SMT. CHANDIBAI HIMATHMAL MANSUKHANI COLLEGE NAME STD SEM SUBJECT TOPIC : NAVIN JETHWANI : TY B.F.

M : VI : MUTUAL FUNDS MANAGEMENT : BANKING SECTOR [HDFC]

ROLL NO : 43

DATE: 21/02/2014 SUBMITED TO (PROF.MANISHA GUR)

INTRODUCTION TO MUTUAL FUND

A mutual fund is a type of professionally managed collective investment scheme that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies. Most mutual funds are "open-ended," meaning stockholders can buy or sell shares of the fund at any time. Hedge funds are not considered a type of mutual fund. In the United States, mutual funds must be registered with the Securities and Exchange Commission, overseen by a board of directors (or board of trustees if organized as a trust rather than a corporation or partnership) and managed by a registered investment adviser. Mutual funds, like other registered investment companies, are also subject to an extensive and detailed regulatory regime set forth in the Investment Company Act of 1940. Mutual funds are not taxed on their income and profits if they comply with certain requirements under the U.S. Internal Revenue Code. Mutual funds have both advantages and disadvantages compared to direct investing in individual securities. They have a long history in the United States. Today they play an important role in household finances, most notably in retirement planning. There are 3 types of U.S. mutual funds: open-end, unit investment trust, and closed-end. The most common type, the open-end fund, must be willing to buy back shares from investors every business day. Exchange-traded funds (or "ETFs" for short) are open-end funds or unit investment trusts that trade on an exchange. Open-end funds are most common, but exchange-traded funds have been gaining in popularity. Mutual funds are generally classified by their principal investments. The four main categories of funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds may also be categorized as index or actively managed.

COMPANY DETAIL MAN WITH A MISSION

If ever there was a man with a mission it was Hasmukhbhai Parekh, Founder and Chairman-Emeritus, of HDFC Group who left this earthly abode on November 18, 1994. Born in a traditional banking family in Surat, Gujarat, Mr. Parekh started his financial career at Harkisandass Lukhmidass a leading stock broking firm. The firm closed down in the late seventies, but, long before that, he went on to become a towering figure on the Indian financial scene. In 1956 he began his lifelong financial affair with the economic world, as General Manager of the newly-formed Industrial Credit and Investment Corporation of India (ICICI). He rose to become Chairman and continued so till his retirement in 1972. At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more illustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation it was a trend-setter for housing finance in the whole Asian continent. He was also a writer in his own right. There are over 200 published articles by him... In 1992, the Government of India honoured him with the Padma Bhushan Award. The London School of Economics & Political Science conferred on him an Honorary Fellowship. He was one of the Founder Members of the Centre for Advancement of Philanthropy, and its Chairman till 1993. He took active interest in the Bombay Community Public Trust, designed specifically to serve the needs of the citys underprivileged citizens. When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said: Taking over from H.T. Parekh is a formidable task; his vision brought about not only an institution, but an entire concept which has proved itself to be of lasting importance. Today we are the largest residential mortgage finance institution in India, with a net worth of Rs. 2,703 cores as of March 31, 2006 and an asset base of over Rs.

22,000 cores. We also aim to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.

ABOUT COMPANY HDFC VISION To be a dominant player in the Indian mutual fund space, recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests.

SPONSORS HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (HDFC): HDFC was incorporated in 1977 as the first specialised housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity.

HDFC currently has a client base of over 8, 00,000 borrowers, 12, 00,000 depositors, 92,000 shareholders and 50,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the ninth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages.

INTRODUCTION A. RISK FACTORS STANDARD 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 depending on the various factors and forces affecting the capital markets and money markets. Past performance of the Sponsors and their affiliates / AMC / Mutual Fund does not guarantee future performance of the Scheme(s) of the Mutual Fund. The name of the Scheme does not in any manner indicate either the quality of the Scheme or its future prospects and returns. The Sponsors are not responsible or liable for any loss resulting from the operation of the Scheme beyond the initial contribution of ` 1 lakh each made by them towards setting up the Fund. The present Scheme is not a guaranteed or assured return scheme. Scheme Specific Risk Factors

n l

l l l

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Some of the specific risk factors related to the Scheme include, but are not limited to the following: (i) Risk factors associated with investing in equities and equity related instruments l Equity shares and equity related instruments are volatile and prone to price fluctuations on a daily basis. Investments in equity shares and equity related instruments involve a degree of risk and investors should not invest in the Scheme unless they can afford to take the risks. l 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 and may lead to the Scheme incurring losses till the security is finally sold. l Investment strategy to be adopted by the Scheme may carry the risk of significant variance between the portfolio allocation of the Scheme and the Benchmark particularly over a short to medium term period. l Schemes performance may differ from the benchmark index to the extent of the investments held in the equity segment under Savings Plan, as per the investment

pattern indicated under normal circumstances. (ii) RISK FACTORS ASSOCIATED WITH INVESTING IN FIXED INCOME SECURITIES l The Net Asset Value (NAV) of the Scheme, to the extent invested in Debt and Money Market instruments, 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. l Money market instruments, 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. l Investment in Debt instruments are subject to the risk of an issuers inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer. l Government securities where a fixed return is offered run price-risk like any other fixed income security. Generally, when interest rates rise, prices of fixed income securities fall and when interest rates drop, the 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. The new level of interest rate is determined by the rates at which government raises new money and / or the price levels at which the market is already dealing in existing securities. The price-risk is not unique to Government Securities. It exists for all fixed income securities. However, Government Securities are unique in the sense that their credit risk generally remains zero. Therefore, their prices are influenced only by movement in interest rates in the financial system. l Different types of fixed income securities in which the Scheme would invest as given in the Scheme Information Document carry different levels and types of risk. Accordingly, the Scheme risk may increase or decrease depending upon its investment pattern. e.g. corporate bonds carry a higher level of risk than Government securities. Further even among corporate bonds, AAA rated bonds, are comparatively less risky than AA bonds. l The AMC may, considering the overall level of risk of the portfolio, invest in lower rated / unrated securities offering higher yields as well as zero coupon securities that offer attractive yields. This may increase the absolute level of risk of the portfolio. l As zero coupon securities do not provide periodic interest payments to the holder of the security, these securities are more sensitive to changes in interest rates. Therefore, the interest rate 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.

l Schemes performance may differ from the benchmark index to the extent of the investments held in the debt segment under Investment Plan, as per the investment pattern indicated under normal circumstances. l The Scheme at times may receive large number of redemption requests, leading to an asset-liability mismatch and therefore, requiring the investment manager to make a distress sale of the securities leading to realignment of the portfolio and consequently resulting in investment in lower yield instruments. (iii) General Risk Factors l Trading volumes, settlement periods and transfer procedures may restrict the liquidity of the investments made by the Scheme. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances leading to delays in receipt of proceeds from sale of securities. The NAV of the Units of the Scheme can go up or down because of various factors that affect the capital markets in general. l 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 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 30 under Right to Limit Redemptions in Section Restrictions, if any, on the right to freely retain or dispose of units being offered. l At times, due to the forces and factors affecting the capital market, the Scheme may not be able to invest in securities falling within its investment objective resulting in holding the monies collected by it in cash or cash equivalent or invest the same in other permissible securities / investment amounting to substantial reduction in the earning capability of the Scheme. l 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. The AMC may choose to invest in unlisted securities that offer attractive yields. This may increase the risk of the portfolio. l Performance of the Scheme may be affected by political, social, and economic developments, which may include changes in government policies, diplomatic conditions, and taxation policies.

(iv) RISK FACTORS ASSOCIATED WITH INVESTING IN FOREIGN SECURITIES

l Currency Risk: Moving from Indian Rupee (INR) to any other currency entails currency risk. To the extent that the assets of the Scheme 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. l Interest Rate Risk: The pace and movement of interest rate cycles of various countries, though loosely co-related, can differ significantly. Hence by investing in securities of countries other than India, the Scheme stand exposed to their interest rate cycles. l Credit Risk: Investment in Foreign Debt Securities are subject to the risk of an issuers inability to meet interest and principal payments on its obligations and market perception of the creditworthiness of the issuer. This is substantially reduced since the SEBI (MF) Regulations stipulate investments only in debt instruments with rating not below investment grade by accredited / registered credit rating agency. To manage risks associated with foreign currency and interest rate exposure, the Mutual Fund may use derivatives for efficient portfolio management including hedging and in accordance with conditions as may be stipulated by SEBI / RBI from time to time. (v) Risk factors associated with investing in Derivatives l The AMC, on behalf of the respective Plan(s) under 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 specialized 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. Other risks include, the risk of mispricing or improper valuation and the inability of derivatives to correlate perfectly with underlying assets, rates and indices. l 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 fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and 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. l 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. (vi) Risk factors associated with investing in Securitised Debt The Risks involved in Securitised Papers described below are the principal ones and do not represent that the statement of risks set out hereunder is exhaustive. l Limited Liquidity & Price Risk There is no assurance that a deep secondary market will develop for the Certificates. This could limit the ability of the investor to resell them. l Limited Recourse, Delinquency and Credit Risk The Credit Enhancement stipulated represents a limited loss cover to the Investors. These Certificates represent an undivided beneficial interest in the underlying receivables and do not represent an obligation of either the Issuer or the Seller or the originator, or the parent or any affiliate of the Seller, Issuer and Originator. No financial recourse is available to the Certificate Holders against the Investors Representative. Delinquencies and credit losses may cause depletion of the amount available under the Credit Enhancement and thereby the Investor Payouts to the Certificate Holders may get affected if the amount available in the Credit Enhancement facility is not enough to cover the shortfall. On persistent default of an Obligor to repay his obligation, the Servicer may repossess and sell the Asset. However many factors may affect, delay or prevent the repossession of such Asset or the length of time required to realise the sale proceeds on such sales. In addition, the price at which such Asset may be sold may be lower than the amount due from that Obligor. l Risks due to possible prepayments and Charge Offs In the event of prepayments, investors may be exposed to changes in tenor and yield. Also, any Charge Offs would result in the reduction in the tenor of the Pass Through Certificates (PTCs). l Bankruptcy of the Swap Bank If the Swap Bank, becomes subject to bankruptcy proceedings then an Investor could experience losses or delays in the payments due under the Interest Rate Swap Agreement. l Risk of Co-mingling With respect to the Certificates, the Servicer will 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 originator. If originator in its capacity as Servicer fails to remit such funds due to Investors, the Investors may be exposed to a

potential loss. (vii) Risk factors associated with Securities Lending l As with other modes of extensions of credit, there are risks inherent to securities lending, including the risk of failure of the other 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. II. INFORMATION ABOUT THE SCHEME A. TYPE OF THE SCHEME : HDFC Childrens Gift Fund is an open-ended balanced scheme. Investors / Unitholders in the Scheme are not being offered any guaranteed / assured returns The Scheme offers investors two Plans: (i) Investment Plan (Equity oriented) (ii) Savings Plan (Debt oriented) The Plans will be managed as separate portfolios. In other words, there will be separate investment portfolios each with its own NAV. Investment Plan: The net assets of the Plan will be primarily invested in Equities and Equity related instruments. The AMC will also invest the net assets of the Plan in Debt / Money market instruments with an objective of generating long term returns and maintaining risk under control. Savings Plan: The net assets of the Plan will be primarily invested in Debt and Money market instruments. The AMC will also invest the net assets of the Plan in Equities and Equity related instruments. This Plan seeks to generate steady long term returns with relatively low levels of risk. The Investment Plan (Equity oriented) offers the following Options for subscription: Investment Plan* Investment Plan - Direct Option The Savings Plan (Debt oriented) offers the following Options for subscription: Savings Plan* Savings Plan - Direct Option *Regular Option The Option already in existence prior to the introduction of Direct Option under the Scheme is referred to as Regular Option in this SID. Effective, January 1, 2013 this Option is offered only to investors who wish to route their investment through any distributor. Direct Option Direct Option was introduced under the Scheme with effect from January 1, 2013. The Option offered under the Scheme prior to January 1, 2013 is also available for subscription under the Direct Option. This Option is offered only to investors who wish to invest directly without routing the investment through any distributor.

This Option shall have a lower expense ratio excluding distribution expenses, commission, etc., and no commission for distribution of Units will be paid / charged under the Direct Option. B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME? The primary objective of both the Plans (viz. Investment Plan and Savings Plan) offered under the Scheme is to generate long term capital appreciation. Savings Plan Each of the respective Plan(s) may take derivatives position (both equity and fixed income) based on the opportunities available subject to the guidelines issued by SEBI from time to time and in line with the investment objective of the Scheme. These may be taken to hedge the portfolio, rebalance the same or to undertake any other strategy as permitted under SEBI (MF) Regulations from time to time. The maximum derivative position will be restricted to 20% of the Net Assets (i.e. Net Assets including cash) of the respective Plans. Each of the respective Plan(s) may seek investment opportunity in the Foreign Securities, in accordance with guidelines stipulated in this regard by SEBI and RBI from time to time. Under normal circumstances, each Plan shall not have an exposure of more than 50% and 20% of its net assets in Foreign Debt Securities and in ADRs / GDRs / Foreign Equity Securities respectively subject to regulatory limits. However, the AMC with a view to protecting the interest of the investors may increase or decrease this exposure as deemed fit from time to time subject to regulatory limit. In addition to the instruments stated in the table above, the Scheme may enter into repos / reverse repos as may be permitted by RBI / SEBI. From time to time, the Scheme may hold cash. A part of the net assets may be invested in the Collateralised Borrowing & Lending Obligations (CBLO) or repo or in an alternative investment as may be provided by RBI / SEBI to meet the liquidity requirements. Pending deployment of funds of the Scheme in securities in terms of the investment objective of the Scheme, the AMC may park the funds of the Scheme in short term deposits of scheduled commercial banks, subject to the guidelines issued by SEBI vide its circular dated April 16, 2007, as amended from time to time. Change in Asset Allocation Pattern Subject to SEBI (MF) Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, market opportunities, applicable regulations and political and economic factors. It must be clearly understood that the percentages stated above are only indicative and not absolute. These proportions may vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the interests of the Unit holders. Such changes in the investment pattern will be for short term and for defensive considerations.

DEBT MARKET IN INDIA

The instruments available in Indian Debt Market are classified into two categories, namely Government and Non - Government debt. The instruments available in these categories includes:

A] GOVERNMENT DEBT n CENTRAL GOVERNMENT DEBT n Treasury Bills n Dated Government Securities Coupon Bearing Bonds Floating Rate Bonds Zero Coupon Bonds n STATE GOVERNMENT DEBT State Government Loans Coupon Bearing Bonds

n INSTRUMENTS ISSUED BY GOVERNMENT AGENCIES AND OTHER STATUTORY BODIES n Government Guaranteed Bonds n PSU Bonds n INSTRUMENTS ISSUED BY PUBLIC SECTOR UNDERTAKINGS n Commercial Paper PSU Bonds Fixed Coupon Bonds Floating Rate Bonds Zero Coupon Bonds n INSTRUMENTS ISSUED BY BANKS AND DEVELOPMENT FINANCIAL INSTITUTIONS n Certificates of Deposit n Promissory Notes n Bonds n Fixed Coupon Bonds n Floating Rate Bonds n Zero Coupon Bonds

B] NON-GOVERNMENT DEBT -

n Commercial Paper Non-Convertible Debentures Fixed Coupon Debentures Floating Rate Debentures

INSTRUMENTS ISSUED BY CORPORATE BODIES

Zero Coupon Debentures Activity in the Primary and Secondary Market is dominated by Central Government Securities including Treasury Bills. These instruments comprise close to 60% of all outstanding debt and close to 75% of the daily trading volume on the Wholesale Debt Market Segment of the National Stock Exchange of India Limited. In the money market, activity levels of the Government and Non-Government Debt vary from time to time. Instruments that comprise a major portion of money market activity include, Overnight Call Collaterilsed Borrowing & Lending Obligations (CBLO) Treasury Bills Government Securities with a residual maturity of < 1 year Commercial Paper Certificates of Deposit Apart from these, there are some other options available for short tenure investments that include MIBOR linked debentures with periodic exit options and other such instruments. Though not strictly classified as Money Market Instruments, PSU / DFI / Corporate paper with a residual maturity of < 1 year, are actively traded and offer a viable investment option. The following table gives approximate yields prevailing during the month of March 2013 on some of the instruments. Overseas Debt Market The nature and number of debt instruments available in international debt markets is very wide. In terms of diverse instruments as well as liquidity, overseas debt markets offer great depth and are extremely well developed. Investment in international debt greatly expands the universe of top quality debt, which is no longer restricted to the limited papers available in the domestic debt market. The higher rated overseas sovereign, quasi-government and corporate debt offer lower default risk in addition to offering a high degree of liquidity since these are traded across major international markets. Investments in rated international debt offer multiple benefits of risk reduction, a much wider universe of top quality debt and also potential gains from currency movements. Investments in international markets are most often in U.S. dollars, though the Euro, Pound Sterling and the Yen are also major currencies. Though this market is geographically well-spread across global financial centres, the markets in the U.S., European Union and London offer the most liquidity and depth of instruments. Besides factors specific to the country / issuer, international bond prices are influenced to a large extent by a number of other factors; chief among these are the international economic outlook, changes in interest rates in major economies, trading volumes in overseas markets, cross currency movements among major

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currencies, rating changes of countries / corporations and major political changes globally.

COMPUTATION OF NAV
The Net Asset Value (NAV) per Unit of the respective Plans will be computed by dividing the net assets of the respective Plans by the number of Units outstanding under the respective Plans on the valuation date. The Mutual Fund will value its investments according to the valuation norms, as specified in Schedule VIII of the SEBI (MF) Regulations, or such norms as may be specified by SEBI from time to time. NAV of Units of the Scheme shall be calculated as shown below: Market or Fair Value of the Schemes Investments + Current Assets - Current Liabilities and Provisions NAV (`) = -------------------------------------------------------------------------------Per Unit No. of Units outstanding under the Scheme The NAV of the respective Plans will be calculated and disclosed at the close of every Business Day. The NAV will be calculated upto 3 decimals for Investment Plan and 4 decimal for Savings Plan. Units will be allotted upto 3 decimals. Separate NAVs will be calculated and anounced for each Plan / Option. There are no specific SEBI guidelines on valuation of foreign securities at present. In the absence of any guidelines, the following policy will be followed: The security issued outside India and listed on the stock exchanges outside India shall be valued at the closing price on the stock exchange at which it is listed. However in case a security is listed on more than one stock exchange, the AMC reserves the right to determine the stock exchange, the price of which would be used for the purpose of valuation of that security. Any subsequent change in the reference stock exchange used for valuation will be backed by reasons for such change being recorded in writing by the AMC. Further in case of extreme volatility in the overseas markets, the securities listed in those markets may be valued on a fair value basis. If a significant event has occurred after security prices were established for the computation of NAV of the Scheme, the AMC reserves the right to value the said securities on fair value basis. When on a particular valuation day, a security has not been traded on the selected stock exchange; the security will be valued in accordance with SEBI guidelines applicable for security listed in India. In case of investment in foreign debt securities, on the Valuation Day, the securities shall be valued in line with the valuation norms specified by SEBI for

Indian debt securities. However, in case valuation for a specific debt security is not covered by SEBI (MF) Regulations, then the security will be valued on fair value basis. Due to difference in time zones of different markets, closing price of overseas securities / units of overseas mutual fund may be available only after the prescribed time limit for declaration of NAV in India. In such cases, the NAV of the Scheme for any Business Day (T day) will be available on the next Business Day (T+1 day) and the same shall be posted, on each Business Day, on the Funds website and on the AMFI website - www.amfiindia. com on date of computation of NAV. On the Valuation Day, all assets and liabilities denominated in foreign currency will be valued in Indian Rupees at the exchange rate available on Bloomberg / Reuters / RBI at the close of banking hours in India. The Trustee reserve the right to change the source for determining the exchange rate. The exchange gain / loss resulting from the aforesaid conversion shall be recognized as unrealized exchange gain / loss in the books of the Scheme on the day of valuation. Further, the exchange gain / loss resulting from the settlement of assets / liabilities denominated in foreign currency shall be recognized as realized IV. FEES AND EXPENSES This section outlines the expenses that will be charged to the Scheme and also about the transaction charges to be borne by the investors. The information provided under this Section seeks to assist the investor in understanding the expense structure of the Scheme and types of different fees / expenses / loads the investor is likely to incur on purchasing and selling the Units of the Scheme. A. ANNUAL SCHEME RECURRING EXPENSES These are the fees and expenses incurred for the Scheme. These expenses include but are not limited to Investment Management and Advisory Fees charged by the AMC, Registrar and Transfer Agents Fees & expenses, Marketing and Selling costs etc. The AMC has estimated that the following expenses will be charged to the respective Plan(s), as permitted under Regulation 52 of SEBI (MF) Regulations. The expenses are estimated on assets under management of ` 100 crores. For the actual current expenses being charged, the investor should refer to the website of the Mutual Fund viz. www.hdfcfund.com [% of daily net assets ^ (estimated) (p.a.)]

Expense Head Investment Management and Advisory Fees Trustee Fees & Expenses1 Audit Fees & Expenses Custodian Fees & Expenses RTA Fees & Expenses Marketing & Selling expenses including agent commission Cost related to Investor Communication Cost of fund transfer from location to location Cost of providing account statements and dividend / redemption cheques and warrants Costs of Statutory Advertisements Cost towards investor education & awareness (at least 0.02% p.a.)2 Brokerage & Transaction cost over and above 0.12% and 0.05% on value of trades for cash and derivative market trades respectively Service tax on expenses other than Investment Management and Advisory Fees3 Service tax on brokerage and transaction cost3 Other Expenses Maximum total expense ratio (TER) permissible under Regulation 52 (6)4 Additional expenses under Regulation 52 (6A) (c)4 Additional expenses for gross new inflows from specified cities under Regulation

HDFC Childrens Gift Fund Investment Savings Plan Plan

Upto 2.25%

Upto 2.25%

Upto 2.25% Upto 0.20% Upto 0.30%

Upto 2.25% Upto 0.20% Upto 0.30%

52 (6A) (b) At least 5% of the TER will be charged towards distribution expenses / commission in the Regular Option under the Scheme. The TER of the Direct Option under the Scheme will be lower to the extent of the above mentioned distribution expenses / commission (at least 5% of TER) which is charged in the Regular Option. For example, in the event that the TER of the Regular Option is 1% p.a., the TER of the Direct Option would not exceed 0.95% p.a. The insurance premium in respect of the personal accident insurance cover will

be borne by the AMC. Notes: Trustee Fees and Expenses In accordance with the Trust Deed constituting the Mutual Fund, the Trustee is entitled to receive, in addition to the reimbursement of all costs, charges and expenses, a quarterly fee computed at a rate not exceeding 0.10% per annum of the daily net assets of the respective Plan(s) or a sum of ` 15,00,000/- per annum, whichever is higher. Such fee shall be paid to the Trustee within seven working days from the end of each quarter every year, namely, within 7 working days from June 30, September 30, December 31 and March 31 of each year. The Trustee may charge further expenses as permitted from time to time under the Trust Deed and SEBI (MF) Regulations. Investor Education and Awareness initiatives As per Para F of the SEBI Circular No.CIR/IMD/DF/21/2012 dated September 13, 2012, the AMC shall annually set apart at least 2 basis points p.a. (i.e. 0.02% p.a.) on daily net assets of the respective Plan(s) within the limits of total expenses prescribed under Regulation 52 of SEBI (MF) Regulations for investor education and awareness initiatives undertaken. Refer Point (3) below on Service Tax on various expenses / exit load. 4 Fungibility of expenses: The expenses towards Investment Management and Advisory Fees under Regulation 52 (2) and the various sub-heads of recurring expenses mentioned under Regulation 52 (4) of SEBI (MF) Regulations are fungible in nature. Thus, there shall be no internal sub-limits within the expense ratio for expense heads mentioned under Regulation 52 (2) and (4) respectively. Further, the additional expenses under Regulation 52(6A)(c) shall also be incurred towards any of these expense heads. The purpose of the above table is to assist the Investor in understanding the various costs and expenses that an Investor in the Plan will bear directly or indirectly. The figures in the table above are estimates. The actual expenses that can be charged to the Scheme will be subject to limits prescribed from time to time under the SEBI (MF) Regulations. Currently these are as under: (1) Recurring expenses under Regulation 52 (6): On the first ` 100 crores of the daily net assets - 2.25% p.a. On the next ` 300 crores of the daily net assets - 2.00% p.a.
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On the next ` 300 crores of the daily net assets - 1.75% p.a. On the balance of the assets - 1.50% p.a. (2) Additional Expenses under Regulation 52 (6A): (i) To improve the geographical reach of the Scheme in smaller cities / towns as may be specified by SEBI from time to time, expenses not exceeding 0.30% p.a. of daily net assets, if the new inflows from such cities are at least (a) 30% of gross new inflows in the respective Plan(s) or (b) 15% of the average assets under management (year to date) of the respective Plan(s), whichever is higher. In case inflows from such cities are less than the higher of (a) or (b) above, such expenses on daily net assets of the respective Plan(s) shall be charged on proportionate basis in accordance with SEBI Circular No.CIR/IMD/ DF/21/2012 dated September 13, 2012. The amount so charged shall be utilised for distribution expenses incurred for bringing inflows from such cities. However, the amount incurred as expense on account of inflows from such cities shall be credited back to the respective Plan(s) in case the said inflows are redeemed within a period of one year from the date of investment. Currently, SEBI has specified that the above additional expense may be charged for inflows from beyond Top 15 cities. Top 15 cities shall mean top 15 cities based on Association of Mutual Funds in India (AMFI) data on AUM by Geography - Consolidated Data for Mutual Fund Industry as at the end of the previous financial year. (ii) Brokerage and transaction costs incurred for execution of trades and included in the cost of investment not exceeding 0.12% of the value of trades in case of cash market transactions and 0.05% of the value of trades in case of derivatives transactions. In accordance with SEBI Circular No.CIR/IMD/ DF/24/2012 dated November 19, 2012, any payment towards brokerage and transaction cost, over and above the said 0.12% and 0.05% for cash market transactions and derivatives transactions respectively, may be charged to the respective Plan(s) within the maximum limit of Total Expense Ratio (TER) as prescribed under Regulation 52 (6) of the SEBI (MF) Regulations, 1996. (iii) Expenses not exceeding 0.20% p.a. of daily net assets towards Investment Management and Advisory Fees and the various sub-heads of recurring expenses mentioned under Regulation 52 (2) and (4) respectively of SEBI (MF) Regulations. (3) Service Tax As per Para B of the SEBI Circular No.CIR/IMD/DF/21/ 2012 dated September 13, 2012, Service tax shall be charged as follows:

1. Service tax on investment management and advisory fees shall be charged to the respective Plan(s) in addition to the maximum limit of TER as prescribed in Regulation 52 (6) of the SEBI (MF) Regulations. 2. Service tax on other than investment management and advisory fees, if any, shall be borne by the respective Plan(s) within the maximum limit of TER as prescribed in Regulation 52 (6) of the SEBI (MF) Regulations. 3. Service tax on exit load, if any, shall be paid out of the exit load proceeds and exit load net of service tax, if any, shall be credited to the respective Plan(s). 4. Service tax on brokerage and transaction cost paid for execution of trade, if any, shall be within the limit prescribed under Regulation 52 of the SEBI (MF) Regulations.

The total expenses of the respective Plan(s) including the Investment Management and Advisory Fee shall not exceed the limits stated in Regulation 52 of the SEBI (MF) Regulations. Any expenditure in excess of the SEBI regulatory limits shall be borne by the AMC or by the Trustee or the Sponsor. The current expense ratios will be updated on the Mutual Fund website on www.hdfcfund.com within two working days mentioning the effective date of the change. B. TRANSACTION CHARGES SEBI with the intent to enable investment by people with small saving potential and to increase reach of Mutual Fund products in urban areas and in smaller towns, wherein the role of the distributor is vital, has allowed AMCs vide its Circular No.Cir/ IMD/DF/13/ 2011 dated August 22, 2011, as amended from time to time, to deduct transaction charges for subscription of ` 10,000/- and above. The said transaction charges will be paid to the distributors of the Mutual Fund products. In accordance with the said circular as may be amended from time to time, AMC / Mutual Fund will deduct the transaction charges from the subscription amount and pay to the distributors (who have opted-in to receive the transaction charges for the Scheme type) as shown in the table below. Thereafter, the balance of the subscription amount shall be invested. (i) Transaction charges shall be deducted for Applications for purchase / subscription received through distributor / agent as under:

Invest or Type First Time Mutua l Fund Invest or

Invest or other than First Time Mutua l Fund Invest or

Transaction Charges Transaction charge of ` 150/- for subscription of ` 10,000/- and above will be deducted from the subscription amount and paid to the distributor/agent of the first time investor. The balance of the subscription amount shall be invested. Transaction charge of ` 100/- per subscription of ` 10,000/- and above will be deducted from the subscription amount and paid to the distributor/agent of the investor. The balance of the subscription amount shall be invested.

However, transaction charges in case of investments through SIP shall be deducted only if the total commitment (i.e. amount per SIP installment x No. of installments) amounts to ` 10,000/- or more. The transaction charges shall be deducted in 3-4 installments. Identification of investors as first time or existing will be based on Permanent Account Number (PAN) / PAN Exempt KYC Reference Number (PEKRN) at the First / Sole Applicant / Guardian level. Hence, Unit holders are urged to ensure that their PAN / PEKRN / KYC is updated with the Fund. Unit holders may approach any of the Official Points of Acceptances of the Fund i.e. Investor Service Centres (ISCs) of the Fund / offices of our Registrar and Transfer Agent, M/s. Computer Age Management Services Pvt. Ltd. in this regard.

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