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Risk factors to consider while investing in Fixed Meturity Plans (FMPs)

Mutual Fund Units involve investment risks including the possible loss of principal. Please read

the Scheme Information Document carefully for details on risk factors before investment.

Scheme Specific Risk Factors are summarized below:

 

• Price-Risk or Interest-Rate Risk: Fixed income securities such as bonds, debentures and

money market instruments run price-risk or interest-rate risk. Generally, when interest rates

rise, prices of existing fixed income securities fall and when interest rates drop, such prices

increase. The extent of fall or rise in the prices is a function of the existing coupon, days to

maturity and the increase or decrease in the level of interest rates.

 

Credit Risk: In simple terms this risk means that the issuer of a debenture/ bond or a money

market instrument may default on interest payment or even in paying back the principal

amount on maturity. Even where no default occurs, the price of a security may go down

because the credit rating of an issuer goes down. It must, however, be noted that where the

Scheme has invested in Government securities, there is no credit risk to that extent.

 

Liquidity or Marketability Risk: This refers to the ease with which a security can be sold at or

near to its valuation yield-to-maturity (YTM). The primary measure of liquidity risk is the

spread between the bid price and the offer price quoted by a dealer. Liquidity risk is today

characteristic of the Indian fixed income market.

 

Further, the Scheme being a close-ended income Scheme, as per SEBI guidelines, no

redemption / repurchase of units will be allowed prior to the maturity of the scheme. However,

the units of the Scheme will be listed on stock exchange (s) and the investors wishing to exit

may do so through stock exchange mode. Listing of units of the scheme on stock exchange(s)

does not necessarily guarantee liquidity and there can be no assurance that an active

secondary market for the units will develop or be maintained. Consequently, the Fund may,

depending on the market forces, even quote below its face value / NAV.

 

• Reinvestment Risk: Investments in fixed income securities may carry reinvestment risk as

interest rates prevailing on the interest or maturity due dates may differ from the original

coupon of the bond. Consequently, the proceeds may get invested at a lower rate.

 

Different types of securities in which the scheme would invest as given in the Scheme

Information 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 AA rated, are comparatively more risky than bonds, which are AAA rated.


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