IL&FS Fixed Maturity Plan 

A Close – ended Scheme under IL&FS Mutual Fund

ISSUE OF UNITS AT Rs 10/- PER UNIT FOR CASH AT PAR

(1)        HIGHLIGHTS

(a)                "IL&FS Fixed Maturity Plan” is a Close-ended Umbrella Income Scheme of IL&FS Mutual Fund (the Fund), comprising of several Investment Plans

(b)                The Sponsor of the Fund is Infrastructure Leasing & Financial Services Limited (IL&FS).

(c)                IL&FS is one of the leading multifaceted organisation in India with an asset base of over Rs. 39 billion

(d)                The AMC has been promoted by IL&FS and is a subsidiary of IL&FS

(e)                "IL&FS Fixed Maturity Plan" (the Scheme) will comprise of several Plans of various maturities upto 396 days from the date of allotment. Each Plan identified by a distinct number, will have a portfolio of Debt / Money Market Instruments and Government securities normally maturing in line with the time profile of each Investment Plan

(f)                 The Scheme is suitable for investors who wish to nearly eliminate interest rate risk by remaining invested in the Plan till maturity

(g)                Each Plan shall offer Growth and Dividend Option with dividend reinvestment facility

(h)                Initial Issue Expenses will be borne by IL&FS Asset Management Company Limited

(i)                  The investment objective of the Scheme is to generate regular income through investments in Debt / Money Market instruments and Government Securities with suitable maturity. The scheme is not a money market mutual fund.

(j)                  Switching - Unitholders can switch from one plan to another (if eligible) or to other schemes of IL&FS Mutual Fund at applicable loads if any.

(k)                Full and firm allotment would be made to all the applicants, subject to the application being complete in all respect and is in accordance with the terms of the offer.

(l)                  The fund will disclose the scheme’s Net Asset Value (NAV) on all Business days and the investment portfolio every six months  

Offer Opens : To be decided

Earliest Closing To be decided

Offer Closes: To be decided

The Trustee reserves the right to extend the Closing date subject to a maximum of 30 days from the date of Opening.

(2)        RISK FACTORS

(a)                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.

(b)                As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors that may affect the values of the Scheme’s investments. In addition to the factors that affect the value of individual securities, the NAV of the Scheme can be expected to fluctuate with movements in the broader bond markets and may be influenced by factors affecting bond markets in general, such as, but not limited to, changes in interest rates, changes in governmental policies and increased volatility in the bond and money markets

(c)                The past performance of the funds managed by the Sponsors, AMC, Mutual Fund and their affiliates/associates is not necessarily indicative of the future performance of the scheme and its future prospects or returns.

(d)                Investors in the Scheme are not being offered a guaranteed or assured rate of return. Investment decisions made by the Investment Manager may not always be profitable

(e)                ‘IL&FS Fixed Maturity Plan’ is the name of the scheme and does not in any manner indicate                   either the quality of the scheme or its future prospects and returns.

(3)        SCHEME SPECIFIC RISK FACTORS & SPECIAL CONSIDERATIONS :

          (a)              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

           (b)                Debt securities are subject to the risk of an issuer’s inability to meet interest and principal payments on its debt obligations (credit risk). Debt 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 place considerable emphasis on the credit rating of the issuer and therefore will only invest in securities that are rated investment grade by a regulated credit rating agency such as CRISIL, ICRA, CARE etc, or in unrated debt securities, which the Investment Manager believes to be of equivalent quality. Market risk will be addressed by analysing various economic trends in order to seek to determine the likely future course of interest rates

(c)                Lower rated or unrated securities are more likely to react to developments affecting the market and the credit risk than the highly rated securities which react primarily to movements in the general level of interest rates.  Lower rated securities also tend to be more sensitive to economic conditions than higher rated securities. The Investment Manager will consider both credit risk and market risk in making investment decisions

(d)                Zero coupon or deep discount bonds are debt obligations that do not entitle the holder to any periodic payment of interest prior to maturity of a specified date when the securities begin paying current interest and therefore are generally issued and traded at a discount to their face values. The discount depends on the time remaining until maturity or the date when securities begin paying current interest. It also varies depending on the prevailing interest rates, liquidity of the security and the perceived credit risk of the issuer. The market prices of zero coupon securities are generally more volatile than the market prices of securities that pay interest rates periodically and are likely to respond to changes in interest rates to a greater degree than other coupon bearing securities having similar maturities and credit quality

            (e)           As zero coupon securities do not provide periodic interest payments to the holder of the security, theses securities are more sensitive to changes in interest rate hence the risk of zero coupon securities is higher. The AMC may choose to invest in zero coupon securities that offer attractive yields. This may increase the risk of the portfolio

(f)                 The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon or deferred interest bonds.  Such bonds carry an additional risk in that, unlike bonds that pay interest throughout the period to maturity, the Scheme would not realise any cash until interest payment on the bonds commence and if the issuer defaults the Scheme may not obtain any return on its investment

(g)                The value of the Scheme’s investments may be affected generally by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investments, changes in Government policies, taxation, political, economic or other developments and closure of the stock exchanges.  There is also risk of loss due to lack of adequate external systems for transferring, pricing, accounting and safekeeping or record keeping of securities. Consequently the NAV of the Scheme may fluctuate and the value of the Units may go down as well as up

            (h)             Securities which are not quoted on the stock exchanges are inherently illiquid in nature and carry a larger amount of liquidity risks, in comparison to 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 securities that offer attractive yields. This may increase the risk of the portfolio

(i)              From time to time and subject to the Regulations, the Sponsor, Investment companies of the Sponsor, Funds managed by the Sponsor, their affiliates, associate companies, subsidiaries, the AMC, Trustee Company or any other unitholder may invest either directly or indirectly in the Scheme. These entities may acquire a substantial portion of the Scheme Units and collectively constitute a major investor in the Scheme. Accordingly, redemption of Units by these entities may have an adverse impact on the Units of the Scheme because the timing of such redemption may impact the ability of other Unit holders to redeem their Units.

(j)                  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. In view of the above, the Trustee has the right, in its sole discretion, to limit redemptions (including suspending redemptions) under certain circumstances, as described on Page 73 under the title “Right to Limit Redemptions”.

Risk Factors of investment in Overseas financial Assets

To the extent that the assets of the schemes will be invested in securities denominated in foreign currencies, the Indian rupee equivalent of the net assets, distributions and income may be adversely affected by changes in the value of certain foreign currencies relative to the Indian Rupee (If Indian rupee appreciates against these foreign currency). The repatriation of capital to India may also be hampered by changes in regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment. The scheme may have to pay applicable taxes on gains from such investment

             (k)         The Scheme may use various derivative products, from time to time, in an attempt to protect the value of the portfolio and enhance Unit holders’ interest. Derivative products are specialised instruments that require investment techniques and risk analysis different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Other risks include, the risk of mispricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. See paragraph on Derivatives and Hedging products in Section II

Risk Factors viz., Interest Rate Swaps (IRS)  and Forward Rate Agreements (FRA)

Some of the risks associated with IRS and FRAs are as below

(a)                Counterparty Risk : This refers to the risk of credit and settlement. Specifically it refers to the event that the counterparty in the IRS/FRA deal is unable to meet its commitment and defaults on its obligations

(b)                Basis Risk : Basis risk is the risk of mismatch i.e. the risk that arise when the underlying asset/liability is not perfectly correlated with the derivative position

(c)                Liquidity Risk : This refers to the risk associated with the ease with which a derivative position can be unwound

(4)        DISCLAIMER

(a)                The scheme particulars of "IL&FS Fixed Maturity Plan", the scheme offered under this offer document have been prepared in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended till date and filed with the Securities and Exchange Board of India

(b)                The offer document contains information necessary for an investor to make an informed investment decision in the scheme described herein. The Prospective investors are advised to review this Offer Document carefully and in its entirety and consult with their legal, tax and financial advisors to determine possible legal, tax and financial or other consequences of subscribing to, purchasing or holding Units under this Scheme, before making an application for Units and retain the same for their reference. As in the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of investment in the Scheme will endure indefinitely. The Trustee, Asset Management Company Limited and their directors or their employees shall not be liable for any of the tax consequences that may arise in the event that the Scheme is wound up

(c)                Investors may note that this offer document remains effective during the tenure of the scheme. Any material changes shall be filed with SEBI and circulated to all unitholders or may be publicly notified by advertisements in the newspapers and is subject to all applicable regulations. Investors may also like to ascertain about any further changes after the date of this Offer Document from the Mutual Fund/it’s Investor Service Centres/distributors or brokers.

(d)                The Sponsors are not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of an amount of Rs. 100,000 made by them towards setting up the Fund or such other accretions and additions to the initial corpus set up by the Sponsors

(e)