliates /associates of the Sponsor may invest either directly or indirectly in the Scheme. The funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates /associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.

• As the liquidity of the Scheme’s investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme’s portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances - please refer Section XVII.G - Right to limit Redemption.

• Mutual funds invest in securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme. The Scheme’s value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.

• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.

Investors are urged to study the terms of the offer carefully before investing in the Scheme and to retain this Offer Document for future reference.

• Standard Risk Factors


• Scheme Specific Risk Factors


• Requirement of Minimum Investors in the Scheme


• Special Considerations, if any

• Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.
• As the price / value / interest rates of the Securities in which the Scheme invests fluctuates, the value of your investment in the Scheme may go up or down.
• PMutual Funds, like Securities investments, are subject to market and other risks and there can be no guarantee against loss resulting from an investment in the Scheme nor can there be any assurance that the Scheme's objectives will be achieved.
• Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the Scheme.
• JPMorgan India Tax Advantage Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or its future prospects and returns.
• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of Rs. 1,00,000 (One Lakh Rupees) made by it towards setting up the Mutual Fund.
• The present Scheme is not a guaranteed or assured return scheme.

By virtue of requirements under the ELSS, Units issued under JPMorgan India Tax Advantage Fund including the units issued under dividend reinvestment option will not be redeemed until the expiry of 3 (three) years from the date of their allotment. The ability of an investor to realise returns on investments in
JPMorgan India Tax Advantage Fund is consequently restricted for the first three years. Redemption will be made prior to the expiry of the aforesaid 3 (three) years period only in the event of the death of a Unit Holder, subject to the Units having been held for a period of 1 (one) year from the date of their
allotment.

Schemes Investing in Equities

• The value of the Scheme's investments may be affected by factors affecting the securities markets such as price and volume volatility in the capital markets, interest rates, currency exchange rates, changes in law/policies of the government, taxation laws and political, economic or other developments
  which may have an adverse bearing on individual Securities, a specific sector or all sectors. Consequently, the NAV of the Units of the Scheme may be affected.
• Equity Securities and equity-related Securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made by the Scheme may be restricted by trading volumes and settlement periods. This may impact the ability of the Unit Holders to redeem their Units. In view of this, the Trustee has the right, in its sole discretion to limit Redemptions (including suspending Redemption) under certain circumstances. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended Securities purchases, due to
  settlement problems, could cause the Scheme to miss certain investment opportunities. Similarly, the inability to sell Securities held in the Scheme's portfolio could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of Securities held in the Scheme's portfolio.
• Investments in equity and equity related Securities involve a degree of risk and investors should not invest in the Scheme unless they can afford to take the risk of losing their investment.
• The liquidity and valuation of the Scheme's investments due to its holdings of unlisted Securities may be affected if they have to be sold prior to the target date for disinvestment.
• Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger liquidity risk in comparison with Securities that are listed on the exchanges or offer other exit options to the investors, including put options. The AMC may choose to invest in unlisted Securities
  that offer attractive yields within the regulatory limit. This may however increase the risk of the portfolio.

Schemes investing in money market instruments

• Investments in money market instruments would involve a moderate credit risk, i.e. risk of an issuer's liability to meet the principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme's Units, to the extent that the Scheme is invested in money market instruments, will be affected by changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

Schemes investing in Bonds

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the general level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of the issuer's inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated Securities offering higher yields.
• The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The Trustee has the right, in its sole discretion, to limit Redemptions (including suspending Redemption) under certain circumstances. There may be temporary periods when the monies of the Scheme are un-invested and no return is earned thereon. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. By the same token, the inability to sell Securities held in the Scheme's portfolio due to the absence of a well developed and liquid secondary market for Debt Securities could result, at times, in potential losses to the
  Scheme, should there be a subsequent decline in the value of the Securities held in the Scheme's portfolio.
• The liquidity and valuation of the Scheme's investments due to its holdings of unlisted Securities may be affected if they have to be sold prior to their target date of divestment.
• Debt Securities, which are not quoted on the stock exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to Debt Securities that are listed on the exchanges or offer other exit options to the investor, including a put option. Within the regulatory limits, the AMC
  may choose to invest in unlisted Debt Securities that offer attractive yields.
• While Debt Securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges. Money market Securities, while fairly liquid, lacks a welldeveloped secondary market, which may restrict the selling
  ability of the Scheme and may lead to the Scheme incurring losses till the Security is finally sold.
• Money market Securities and Debt Securities are subject to the risk of an issuer's inability to meet interest and principal payments on its debt obligations (credit risk). These Securities may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and
  market perception of the creditworthiness of the issuer, among others (market risk). The AMC will endeavour to manage credit risk through in-house credit analysis. The Scheme may also, but is not obliged to, use various hedging products from time to time, as are available and permitted by SEBI, to attempt to reduce the impact of undue market volatility on the Scheme's portfolio. There is no guarantee that hedging techniques will achieve the desired result.
• The investments made by the Scheme are subject to reinvestment risk. This risk refers to the interest rate levels at which cash flows received from the Securities in the Scheme are reinvested. The additional income from reinvestment is the "interest on interest" component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed.
• The NAV of the Scheme's Units, to the extent that the Scheme is invested in fixed income Securities, will be affected by changes in the general level of interest rates. When interest rates decline, the value of a portfolio of fixed income Securities can be expected to rise. Conversely, when interest rates rise,
  the value of a portfolio of fixed income Securities can be expected to decline.
• To the extent the Scheme's investments are in floating rate debt instruments or fixed debt instruments swapped for floating rate return, they will be affected by interest rate movement (basis risk) - coupon rates on floating rate securities are reset periodically in line with the benchmark index movement. Normally, the interest rate risk inherent in a floating rate instrument is limited compared to a fixed rate instrument. Changes in the prevailing level of interest rates will likely affect the value of the Scheme's holdings until the next reset date and thus the value of the Scheme's Units. The value of Securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The Mutual Fund could be exposed to interest rate risk:
  • due to the time gap in the resetting of the benchmark rates, and
  • to the extent the benchmark index fails to capture interest rate changes appropriately (spread risk): though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period
    return of floating rate instruments.
• Settlement Risk (counterparty risk): Specific floating rate assets may also be created by swapping a fixed return into a floating rate return. In such a swap, there is the risk that the counterparty (who will pay floating rate return and receive fixed rate return) may default;
• Liquidity Risk: The market for floating rate Securities is still in its evolutionary stage and therefore may render the market illiquid from time to time, for such Securities that the Scheme is invested in.
• Different types of Securities in which the Scheme may invest as given in the SID carry different levels and types of risk. Accordingly the Scheme's risk may increase or decrease depending upon its investment pattern. E.g. corporate bonds carry a higher amount of risk than government Securities. Further even among corporate bonds, bonds which are rated AAA are comparatively less risky than bonds which are AA rated.
• Investments in the Scheme made in foreign currency by a Unit Holder are subject to the risk of fluctuation in the value of Indian Rupee.

Risk Associated with Short Selling and Securities Lending

• The risks in lending portfolio Securities, as with other extensions of credit, consist of the failure of another party, in this case the approved intermediary, to comply with the terms of the agreement entered into between the lender of Securities, i.e. the Scheme, and the approved intermediary. Such failure to comply can result in a possible loss of rights in the collateral put up by the borrower of the Securities, the inability of the approved intermediary to return the Securities deposited by the lender and the possible loss of any corporate benefits accruing to the lender from the Securities deposited with the approved intermediary. The Mutual Fund may not be able to sell such Securities and this can lead to temporary illiquidity.

C. Requirement of Minimum Investors in the Scheme

The Scheme/Plan shall have a minimum of 20 (twenty) investors and no single investor shall account for more than 25% of the corpus of the Scheme/Plan(s). However, if such limit is breached during the NFO of the Scheme, the Mutual Fund will endeavour to ensure that within a period of 3 (three) months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions. In case the Scheme / Plan(s) does not have a minimum of 20 (twenty) investors in the stipulated period, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations would become applicable automatically without any reference from SEBI and accordingly the Scheme / Plan(s) shall be wound up and the Units would be redeemed at Applicable NAV. The two conditions mentioned above shall also be complied within each subsequent calendar quarter thereafter, on an average basis, as specified by SEBI.

If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of 1 (one) month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 (fifteen) days notice to redeem his exposure over the 25% limit. Failure on the part of the said investor to redeem his exposure over the 25% limit within the aforesaid 15 (fifteen) days would lead to automatic Redemption by the Mutual Fund on the Applicable NAV on the 15th day of the notice period. The Mutual Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard.

D. Special Considerations, if any

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs.1,00,000 (Rupees One Lakh) made by it towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the
  Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.
• Neither this SID nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this SID in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this SID are required to inform themselves about, and to comply
  with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this SID carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from (i) Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and (ii) to the treatment of income (if any), capitalisation, capital gains, any distribution,
  and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• The Mutual Fund / the AMC have not authorised any person to give any information or make any representations, either oral or written, not stated in this SID in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this SID as the same have not been authorised by the Mutual Fund or the AMC. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this SID or which are inconsistent with the information contained herein shall
  be solely at the risk of the investor.
• From time to time, funds managed by the affiliates / associates of the Sponsor may invest either directly or indirectly in the Scheme. The mutual funds managed by these affiliates/associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme.
  Accordingly, Redemption of Units held by such affiliates/associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme's investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Mutual Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme's
  portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances. (Please also refer to Section III A on 'Right to limit Redemption')
• The tax benefits described in this SID are as available under the prevailing taxation laws. Investors / Unit Holders should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position
  prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Unit Holder is advised to consult his / her / their own professional tax advisor.
• Mutual Funds invest in Securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme.

By virtue of requirements under the ELSS, Units issued under the Scheme shall not be redeemed until the expiry of 3 (three) years from the date of their allotment. The ability of an investor to realise returns on investments in the Scheme is consequently restricted for the first three years. Redemption shall be made prior to the expiry of the aforesaid 3 (three) years period only in the event of the death of a Unit Holder, subject to the Units having been held for a period of 1 (one) year from the date of their allotment.

Investors are urged to study the terms of the offer carefully before investing in the Scheme.

• Standard Risk Factors


• Scheme Specific Risk Factors

• Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.
• As the price / value / interest rates of the Securities in which the scheme invests fluctuates, the value of your investment in the scheme may go up or down.
• Mutual funds, like Securities investments, are subject to market and other risks and there can be no guarantee against loss resulting from an investment in the Scheme nor can there be any assurance that the Scheme’s objectives will be achieved.
• Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme.
• JPMorgan JF Greater China Equity Off-shore Fund is only the name of the scheme and does not in any manner indicate either the quality of the scheme or its future prospects and returns.
• The sponsor is not responsible or liable for any loss resulting from the operation of the scheme beyond the initial contribution of Rs. 1,00,000 (One Lakh Rupees) made by it towards setting up the Mutual Fund.
• The present scheme is not a guaranteed or assured return scheme.

Risk Factors for a Funds of Fund Scheme

• The Scheme will be investing primarily in shares / units of the underlying fund, which in turn invests in companies incorporated or which have their registered office located in or derive the predominant part of their economic activity from, a country in the Greater China region. Hence the Scheme’s performance may depend upon the performance of the underlying fund. Any change in the investment policy or the fundamental attributes of the underlying fund will affect the performance of the Scheme.
• Investments in the underlying fund, which is an equity fund, will have all the risks associated with investments in equity and the offshore markets.
• The portfolio disclosure of the Scheme will be largely limited to the investments made by the Scheme
  

Risk Factors for Underlying Fund

The performance of the underlying fund will be affected by a number of risk factors, including the following, which have also been disclosed by the underlying fund in its prospectus filed with the appropriate regulatory authorities:
(i) Political, economic and social risks - All financial markets may at times be adversely affected by changes in political, economic and social conditions. Economic and / or political instability could lead to legal, fiscal and regulatory changes or the reversal of legal / fiscal / regulatory / market reforms.
(ii) Market risk - The underlying fund’s investments are subject to the risks inherent in all investments in Securities i.e. the
value of holdings may fall as well as rise. As the underlying fund invests primarily in equities, investors are exposed to stock market fluctuations and the financial performance of the companies held in the underlying fund’s portfolio. In addition, the underlying fund may be subject to investment holding limits imposed on investors by the markets in which the underlying fund invests.
(iii) Currency risk – The assets in which the underlying fund is invested and the income from the assets will or may be quoted in currencies which are different from the underlying fund’s base currency. The performance of the underlying fund will therefore be affected by movements in the exchange rate between the currencies in which the assets are held and the underlying funds’ base currency and hence there can be the prospect of additional loss or the prospect of additional gain to the investors greater than the usual risks of investment. The performance of the underlying fund may also be affected by changes in exchange control regulations.
(iv) Hedging risk – The investment manager to the underlying fund is permitted, but not obliged, to use hedging techniques to attempt to offset market and currency risks. There is no guarantee that hedging techniques will achieve the desired result.
(v) Diversification risk – Although their portfolios are well diversified in terms of the number of holdings, investors should be aware that the fund is likely to be more volatile than a broad-based fund, such as a global equity fund, as they are more susceptible to fluctuations in value resulting from adverse conditions in the region ( viz. Greater China) in which it invests.
(vi) Emerging markets risk – Accounting, auditing and financial reporting standards in some of the emerging markets in which some of the underlying fund’s assets may be invested may be less rigorous than international standards. As a result, certain material disclosures may not be made. Investment in emerging markets involves special considerations and risks. Many emerging market countries are still in the early stages of modern development and are subject to abrupt and unexpected change. In many cases, governments retain a high degree of direct control over the economy and may take actions having sudden and widespread effects. There is a possibility of nationalisation, expropriation or confiscatory taxation, foreign exchange control, political changes, government regulation, social instability or diplomatic developments which could affect adversely the economies of emerging markets or the value of the underlying fund’s investments, and the risks of investing in countries with smaller capital markets, such as limited liquidity, price volatility, restrictions on foreign investment and repatriation of capital, and the risks associated with merging economies, including high inflation and interest rates and political and social uncertainties. Investors should be aware that the investments of the underlying fund being primarily in the emerging markets, its stocks can be negatively impacted by low liquidity, poor transparency and greater financial risks. However, the volatility of the underlying fund is limited by its diversification across a large number of companies and industry groups. Investments in products relating to emerging markets may also become illiquid which may constrain the ability of the investment manager to the underlying fund to realize some or all of the portfolio.
(vii) Legal, tax and regulatory risk – Legal, tax and regulatory changes could occur during the term of the underlying fund which may adversely affect it. If any of the laws and regulations currently in effect should change or any new laws or regulations should be enacted, the legal requirements to which the underlying fund and the investors may be subject could differ materially from current requirements and may materially and adversely affect the underlying fund and the investors. Legislation could be imposed retrospectively (as a result the underlying fund could become subject to additional taxation that was not contemplated either when investments were made, valued or disposed of) or may be issued in the form of internal regulations not generally available to the public.

(viii) Settlement Risks

• The securities markets in some countries lack the liquidity, efficiency and regulatory and supervisory controls of more developed markets.
• Lack of liquidity may adversely affect the ease of disposal of assets. The absence of reliable pricing information in a particular security held by the underlying fund may make it difficult to assess reliably the market value of assets.
• The share register of companies in which the underlying fund invests in may not be properly maintained and the ownership or interest may not be (or remain) fully protected.
• Registration of Securities may be subject to delay and during the period of delay it may be difficult to prove beneficial ownership of the Securities.
• The provision for custody of assets may be less developed than in other more mature markets and thus provides an additional level of risk for the fund.
• Settlement procedures may be less developed and still be in physical as well as in dematerialised form.

(ix) Derivatives Risk - The underlying fund may use derivatives in connection with its investment strategies. Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the investment manager of the underlying fund to identify such opportunities. Identification and execution of the strategies to be pursued by the investment manager of the underlying fund involve uncertainty and decision of the investment manager of the underlying fund may not always be profitable. No assurance can be given that the investment manager of the underlying fund will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in Securities and other traditional investments. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed a fund’s original investment. Certain derivatives may give rise to a form of leverage. As a result, a fund may be more volatile than if the fund had not been leveraged because the leverage tends to exaggerate the effect of any increase or decrease in the value of the fund’s portfolio Securities. Derivatives are also subject to the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. The use of derivatives forhedging or risk management purposes or to increase income or gain may not be successful, resulting in losses to the underlying fund, and the cost of such strategies may reduce the fund’s returns and increase the fund’s potential for loss.

In view of the above, investment in the Scheme should be regarded as long term in nature. The Scheme is, therefore, only suitable for investors who can afford the risks involved.

Risk associated with investing in Foreign Securities

• Subject to necessary approvals and within the investment objectives of the Scheme, the Scheme will be investing in the overseas markets which carry risks related to fluctuations in the foreign exchange rates, the nature of the securities market of the country, restrictions on repatriation of capital due to exchange controls and the political environment. Further the repatriation of capital to India may also be hampered by changes in the Regulations or political circumstances.
• In addition, country risks would include events such as introduction of extraordinary exchange controls, economic deterioration, bi-lateral conflict leading to immobilisation of overseas financial assets and the prevalent tax laws of the respective jurisdictions for the execution of trades or otherwise.
• Subject to the other terms of this SID, all applicants applying for up to 5000 Units (Five Thousand only) shall be given their full allotment. However, keeping in mind the investment restrictions in foreign Securities currently applicable to mutual funds vide SEBI’s circulars SEBI/IMD/CIR No. 7/104753/07 dated September 26, 2007 and SEBI/IMD/CIR o.2/1222577/08 dated April 8, 2008, if the overall limit for the Mutual Fund in overseas investments of up to USD 300 million has been reached, applicants will receive a pro-rata allotment as calculated by the AMC. In such an event, application monies relating to the unused portion of the investor’s original allotment request may be refunded to investors. The arrangement is subject to SEBI regulations and approvals.The process for monitoring the US$ 300 mn limit for overseas investments shall be as follows:
  • The cap of US$300mn would be monitored at the mutual fund level and not the scheme level.
  • If 90% of the limit is reached, intimation to all investors and empanelled distributors would be made informing them that further sales will be suspended when the mutual fund’s combined AUM in overseas schemes reaches the cap of US$ 300 mn. A notice will be issued for such intimation at all our ISC offices, AMC branches and on the web-site (www.jpmorganmf.com).
  • Allotment would be done on a pro-rata basis if the US$300mn cap is breached. eg: I) Day T (opening AUM) - US$270mn is the overseas AUM of the mutual fund ,Incoming cashflows on Day T - US$30 mn.
  • Allotment would be done for the entire amount.
  • Day T (opening AUM) - US$270mn is the overseas AUM of the mutual fund, Incoming cashflows on Day T - US$60 mn
  • Allotment would be done only for US$ 30 mn on a pro rata basis.
  • On this day a notice would be sent out to all ISC offices, AMC branches and on the web-site (www.jpmorganmf.com) stating that further sales are suspended with immediate effect, in case further overseas fund quota from SEBI has not been obtained.
• If the cap of US$300mn is reached,refunds would be settled on a T+3 basis.
• The above process will not have any impact on the redemption process.

Schemes investing in Equities

• Equity Securities and equity-related Securities are volatile and prone to price fluctuations on a daily basis. The liquidity of investments made by the Scheme may be restricted by trading volumes and settlement periods. This may impact the ability of the Unit Holders to redeem their Units. In view of this, the Trustee has the right, in its sole discretion to limit Redemptions (including suspending Redemption) under certain circumstances. Settlement periods may be extended significantly by unforeseen circumstances. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. Similarly, the inability to sell Securities held in the Scheme’s portfolio could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of Securities held in the Scheme’s portfolio.
• The liquidity and valuation of the Scheme’s investments due to its holdings of unlisted Securities may be affected if they have to be sold prior to the target date for disinvestment.

Risk Factors associated with Money Markets

• Investments in money market instruments would involve a moderate credit risk i.e. risk of an issuer’s liability to meet the principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme’s Units, to the extent that the corpus of the Scheme is invested in money market instruments, will be affected by the changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.
  

• Standard Risk Factors


• Scheme Specific Risk Factors


• Requirement of Minimum investors in the scheme


• Special considerations

• Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal.
• As the price / value / interest rates of the Securities in which the Scheme invests fluctuates, the value of your investment in the Scheme may go up or down.
• Mutual Funds, like Securities investments, are subject to market and other risks and there can be no guarantee against loss resulting from an investment in the Scheme nor can there be any assurance that the Scheme’s objectives will be achieved.
• Past performance of the Sponsor / AMC / Mutual Fund does not guarantee future performance of the Scheme.
• JPMorgan India Short Term Income Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme or its future prospects and returns.
• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of Rs. 1,00,000/- (One Lakh Rupees) made by it towards setting up the Mutual Fund.
• The present Scheme is not a guaranteed or assured return scheme and investors in the Scheme are not being offered any guaranteed / assured returns.

• Investments in money market instruments would involve a moderate credit risk, i.e. risk of an issuer’s liability to meet the interest and principal payments.
• Money market instruments may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of credit worthiness of the issuer of such instruments.
• The NAV of the Scheme’s Units, to the extent that the Scheme is invested in money market instruments, will be affected by changes in the level of interest rates. When interest rates in the market rise, the value of a portfolio of money market instruments can be expected to decline.

• The NAV of the Scheme, to the extent invested in Debt Securities, will be affected by changes in the level of interest rates. The NAV of the Scheme is expected to increase from a fall in interest rates while it would be adversely affected by an increase in the level of interest rates.
• Debt Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the security is sold.
• Debt Securities are subject to the risk of its issuer’s ability to meet interest and principal payments on its obligations and the market perception of the creditworthiness of the issuer of such instruments.
• The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated Securities offering higher yields.
• The liquidity of investments made in the Scheme may be restricted by trading volumes and settlement periods. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The Trustee has the right, in its sole discretion, to limit Redemptions (including suspending Redemption) under certain circumstances. There may be temporary periods when the monies of the Scheme are un-invested and no return is earned thereon. The inability of the Scheme to make intended Securities purchases, due to settlement problems, could cause the Scheme to miss certain investment opportunities. By the same token, the inability to sell Securities held in the Scheme’s portfolio due to the absence of a well developed and liquid secondary market for Debt Securities could result, at times, in potential losses to the Scheme, should there be a subsequent decline in the value of the Securities held in the Scheme’s portfolio.
• The liquidity and valuation of the Scheme’s investments due to its holdings of unlisted Securities may be affected if they have to be sold prior to their target date of divestment.
• Debt Securities, which are not quoted on the stock exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to Debt Securities that are listed on the exchanges or offer other exit options to the investor, including a put option. The AMC may choose to invest in unlisted Debt Securities that offer attractive yields within regulatory limits. This may however increase the risk of the portfolio. Additionally, the liquidity and valuation of the Scheme’s investment due to its holdings of the unlisted Securities may be affected if they have to be sold prior to the target date of investment.
• While Debt Securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges. Money market Securities, while fairly liquid, lack a well-developed secondary market, which may restrict the selling ability of the Scheme and may lead to the Scheme incurring losses till the Security is finally sold.
• Money Market Securities and debt Securities are subject to the risk of an issuer’s inability to meet interest and principal payments on its debt obligations (credit risk). Credit risk or default risk refers to the risk which may arise due to default on the part of the issuer of the fixed income security (i.e., will be unable to make timely principal and interest payments on the security). Because of this risk debentures are sold at a yield spread above those offered on treasury securities, which are sovereign obligations and generally considered to be free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the actual changes in the perceived level of credit risk as well as the actual event of default. These Securities may also be subject to price volatility due to factors such as changes in interest rates, general level of market liquidity and market perception of the creditworthiness of the issuer, among others (market risk). The Liquidity Risk refers to the ease at which a Security can be sold at or near its true value. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is characteristic of the Indian fixed income market. The Investment Manager will endeavour to manage credit risk through in-house credit analysis. The Scheme may also, but is not obliged to, use various hedging products from time to time, as are available and permitted by SEBI, to attempt to reduce the impact of undue market volatility on the Scheme’s portfolio. There is no guarantee that hedging techniques will achieve the desired result.
• The investments made by the Scheme are subject to reinvestment risk. This risk refers to the interest rate levels at which cash flows received from the Securities in the Scheme are reinvested. The additional income from reinvestment is the “interest on interest” component. The risk is that the rate at which interim cash flows can be reinvested may be lower than that originally assumed. The risk refers to the fall in the rate for reinvestment of interim cash flows.
• The NAV of the Scheme’s Units, to the extent that the Scheme is invested in fixed income Securities, will be affected by changes in the general level of interest rates. When interest rates decline, the value of a portfolio of fixed income Securities can be expected to rise. Conversely, when interest rates rise, the value of a portfolio of fixed income Securities can be expected to decline.
• To the extent the Scheme’s investments are in floating rate debt instruments or fixed debt instruments swapped for floating rate return, they will be affected by interest rate movement (basis risk) - coupon rates on floating rate securities are reset periodically in line with the benchmark index movement. Normally, the interest rate risk inherent in a floating rate instrument is limited compared to a fixed rate instrument. Changes in the prevailing level of interest rates will likely affect the value of the Scheme’s holdings until the next reset date and thus the value of the Scheme’s Units. The value of Securities held by the Scheme generally will vary inversely with changes in prevailing interest rates. The Mutual Fund could be exposed to interest rate risk:
  
  1. due to the time gap in the resetting of the benchmark rates, and
  2. to the extent the benchmark index fails to capture interest rate changes appropriately (spread risk): though the basis (i.e. benchmark) gets readjusted on a regular basis, the spread (i.e. markup) over benchmark remains constant. This can result in some volatility to the holding period return of floating rate instruments.
     
• Settlement Risk (Counterparty Risk): Specific floating rate assets may also be created by swapping a fixed return into a floating rate return. In such a swap, there is the risk that the counterparty (who will pay floating rate return and receive fixed rate return) may default.
• Liquidity Risk: The market for floating rate Securities is still in its evolutionary stage and therefore may render the market illiquid from time to time, for such Securities that the Scheme is invested in.
• Prepayment Risk: The Borrower may prepay the receivables prior to their respective due dates. This may result in change in the yield and tenor for the Scheme.
• Different types of Securities in which the Scheme may invest as given in the SID carry different levels and types of risk. Accordingly the Scheme’s risk may increase or decrease depending upon its investment pattern. E.g. corporate bonds carry a higher amount of risk than government Securities. Further even among corporate bonds, bonds which are rated AAA are comparatively less risky than bonds which are AA rated.
• Investments in the Scheme made in foreign currency by a Unit Holder are subject to the risk of fluctuation in the value of Indian Rupee.

• The Mutual Fund may use derivatives in connection with its investment strategies. Derivatives products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and decisions of a fund manager may not always be profitable. No assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.
• The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in Securities and other traditional investments. Derivatives may be riskier than other types of investments because they may be more sensitive to changes in economic or market conditions than other types of investments and could result in losses that significantly exceed a fund’s original investment. Certain derivatives may give rise to a form of leverage. As a result, a fund may be more volatile than if the fund had not been leveraged because the leverage tends to exaggerate the effect of any increase or decrease in the value of the fund’s portfolio Securities.
• As and when the Scheme trades in derivative products, there are risk factors and issues concerning the use of derivatives that investors should understand. Derivatives require the maintenance of adequate controls to monitor the transactions and the embedded market risks that a derivative adds to the portfolio.
• Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. Other risks in using derivatives include but are not limited to:
  
  1. Credit Risk - this occurs when a counterparty defaults on a transaction before settlement and, therefore, the Scheme is compelled to negotiate with another counterparty at the then prevailing (possibly unfavourable) market price, in order to maintain the validity of the hedge.
  2. Market Liquidity Risk - this is where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices.
  3. Model Risk - this is the risk of mis-pricing or improper valuation of derivatives.
  4. Basis Risk - this is when the instrument used as a hedge does not match the movement in the instrument / underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer / industry assets.

1. Commercial vehicles
2. Auto and two wheeler pools
3. Mortgage pools (residential housing loans)
4. Personal loan, credit card and other retail loans
5. Corporate loans / receivables

• The Scheme will predominantly invest only in those securitisation issuances which have AAA or equivalent rating indicating the highest level of safety from credit risk point of view at the time of making an investment. The Scheme will not invest in foreign securitised debt.
• The Scheme may invest in various types of securitization issuances, including but not limited to asset backed securitisation, mortgage backed securitisation, personal loan backed securitisation, collateralised loan obligation / collateralized bond obligation and so on.
• The Scheme does not propose to limit its exposure to only one asset class or to have asset class based sub-limits as it will primarily look towards the AAA or equivalent rating of the offering.
• The Scheme will conduct an independent due diligence on the cash margins, collateralisation, guarantees and other credit enhancements and the portfolio characteristic of the securitisation to ensure that the issuance fits into the overall objective of the investment in high investment grade offerings irrespective of underlying asset class.

• Types of securitised debt vary and carry different levels and types of risks. Credit risk on securitised bonds depends upon the originator and varies depending on whether they are issued with recourse to the originator or otherwise. Even within securitised debt, AAA or equivalent rated securitised debt offers lesser risk of default than AA rated securitised debt. A structure with recourse will have a lower credit risk than a structure without recourse.
• As underlying assets in securitised debt may assume different forms and the general types of receivables include auto finance, credit cards, home loans or any such receipts, credit risks relating to these types of receivables depend upon various factors including macro economic factors of these industries and economies. Specific factors like nature and adequacy of property mortgaged against these borrowings, nature of loan agreement / mortgage deed in case of home loan, adequacy of documentation in case of auto finance and home loans, capacity of borrower to meet its obligation on borrowings in case of credit cards and the intention of the borrower influence the risks relating to the asset borrowings underlying the securitised debt.
• Changes in market interest rates and pre-payments may not change the absolute amount of receivables for the investors, but may have an impact on the reinvestment of the periodic cash flows that the investor receives in the securitised paper.
• Limited Liquidity & Price Risk: Presently, the secondary market for securitised papers is not very liquid. There is no assurance that a deep secondary market will develop for such securities. This could limit the ability of the Fund to resell them. Even if a secondary market develops and sales were to take place, these secondary transactions may be at a discount to the initial issue price due to changes in the interest rate structure.
• Risks due to possible prepayments: Weighted Tenor / Yield: Asset securitisation is a process whereby commercial or consumer credits are packaged and sold in the form of financial instruments. Full prepayment of underlying loan contract may arise under any of the following circumstances:
  • obligor pays the receivable due from him at any time prior to the scheduled maturity date of that receivable; or
  • receivable is required to be repurchased by the seller consequent to its inability to rectify a material misrepresentation with respect to that receivable; or
  • the servicer recognizing a contract as a defaulted contract and hence repossessing the underlying asset and selling the same. In the event of prepayments, investors may be exposed to changes in tenor and yield.
• Bankruptcy of the originator or seller: If the originator becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the sale from originator to the Trust was not a sale then the Fund could experience losses or delays in the payments due. All possible care is generally taken in structuring the transaction so as to minimize the risk of the sale to the Trust not being construed as a “True Sale”. Legal opinion is normally obtained to the effect that the assignment of receivables to the Trust in trust for and for the benefit of the investors, as envisaged herein, would constitute a true sale.
• Bankruptcy of the investor’s agent: If an investor’s agent becomes subject to bankruptcy proceedings and the court in the bankruptcy proceedings concludes that the recourse of the investor’s agent to the assets / receivables is not in its capacity as agent / Trustee but in his personal capacity, then an investor could experience losses or delays in the payments due under the swap agreement. All possible care is normally taken in structuring the transaction and drafting the underlying documents so as to provide that the assets / receivables if and when held by an investor’s agent is held as agent and in Trust for the Investors and shall not form part of the personal assets of the investor’s agent. Legal opinion is normally obtained to the effect that the investors agent’s recourse to assets / receivables is restricted in his capacity as agent and trustee and not in its personal capacity.
• Credit Rating of the Transaction / Certificate: The credit rating is not a recommendation to purchase, hold or sell the Certificate in as much as the ratings do not comment on the market price of the Certificate or its suitability to a particular investor. There is no assurance by the rating agency either that the rating will remain at the same level for any given period of time or that the rating will not be lowered or withdrawn entirely by the rating agency.
• Risk of Co-mingling: The servicers normally deposit all payments received from the obligors into the collection account. However, there could be a time gap between collection by a servicer and depositing the same into the collection account especially considering that some of the collections may be in the form of cash. In this interim period, collections from the loan agreements may not be segregated from other funds of the servicer. If the servicer fails to remit such funds, due to investors, the investors may be exposed to a potential loss. Due care is normally taken to ensure that the servicer enjoys the highest credit rating on a standalone basis to minimize co-mingling risk.

• The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs. 1,00,000 (Rupees One Lakh) made by it towards setting up the Mutual Fund or such other accretions and additions to the initial corpus set up by the Sponsor. The associates of the Sponsor are not responsible or liable for any loss or shortfall resulting from the operation of the Scheme.
• Neither this SID nor the Units have been filed / registered in any jurisdiction other than India. The distribution of this SID in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this SID are required to inform themselves about, and to comply with, any such restrictions.
• Before making an application for Units, prospective investors should review / study this SID and the SAI carefully and in their entirety and should not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial / investment matters. Investors should consult their own professional advisor(s) as to the legal, tax or financial implications resulting from –
  1. Subscription, gifting, acquisition, holding, disposal (by way of sale, switch or Redemption or conversion into money) of Units and
  2. to the treatment of income (if any), capitalisation, capital gains, any distribution, and other tax consequences relevant to their Subscription, acquisition, holding, capitalisation, disposal (by way of sale, transfer, switch, Redemption or conversion into money) of Units within their jurisdiction or under the laws of any jurisdiction to which they may be subject to possible legal, tax, financial or other consequences.
• Neither the Mutual Fund nor the AMC nor the Sponsor have authorized any person to give any information or make any representations, either oral or written, not stated in this SID in connection with issue of Units under the Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this SID as the same have not been authorised by the Mutual Fund, the AMC or the Sponsor. Any Subscription or Redemption made by any person on the basis of statements or representations which are not contained in this SID or which are inconsistent with the information contained herein shall be solely at the risk of the investor.
• From time to time, funds managed by the affiliates / associates of the Sponsor may invest either directly or indirectly in the Scheme. The mutual funds managed by these affiliates / associates may acquire a substantial portion of the Units and collectively constitute a major investment in the Scheme. Accordingly, Redemption of Units held by such affiliates / associates may have an adverse impact on the value of the Units of the Scheme because of the timing of any such Redemption and may affect the ability of other Unit Holders to redeem their respective Units.
• As the liquidity of the Scheme’s investments may sometimes be restricted by trading volumes and settlement periods, the time taken by the Mutual Fund for Redemption of Units may be significant in the event of an inordinately large number of Redemption requests or of a restructuring of the Scheme’s portfolio. In view of this, the Trustee has the right, in its sole discretion, to limit Redemptions under certain circumstances. (Please also refer to Section - ‘Right to limit Redemption’)
• Mutual Funds invest in Securities which may not always be profitable and there can be no guarantee against loss resulting from investing in the Scheme.
• The tax benefits described in this SID are as available under the prevailing taxation laws. Investors / Unit Holders should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Unit Holder is advised to consult his / her / their own professional tax advisor.
• The Scheme’s value may be impacted by fluctuations in the bond markets, fluctuations in interest rates, prevailing political, economic and social environments, changes in government policies and other factors specific to the issuer of the securities, tax Laws, liquidity of the underlying instruments, settlement periods, trading volumes etc.
• Redemptions due to a change in the fundamental attributes of the Scheme or due to any other reason may entail tax consequences. Such tax shall be borne by the investor and the Mutual Fund shall not be liable for any tax consequences that may arise.