NOTICE is hereby given that pursuant to SEBI circulars dated October 6, 2017 and December 4, 2017 on categorization and rationalization of mutual fund schemes, the features of IDFC Credit Opportunities Fund, an open ended debt fund, shall stand modified as follows with effect from Monday, May 14, 2018 (“Effective Date”):
Investment in Securitised Debt - up to 50% of the net assets
Investment in Securities lending – up to 20% of the net assets with maximum single party exposure restricted to 5% of the net assets.
Investment in Derivatives – up to 50% of the net assets
Gross Exposure to Repo of Corporate Debt Securities – up to the extent permitted by the Regulations
The Scheme may engage in short selling of securities in accordance with the applicable guidelines / regulations. The scheme may take exposure in repo / reverse repo transactions in G-Sec and Corporate Debt Securities in accordance with the applicable guidelines / regulations.
The scheme may invest in Credit Default Swaps (CDS) in accordance with the applicable guidelines / regulations as and when permitted by SEBI/RBI.
The cumulative gross exposure through repo transactions in corporate debt securities and credit default swaps along with debt & money market instruments and derivaties shall not exceed 100% of the net assets of the Scheme.
* excludes AA+/equivalent rated corporate bonds
Investment in Securitised Debt - up to 50% of the total assets.
Investment in Foreign securities - up to 50% of total assets.
Investment in Securities lending - up to 20% of the total assets with maximum single party exposure restricted to 5% of the total assets.
Exposure in Derivatives – up to 100% of total assets.
Gross Exposure to Repo of Corporate Debt Securities - up to the extent permitted by the Regulations (currently up to 10% of total assets, subject to change in line with the regulations from time to time).
The Scheme may engage in short selling of securities in accordance with the applicable guidelines / regulations. The scheme may invest in Credit Default Swaps (CDS) in accordance with the applicable regulations as and when permitted by SEBI/RBI up to the extent permitted by the regulations.
The cumulative gross exposure through derivatives and debt & money market instruments along with repo transactions in corporate debt securities, credit default swaps and units issued by REITs & InvITs shall not exceed 100% of the net assets of the Scheme.
The following clause shall be inserted under the heading “Risk factors with investing in Derivatives” in the Section “Risk Factors - Scheme specific risk factors” -
Risk associated with imperfect hedge due to use of IRF: ‘Basis Risk’ is the risk that arises when the instrument used as a hedge does not match the movement in the instrument/ underlying asset being hedged. This could result into potential gains or losses from the strategy.
The following paragraph shall be inserted under the heading “Debt derivatives - Interest Rate Futures” in the Section “Information about the Scheme - Trading in Derivatives” -
Use of IRF may result in imperfect hedging when the IRF used for hedging the interest rate risk has different underlying security(s) than the existing position being hedged.
Example of imperfect hedge due to use of IRF:
Date: January 1, 2018
Spot price of 8 year GOI Security: Rs.101.80
Futures price of IRF Contract (underlying is 10 year GOI): Rs.102.00
On January 1, 2018, the Fund Manager bought 2000 GOI securities from spot market at Rs.101.80. The Fund Manager anticipates that the interest rate will rise in near future, therefore to hedge the exposure in underlying security the Fund Manager sells March 2018, Interest Rate Futures contracts at Rs.102.00.
On March 1, 2018 due to increase in interest rate:
Spot price of 8 year GOI Security: Rs.100.80
Futures Price of IRF Contract (underlying is 10 year GOI): Rs.101.10
Loss in underlying market will be (101.80 - 100.80)*2000 = Rs 2000
Profit in the Futures market will be (101.10 – 102.00)*2000 = Rs 1800
Because of imperfect hedging strategy, the profit in futures market is Rs.1800 while the loss in the cash market is Rs.2000, resulting in a net loss of Rs. 200.
The above changes in features of the Scheme, being a change in the fundamental attributes of the Scheme, in terms of regulation 18(15A) of SEBI (Mutual Funds) Regulations, investors in the Scheme are given an option to exit (redeem / switch-out) at the prevailing Net Asset Value without any exit load, in case they do not wish to continue in the Scheme in view of the proposed change in the Scheme’s features. The period of this no load exit offer is valid for a period of 30 days from Wednesday, April 11, 2018 to Friday, May 11, 2018 (both days inclusive). The normal redemption / switch request form may be used for this purpose and submitted at any of the IDFC AMC / CAMS ISCs. The no load exit option will be available only to those investments in the Scheme made prior to Wednesday, April 11, 2018.
Such exit option will not be available to unitholders whose units have been pledged or encumbered their units in the Scheme and Mutual Fund has been instructed to mark a pledge/lien on such units, unless the release of the pledge/ lien is obtained and appropriately communicated to AMC / Mutual Fund prior to applying for redemption/switch-out.
Unitholders who do not exercise the exit option on or before Friday, May 11, 2018 would be deemed to have consented to the proposed change. It may be noted that the offer to exit is merely an option and is not compulsory.
The above changes in the scheme features have been approved by the Board of Directors of the AMC and the Trustee Company.
All other features, terms and conditions of the Scheme, as stated in the Scheme Information Document (SID) & the Key Information Memorandum (KIM) of the Scheme, read with the addenda issued from time to time, remain unchanged.
As regards the unitholders who redeem their investments during the Exit Option Period, the tax consequences as set forth in the Statement of Additional Information of IDFC Mutual Fund and Scheme Information Document of the Scheme would apply. In view of individual nature of tax consequences, unitholders are advised to consult their financial / tax advisor for detailed tax advice.
The Notice - Cum - Addendum forms an integral part of the SID and KIM of the Scheme, read with the addenda.
(Mutual Fund investments are subject to market risks, read all scheme related documents carefully.)
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