Investing in mutual fund schemes involves certain risks and considerations associated generally with making investments in securities. The value of the Scheme’s investments, may be affected generally by factors affecting capital markets, such as price and volume, volatility in the capital markets, interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws), or other political and economic developments. Consequently, there can be no assurance that the Scheme offered in this document, will achieve the stated objectives. The NAV of the Units of this Scheme may fluctuate and can go up or down. Past performance of the Schemes managed by the Sponsor or their affiliates or the Asset Management Company are not indicative of the future performance of this Scheme.

Prospective investors are advised to review this document carefully and in its entirety and consult with their legal, tax and financial advisors to determine possible legal, tax and financial or any other consequences of subscribing to, purchasing or holding Units under this Scheme, before making an application to purchase or hold the Units.

Sundaram Mutual Fund (the Mutual Fund) and Sundaram Newton Asset Management Company Limited (the AMC), have not authorised any person to give any information or make any representations, either oral or written, not stated in this document in connection with issue of Units under this Scheme. Prospective investors are advised not to rely upon any information or representations not incorporated in this document as the same have not been authorised by the Mutual Fund or the AMC. Any subscription, purchase or sale made by any person on the basis of statements or representations which are not contained in this document or which are inconsistent with the information contained herein shall be solely at the risk of the investor.

Investors may also like to ascertain about any further changes after the offer document from the mutual fund / investor service centres / distributors / brokers.

• A Mutual Fund sponsored by Sundaram Finance Limited.
• A close-ended Income Scheme offering repurchase of units continuously.
• The primary objective of the scheme and the series/ plan(s) launched thereunder is to generate income with minimum volatility by investing in a portfolio of fixed-income securities normally maturing in line with the time profile of the respective series/ plan(s)
• Initial issue expenses will be borne by Sundaram Newton Asset Management Company Limited.
• Sundaram Fixed Maturity Plan comprises of five series. It is proposed to launch a series every quarter from quarter ending December 2001 upto quarter ending December 2002. Each series would comprise of one or more plans with maturities ranging from 90 days to slightly over a year. Each series /plan(s) will offer two options- dividend and growth. One or more plans depending on market conditions would be offered in each series.
• Minimum subscription is Rs.5,000/- , and in multiples of Rs.1,000/- thereafter
• Repurchase at NAV (an exit load would be applicable for investments redeemed before maturity, during specified repurchase periods).
• Dividend Income from units of Sundaram Fixed Maturity Plan is exempt in the hands of the investor under Section 10(33) of the Income Tax Act, 1961

• Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the Fund’s objectives will be achieved.
• As with any investment in securities, the NAV of the Units issued under this Scheme can go up or down depending on the factors and forces affecting the capital markets.
• Past performance of the Sponsor, AMC/Fund does not indicate the future performance of the Schemes of the Fund.
• The Sponsor is not responsible or liable for any loss resulting from the operation of the Schemes beyond the initial contribution of an amount of Rs 1 lakh made by them towards setting up the Mutual Fund.
• Sundaram Fixed Maturity Plan 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.

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 be however noted that where the Scheme has invested in Government securities, there is no credit risk to that extent.

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.

It is confirmed that:

1. This Offer Document forwarded to SEBI is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time.
2. All legal requirements connected with the launching of Scheme and also the guidelines, instructions, etc. issued by the Government of India and any other competent authority in this behalf, have been duly complied with.
3. The disclosures made in this Offer Document are true, fair and adequate to enable the investors to make a well-informed decision regarding investment in the Scheme.
4. The intermediaries named in the offer document are registered with SEBI and till date such registration is valid.

Place: Chennai

Date: T P Raman

In this Offer Document, the following words and expressions shall have the meaning specified herein, unless the context otherwise requires:

(1) SCHEME SUMMARY

Subsidiary companies of SF (other than Sundaram Newton Asset Management Company Limited) are:

1. Sundaram Finance Securities Limited set up in 1994, with the objective of retail marketing of investment and loan products of corporates.
2. Sundaram Home Finance Ltd., has been set up in 1999 with the objective of providing retail home finance.

The Sponsor has irrevocably settled a sum of Rs 1 lakh as corpus of the Trust, which shall be held and managed by the Trust in accordance with the Trust Deed, dated August 24, 1996.

Sundaram Mutual Fund has been constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 and the Trust Deed dated August 24, 1996 has been duly registered with the Sub-registrar, Chennai under Serial Number 356 of 1996. The Mutual Fund has been registered with the Securities and Exchange Board of India (SEBI) vide Registration Number MF/034/97/2 dated January 3, 1997.

The Trustees have also to report at the end of every six months to SEBI and annually to the investors on the functioning of the Fund.

As per the Trust Deed, SEBI Regulations and other laws in force, the Trustees inter –alia have the following functions and responsibilities:

• In carrying out his responsibilities a member of the Board of Trustees, shall maintain arms length relationship with other companies or institutions or financial intermediaries or any body corporate with which he may be associated.
• No Trustee shall participate in the meetings of the Board of Trustees when decisions for investments in which he may be interested are taken.
• Each trustee shall furnish to the Board of Trustees, particulars of interest which he may have in any other company, or institution or financial intermediary or any corporate by virtue of his position as director, partner or with which he may be associated in any other capacity.
• Each trustee shall file the details of his transactions of dealing in securities with the Mutual Fund on a quarterly basis.
• The Trustees shall have the right to obtain from the Asset Management Company such information as is considered necessary.
• The Trustees shall ensure that the transactions entered into by the Asset Management Company are in accordance with the SEBI Regulations and the Scheme.
• The Trustees shall ensure that the Asset Management Company has been managing the schemes independently of other activities and have taken adequate steps to ensure that the interest of the investors of this scheme are not being compromised with those of any other scheme or of other activities of the Asset Management Company.
• The Trustees shall ensure that all the activities of the Asset Management Company are in accordance with the provisions of the SEBI Regulations.
• Where the trustees have reason to believe that the conduct of business of the Mutual Fund is not in accordance with SEBI Regulations and the Scheme, they shall forthwith take such remedial steps as are necessary by it and shall immediately inform SEBI of the violation and the action taken by them.
• The Trustees shall be accountable for and be the custodian of the funds and property of the Scheme and shall hold the same in trust for the benefit of the Unit holders in accordance with SEBI Regulations and the provisions of the Trust Deed.
• The Trustees shall be responsible for the calculation of any income due to be paid to the mutual fund and also of any income received in the mutual fund for the holders of the units of the scheme in accordance with the SEBI Regulations and the provisions of the Trust Deed.
• The Trustees shall periodically review all service contracts such as custody arrangements, transfer agency of the securities and satisfy themselves that such contracts are executed in the interest of the Unit holders.
• The Trustees shall periodically review the investor complaints received and the redressal of the same by the Asset Management Company.
• The Trustees shall ensure that the mutual fund buys and sells securities on the basis of deliveries and in all cases of purchases, take delivery of the relative securities and in all cases of sale, deliver the securities and in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance.
• The Trustees are required to obtain the consent of the Unit holders of a Scheme

1. When the Trustees are required to do so by SEBI in the interest of the Unit holders of that Scheme; or
2. Upon the request made by three-fourths of the Unit holders of this Scheme; or
3. If majority of the Trustees decide to wind up the Scheme(s) or prematurely redeem the Units; or
4. When a change in the fundamental attributes of the Scheme(s) or the Trust or fees and expenses payable or any other change, which would modify the Scheme(s) or affect the interest of the Unit holders is proposed to be carried out. No change shall be carried out unless (I) a written communication about the proposed change is sent out to each unit holder and an advertisement is given in one English daily newspaper having nation wide circulation as well as in a newspaper published in the language of the region where the Head office of the mutual fund is situated; and (II) the unit holders are given an option to exit at the prevailing NAV without any exit load.

• The Trustees are required to call for the details of transactions in securities by the key personnel of the AMC in their own names or on behalf of the AMC and report the same to SEBI, as and when required.
• The Trustees are required to review on a quarterly basis all transactions carried out between the Fund, AMC and its associates.
• The Trustees are required to review quarterly the net worth of the AMC and in case of any shortfall ensure that the AMC make up for the shortfall as per clause (f) of sub regulation (1) of regulation 21 of SEBI (Mutual Funds) Regulations, 1996.
• The Trustees are required to ensure that there is no conflict of interest between the manner of deployment of its net worth by the AMC and the interest of the Unit holders.
• The Trustees are required to abide by the Code of Conduct as specified in the Fifth Schedule of the SEBI (Mutual Funds) Regulations, 1996.

• The meetings of the Trustees shall be held at-least once in every three months and atleast four meetings shall be held in every year.
• The trustees shall maintain high standards of integrity and fairness in all their dealings and in the conduct of their business
• The Trustees shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

• The Trustees have to furnish to SEBI on a half yearly basis

1. a report on the activities of the Fund;
2. a certificate stating that the Trustees have satisfied themselves that there have been no instances of self dealing or front running by any of the Trustees, Directors and key personnel of the AMC;
3. A certificate to the effect that the AMC has been managing the schemes independently of any other activities and in case any activities of the nature referred to in Regulation 24, sub regulation (2) of the SEBI (Mutual Funds) Regulations, 1996 have been undertaken, the AMC has taken adequate steps to ensure that the interest of the Unit holders is protected.

• The independent trustees are required to give their comments on the report received from the AMC regarding the investments by the Mutual Fund in the securities of the group companies of the Sponsors.
• No amendment to the Trust Deed shall be carried out without the prior approval of SEBI and the Unit holders.

1. General Due Diligence:

1. The Trustees shall be discerning in the appointment of the directors on the Board of the Asset Management Company.
2. The Trustees shall review the desirability of continuance of the asset Management Company if substantial irregularities are observed in any of the schemes and shall not allow the asset management to float new scheme.
3. The trustees shall ensure that the trust property is properly protected, held and administered by proper persons and by a proper number of such persons.
4. The Trustees shall ensure that all service providers are holding appropriate registrations from the Board or concerned regulatory authority.
5. The Trustees shall arrange for test checks of service contracts.
6. The Trustees shall immediately report to the Board of any special developments in the mutual fund.

1. Specific Due Diligence:

1. Obtain internal audit reports at regular intervals from independent auditors appointed by the Trustees.
2. Obtain compliance certificates at regular intervals from the Asset Management Company.
3. Hold meetings of the Trustees more frequently.
4. Consider the reports of the independent auditor and compliance reports of the Asset Management Company at the meetings of Trustees for appropriate action.
5. Maintain records of the decisions of the Trustees at their meetings and of the minutes of the meetings.
6. Prescribe and adhere to a code of ethics by the Trustees, the Asset Management Company and its personnel.
7. Communicate in writing to the Asset Management Company of the deficiencies and checking on the rectification of deficiencies.

1. The Investment Management Agreement and the compensation paid under the agreement.
2. Service contracts with affiliates – whether the Asset Management Company has charged higher fees than outside contractors for the same services.
3. Selection of the Asset Management Company’s independent directors
4. Securities transactions involving affiliates to the extent such transactions are permitted.
5. Selecting and appointing individuals to fill independent directors vacancies.
6. Code of ethics must be designed to prevent fraudulent, deceptive or manipulative practices by insiders in connection with personal securities transactions.
7. The reasonableness of fees paid to sponsors, Asset Management Company and any other services provided for.
8. Principal underwriting contracts and their renewals.
9. Any service contract with the associates of the Asset Management Company.

Audit committee of the Trustees has been constituted which will review the internal audit systems and the recommendations of the internal and statutory audit reports. During the year 2000-2001 three audit committee meetings were held.

During the year 2000-2001 the Board of Trustees held four meetings. The supervisory role of the Board of Trustees is discharged by having continuous feedback from the AMC on matters of importance and a review of the Mutual Fund’s operations at the Board Meetings.

Pursuant to the Trust Deed, presently the Trustees are entitled to a fee of 0.0025% of Net Asset Value of all schemes taken together for each financial year for their services. Presently the total fee payable to all trustees in any financial year shall not exceed Rs.5 Lakhs. In addition to the above, each Trustee shall presently be paid Rs.5,000/- per meeting for attending the meeting of the Board of Trustees or any Committee thereof.

(3) THE ASSET MANAGEMENT COMPANY

Sundaram Newton Asset Management Company Limited, the Investment Manager of Sundaram Mutual Fund is, a public limited company, incorporated under the Companies Act, 1956 and has a paid-up capital of Rs.15 Crores. It is a joint venture between Sundaram Finance Limited and Newton Management Group, UK. Sundaram Finance Limited has contributed 61% of the equity capital and 39% has been contributed by Stewart Newton Holdings (Mauritius) Limited, a wholly owned subsidiary of Newton Management Limited. Newton Management Limited founded in 1977 is one of the rapidly growing and best performing medium sized fund management groups in UK [Source: Money Marketing – Investment Analysis – Prepared by Micropal].

Mellon Bank Corporation and its subsidiary, The Dreyfus Corporation have acquired a 100% stake in Newton Management Ltd. Mellon Bank, one of the largest banking groups in USA.,offers a broad range of financial services. They manage assets over $550 billion and are business leaders in US institutional and retail mutual fund markets.

The Board of Trustees of Sundaram Mutual Fund has appointed Sundaram Newton Asset Management Company Limited as the Investment Manager for the schemes of Sundaram Mutual Fund vide Investment Management Agreement dated August 24, 1996.

• AMC will assume the day to day management of the Fund and in that capacity, subject to the supervision of the Trustees, shall be responsible for and have powers of implementing schemes and make investment decisions and manage the assets of the schemes of the mutual fund in accordance with the scheme objectives, Trust Deed and SEBI Regulations in the best interest of the unit holders.
• Implement the specific scheme in all respects including the allotment and the issue of Unit Certificates/Account Statements to the investors who are successful in getting the units allotted to them as per the terms of the concerned scheme and collect the subscriptions/sale proceeds of units.
• Disclose the basis of calculating the repurchase price and Net Asset Value (NAV) of units of the schemes of the Fund in the offer documents and to disclose the NAV to the unit holders at such intervals as may be specified by the Board of Trustees or SEBI or as may be mentioned in the offer document.
• Take all steps to protect the investments made out of the Fund and achieve the objectives of each scheme, as a diligent and prudent person would do.
• Maintain or cause to be maintained a register containing the names and other required particulars of unit-holders in print or magnetic/electronic media.
• Distribute the profits of the fund earned every year in accordance with the provisions of the schemes and in conformity with SEBI Regulations.
• Within six months from the date of closing of each financial year, forward to SEBI, a copy of the Annual Report containing the audited annual statements of accounts viz., the Balance Sheet and the Profit and Loss account of the Mutual Fund and other information including details of investments and deposits held by the Mutual Fund so that the entire scheme wise portfolio of the Mutual Fund is disclosed.

• No Offer Document of a scheme, key information or memorandum is issued or publicised without the Trustees’ prior approval in writing.
• Ensure at all times that the assets and funds of the Mutual Fund are segregated from those of the AMC and assets of any other funds for which the AMC is responsible.
• The Investment Manager shall file with the Trustees details of transactions in securities by its key personnel, transactions with any of its associates, details of interest of Directors and other reports required to be filed under SEBI Regulations.
• The Investment Manager shall ensure that the dealings in securities through its associates are in accordance with SEBI Regulations and guidelines issued from time to time.

• The Asset Management Company shall maintain high standards of integrity and fairness in all their dealings and in the conduct of their business

• The Asset Management Company shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.

• The Asset Management company shall not make any exaggerated statement, whether oral or written, either about their qualifications or capability to render investment management services or their achievements

• a written communication about the proposed change is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head Office of the mutual fund is situated and
• the unit holders are given an option to exit on the prevailing Net Asset Value without any exit load.

Sundaram Newton Asset Management Company Ltd., is entitled to Investment Management and Advisory fee of 1.25% of the weekly average net assets upto Rs 100 crores and 1% of the weekly average net assets on the balance amount.

Ms. G.Padma is the Manager – Customer Support and she may be contacted at the Corporate Office of the AMC at 46, Whites Road, Royapettah, Chennai 600 014. Tel.: 8583362/8583367.

(4) AUDITORS TO THE SCHEME

M/s Sundaram & Srinivasan, Chartered Accountants, Chennai .

(5) REGISTRAR

Computer Age Management Services (P) Limited (CAMS), a Category-I Registrar and Transfer Agent registered with SEBI vide Registration Number INR 000002813 has been appointed to act as Registrar and Transfer Agent to this Scheme. The Registrar to the Scheme will accept and process investors’ applications and advise Sundaram Newton Asset Management Company Limited of the details of subscription.

They will also handle communications with the investors, resolve investor grievances, perform data entry services and despatch Unit Certificates and/or Accounts Statements. Sundaram Mutual Fund and Sundaram Newton Asset Management Company Limited and the Trustees, after taking appropriate due diligence measures, are satisfied that the Registrar can provide the services required and have the adequate facilities to do so. The Letter of Appointment of the Registrar will be available for inspection by the investors. The Registrar will be paid a fee in accordance with the Agreement.

6. CUSTODIAN

Standard Chartered Bank (SCB) registered with SEBI vide Registration No IN/CUS/006 has been appointed Custodian of the securities that are bought and sold under this scheme. The responsibilities of the Custodian, inter-alia include:

To keep in safe custody all the securities and instruments belonging to the Scheme.

• To ensure smooth inflow / outflow of securities and instruments as and when necessary in the best interests of the investors.
• To ensure that the benefits due on the holdings are received.
• To be responsible for the loss or damage to the securities due to negligence on its part or on the part of it’s approved agents.

The Custodian agreement has been entered into by SCB with Sundaram Newton Asset Management Company Limited and Sundaram Mutual Fund outlining the custodial fees, duties, functions and obligations of the Custodian.

The primary objective of the scheme and the series/ plan(s) launched thereunder is to achieve income with minimum volatility by investing in a portfolio of fixed-income securities normally maturing in line with the time profile of the respective series/ plan(s)

Under normal circumstances, the broad asset allocation of the Scheme shall be as follows:

The asset allocation is not absolute and would vary depending upon the conditions prevailing in any of the markets. The allocation to debt instruments under normal circumstances shall be maintained at least at 65% of the investible funds.

However, under exceptional circumstances and/or regulatory changes, the fund manages may deviate from the indicated asset allocation with the sole objective/intention of safeguarding the interest of the investor’s assets and provide optimal returns to them. Pending deployment of funds in terms of investment objectives of this Scheme, the funds may be invested in short-term deposits with Scheduled Commercial Banks and money market instruments.

The Board of Trustees may, in accordance with the SEBI Regulations, after sending a written communication to each unitholder and an advertisement in one English daily newspaper as well as in a newspaper published in the language of the region alter/modify/change the fundamental attributes of this Scheme. However, the Unit holders who express dissent to such alteration/modification or change shall be allowed to redeem their holdings in this Scheme at the applicable NAV related Repurchase Price. Fundamental attributes cannot be changed without the consent of seventy five percent of the unit holders

The debt market in India is comprised of a market for Government securities (G-Sec) and a market for corporate debt. Recently, interest rate swaps (IRS) and forward rate agreements (FRA) have also begun to be traded.

Of the two main markets, the one for G-Secs is the more liquid: the average daily value of trades in the month of July 2001 would be around Rs.4000 crores. The market for corporate debt is relatively less liquid. Furthermore, due to the short tenor issuance by Indian corporates, trading volume in corporate bonds of long maturity is thinner than that of medium maturity.

A major drawback in India is the fact that the debt market is still a telephone market. Brokers contact investors on telephone and deals are put through between buyers and sellers- unlike the screen-based trading that is in use in the equity market. Similarly, settlement takes place by the physical delivery of securities and payment of cash, instead of through a clearing corporation.

Yields of debt instruments vary depending mainly on economic factors, liquidity conditions, and the type and maturity of the instrument. The longer the maturity for example, the higher will be the yield (under normal market conditions). Corporate debt trades at a higher yield than the corresponding G-Sec, mainly due to the perceived risk of default.

Indicative yields on G-Secs for various maturities as of end June ’01:

5-Year Maturity: 8.20% (annualized)

10-Year Maturity: 9.55% (annualized)

In order to achieve the investment objectives, the scheme will invest in a wide range of securities including:

1. Government of India securities including T-Bills.
2. Debt obligations of Indian states and local Governments.
3. Obligations of Domestic Government agencies and statutory bodies, with or without a Government guarantee.
4. Debentures, Bonds, asset-backed securities, Trade Bills, Promissory notes, pass-through obligations, Commercial Paper and any other transferable securities issued by a body corporate, whether in private or in public sector.
5. Debentures, Bonds asset backed securities, Bills Rediscounting, repos, certificate of deposit, Promissory notes and any other transferable securities offered by a bank or a financial institution, secured or unsecured, rated or unrated.
6. Derivatives including Swaps & Forward Rate Agreements
7. Call money, notice money, fixed deposits of banks and other institutions and other money market instruments as may be permitted by regulatory bodies from time to time.
8. Any other instruments, which may be offered from time to time in the domestic market and permitted by SEBI.

The above securities may include coupon bearing, floating rate, discount, deep discount or zero coupon bonds.

The scheme would seek to invest in fixed income securities rated as investment grade or above by a recognized rating agency, with a maturity close to the maturity date(s) of the plan(s).In case an instrument is not rated, specific approval of the Board of Directors of the AMC, and the Board of Trustees, or a committee approved by the Board of Trustees shall be obtained. The scheme may also invest some portion of funds in call/notice money or other money market instruments.

Pending deployment of funds in terms of the investment objectives of the scheme, funds may be invested in short-term deposits with scheduled commercial banks and money market instruments.

The focus of the scheme would be to generate regular returns on the portfolio, while maintaining a low risk profile. The investment policy would be to generally 'buy and hold' instruments to minimize the interest rate risk. Selling of securites would mainly be done to meet redemptions before the maturity date, if any. The scheme may also resort to temporary borrowing within the limits laid down by SEBI.

G-Secs are obtained from the secondary market, while corporate debt instruments may be obtained both from secondary and primary markets. In the case of G-Secs, instruments of different maturities can be easily traded under normal market conditions. The particular instrument will be chosen as a result of the duration and weight decisions.

In the case of corporate debt, if the instruments are to be obtained through private placement route, an approval from the Internal Policy Committee (IPC) is required. The IPC consists of the Managing Director, the Director (Investments), and two other Directors. The investment department (comprising of Analysts, Fund Manager and the Chief Investment Officer) submits a note to the IPC for the purpose of this approval. In case of purchases from secondary market, if the issuer’s any instrument is/was not in the portfolio, permission from Internal Investment Committee (IIC) is sought. Internal Investment Committee comprises of the Managing Director and the Director (Investments).

For all purchases, we depend upon the credit rating assigned by external agencies. Where this is not available, we depend on internal analysis. We believe that the important risks of investing in debt arise from interest rate forecasts and asset allocation decisions and not necessarily from individual company performances.

In weekly meetings, the fund manager assesses the performance of the fund during the previous week and explains the likely strategy that would be adopted for the next week to the Chief Investment Officer. In these meetings, the fund manager clearly articulates the interest rate view and consequently, the view of the portfolio duration. The member of the Internal Investment Committee who also attends these meetings may also stipulate some restrictions, or provide guidance at this point. In these meetings, the performance of the Fund is compared to peers and benchmark debt market indices.

Every quarter, the fund manager presents a review of all decisions taken, and on fund performance to the Board of Directors and the Board of Trustees.

In our asset allocation decision, we also consider the spread between G-Secs and corporate bonds to determine the relative weights. As the credit spread increases, we increase the weight of corporate assets and as the spread declines, we increase the weight of government bonds. Thus the allocation of weight between corporate bonds and G-Secs is also a function of relative attractiveness. Due consideration is also given to the composition of investors. For example, if corporate investors have contributed towards a large share of the portfolio, the tendency would be for us to own highly liquid assets.

1. All investments involve risk 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 investment objective will be attained. As with any investment in securities, the value of and income from an investment in the Scheme can decrease or increase, depending on

1. the general economic conditions and market factors:
2. due to movement in the broader bond markets:
3. the factors affecting capital markets:
4. changes in the interest rate:
5. price and volume volatility in the bond and stock markets and
6. changes in governmental policies and taxation, among others.

1. Changes in the prevailing rates of interest is likely to affect the value of the Scheme’s holdings and consequently the value of the Scheme’s Units. Increased rates of interest, which frequently accompany inflation and /or a growing economy, are likely to have a negative effect on the value of the Units. The value of debt securities held by the Scheme generally will vary inversely with the changes in prevailing interest rates.
2. Debt securities are also subject to the risk of an issuer ‘s inability to meet principal and interest payments and interest payments on the obligations (credit risk) and may also be subject to price volatility due to such factors as interest sensitivity, market perception or the creditworthiness of the issuer and general market liquidity (market risk). While it is the intent of the Investment Manager to invest primarily in high rated debt securities, the Scheme may from time to time invest in higher yielding, low rated securities. As a result, an investment in the Scheme may be accompanied by a higher degree of risk relative to an investment consisting exclusively of high rated, lower yielding securities.
3. Risks associated with lower rated or unrated securities are:

1. Lower rated or unrated securities are more likely to react to developments affecting market and credit risk than high rated securities (these react primarily to movements in the

general level of interest rates)

2. Lower rated securities also tend to be more sensitive to economic conditions than higher rated securities.
3. Issuers of high-yielding, fixed income securities are often highly leveraged and may not have more traditional methods of financing available to them. Hence the risk of default on interest and/or principal is higher relative to high rated issuers. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of high yielding securities may experience financial stress. During these periods, such issuers may not have sufficient cash flows to meet their interest payment obligations. The credit risk factors pertaining to lower rated securities also apply to lower rated zero coupon, deferred interest and pay-in-kind bonds. Such bonds carry an additional risk in that, unlike bonds that pay interest throughout the period to maturity, the scheme will realise no cash until the cash payment date and if the issuer defaults the scheme may obtain no return at all on its investment.

5. The issuer’s ability to service its debt obligations may also be adversely affected by specific developments affecting the issuer, the issuer’s inability to meet specific projected business forecasts, or the unavailability of additional financing.
6. The risk or loss due to default by the issuer may be significantly greater if the instrument held is unsecured and is subordinated to other creditors of the issuer. In case of low rated issuer, the risk is significantly higher relative to a high rated issuer.
7. The Scheme may have difficulty disposing of securities because there may be thin trading for a particular security. In case of low rated high yielding security, in normal circumstances, the liquidity would be lower than high rated security. This may result in lower realisations than at which security is valued in the event of sale. Further if the sale is taking in response to an economic event or on deterioration / downgrading of issuer, the sale realisations would be much lower than what is anticipated above.
8. Reduced liquidity in the secondary market may have an adverse impact on market price and the Scheme’s ability to dispose of securities, particularly if it is intended to meet the Scheme’s liquidity needs or to respond to a specific economic event.
9. The Scheme may acquire high yielding fixed income securities during an initial offering by a new company. Such securities involve special risks because they are new issues.
10. Zero coupon or deferred interest securities are debt obligations that do not entitle the holder to any periodic payments of interest prior to maturity or a specified date when the securities begin paying current interest (the "cash payment date") and therefore are generally issued and traded at a discount from their face amounts. The discount varies depending on the time remaining until maturity or cash payment date, 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 securities that pay interest periodically and are likely to respond to changes in interest rates to a greater degree than non-zero coupon or deferred interest securities having similar maturities and credit quality

2. Risk control

Credit Risk :- The fund has a rigorous process for credit appraisal, whereby all the investments whether rated or unrated are independently vetted by the internal research department. Regular visits and periodical reviews are done to keep track of the investments and minimise the credit losses.

Interest Rate :- Fixed income securities are subject to volatility risk arising from the movement in interest rates. Risk control involves forming and maintaining a view on the direction of interest rates, tracking the spread between different assets and active duration management to optimise portfolio returns. The fund could also use appropriate risk management and hedging tools to minimise risk.

Liquidity Risk :- While liquidity in the Indian bond markets is improving, it is largely in Government bonds and to some extent, top rated corporate bonds. The fund would maintain a reasonable allocation to liquid bonds to minimise risk in case of a sudden withdrawal from the fund.

The Asset Management Company will also use any derivative or hedging techniques that may be permitted by SEBI.

3. Derivatives

1. Forwards
2. Futures
3. Options
4. Swaps

1. Interest income that the portfolio earns.
2. Capital Gains arising out of interest rate movements and trading.

1. Changing the maturity profile of the portfolio.
2. Trading in the segment the Fund Manager proposes to hold.
3. Increasing the cash position of the portfolio.

1. Safeguard against losses in a rising interest rate view.
2. To execute a spread view.

1. Within the same class of assets
2. Between different class of assets.

Presently the Securities and Exchange Board of India (Mutual Funds) Regulations 1996, lays down following investment criteria and restrictions:

1. The scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorised to carry out such activity under the Securities and Exchange Board of India Act, 1992. Such investment limit may be extended to 20% of the Scheme with the prior approval of the Board of Trustees and the Board of the Asset Management Company. Provided that such limits shall not be applicable for investments in government securities and money market instruments.

2. Transfer of investments from one scheme to another scheme, including this scheme shall be allowed only if such transfers are made at the prevailing market price for quoted securities on a spot basis and the securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.
3. The scheme may invest in another scheme, under the same asset management company or any other mutual fund, without charging any fees, provided that the aggregate inter-scheme investments made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.
4. The Scheme shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance.
5. The scheme shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of a long-term nature.
6. Pending deployment of funds of the scheme in securities in terms of the investment objectives of the scheme, the Mutual Fund can invest the funds of the scheme in short term deposits of scheduled commercial banks or in call deposits.
7. The Scheme shall not make any investment in:

1. Any unlisted security of an associate or group company of the sponsor; or
2. Any security issued by way of private placement by an associate or group company of the sponsor; or
3. The listed securities of group companies of the sponsor which is in excess of 25% of the net assets of all the schemes of the Mutual Fund

To the extent the above investment Limitations are amended by SEBI Regulations, the Trustees/ AMC may alter/ expand these limitations from time to time.

The AMC has qualified professionals for its investment research and dealing activities. Newton Management Limited, UK, lends its expertise and experience in the management of the schemes of Sundaram Mutual Fund.

9. VALUATION OF ASSETS AND NET ASSET VALUE

The assets of the Scheme will be valued as per the following guidelines in conformity with Regulation 47 read with Eighth Schedule of SEBI Regulations.

(a) Traded Securities

• Traded securities will be valued at the last quoted closing price on the National Stock Exchange (NSE).
• However, if the securities are not listed in the NSE, the securities will be valued on the price quoted at the Exchange where it is principally traded.
• When on a particular valuation day, a security has not been traded on NSE the value at which it is traded on another stock exchange will be used.
• When a security is not traded on any stock exchange on a particular valuation day, the value at which it was traded on the NSE or any other stock exchange as the case may be, on the earliest previous day may be used provided that such day is not more than 30 days prior to the valuation date.

2. Non Traded / Thinly Traded Debt Securities

1. A debt security (other than Government Securities) that has a trading volume of les