SERIES 1 An Annual Interval Scheme investing in Equity and Equity - PowerPoint PPT Presentation

IIFL CAPITAL ENHANCER FUND - SERIES 1 An Annual Interval Scheme investing in Equity and Equity Related Securities

CURRENT ASSET ALLOCATION: INDIAN SCENARIO The current asset allocation* of Indian investors is skewed in favour of fixed income as against equity Equity Fixed Income Why do Investors prefer Fixed Deposits ? Provides downside protection and • assurance of capital Regular and stable returns • * Asset allocation based on MF Industry AUM and Bank Deposits 1 **Source: RBI report (March 2004 – Dec 2017) ^Source: Association ofMutual Funds of India (AMFI) Website,AUM as on 31-Dec-2017

A STUDY OF VALUE CREATION: EQUITIES VS DEBT Nifty Returns (2004 -2017) 12000 Greece Default and 10530.7 CAGR – 15% China Metldown Demonetisation 10000 Euro Crisis 8000 Sub-prime Crisis -5% -9% 6000 4000 -24% 1771.9 2000 - 51% 0 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Although volatile in the short term, equities have created value in the long term 18 16 Periods of Capital Erosion 14 12 10 8 6 4 2 0 Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec 04 04 05 05 05 06 06 07 07 07 08 08 09 09 10 10 10 11 11 12 12 12 13 13 14 14 15 15 15 16 16 17 17 17 Inflation Index 10Year G-Sec Yields Source: Bloomberg • Long term debt yields show downward trend • Adjusted for inflation, fixed income returns have eroded capital across past periods 2

THE QUESTION REMAINS, DESPITE EQUITIES REWARDING INVESTORS IN THE LONG RUN, WHY DON’T INVESTORS INVEST IN EQUITY? Improved Investor sentiment and prospects of better returns have led to higher inflows in Balanced funds over the past year NET INFLOWS (IN ` 000 CRORES) 31-Dec-16 31-Dec-17 300 268.54 250 200 150 102.43 100 37.75 50 22.76 0 Debt Mutual Funds Balanced Funds Source: Associationof Mutual Funds of India (AMFI) 3

DO BALANCED MUTUAL FUNDS REALLY PROTECT CAPITAL? Even balanced funds, considered as safe investment avenues during a downfall, fell during volatile markets! January - December 2008 February-March 2018 12 10.2 10 10 9.8 8 9.6 6 9.4 9.2 4 9 Fall in Nifty: 50% Fall in CRISIL BLFD: 40% Fall in Nifty: 10% Fall in CRISIL BLFD: 5% 2 8.8 0 8.6 02-Jan-08 23-Jan-08 13-Feb-08 05-Mar-08 26-Mar-08 16-Apr-08 07-May-08 28-May-08 18-Jun-08 09-Jul-08 30-Jul-08 20-Aug-08 10-Sep-08 01-Oct-08 22-Oct-08 12-Nov-08 03-Dec-08 24-Dec-08 30-Jan-18 06-Feb-18 13-Feb-18 20-Feb-18 27-Feb-18 06-Mar-18 13-Mar-18 20-Mar-18 CRISIL Balanced Fund Nifty Balanced Funds Nifty Source: Bloomberg 4

GLOBAL ICONS - VIEWS ON TIMING EQUITY INVESTMENTS • “ The stock market is • “ Far more money • “The single greatest • “If there is one a device for edge an investor can investing adage that has been lost by transferring money have is a long-term comes close to a rock investors preparing from the impatient for corrections, or orientation” solid principle its to the patient” trying to anticipate this – Time in the market is more corrections, than • “Opportunities come important that has been lost in infrequently. When it timing the market” corrections rains gold, put out themselves” the bucket, not the thimble” Charles Warren Buffet Peter Lynch Seth Klarman Schwab 5

IDEAL PORTFOLIO CONSTRUCT FOR INVESTORS Participate in the India Story • Bullish long term view • Strong inflows (domestic and foreign) into Indian equities • No evident visible structural risk Downside Protection • Fearful of Market Valuations • Upcoming Event- General Elections 2019 • Rising crude and slipping fiscal deficit • Rising Fed Interest Rates ENSURE PORTFOLIO LIQUIDITY – GET OPPORTUNITIES TO REBALANCE IF MARKET CONDITIONS CHANGE 6

IIFL CAPITAL ENHANCER FUND – SERIES 1 Investment Approach Put Options Explained Back-tested Returns Equity Investment Philosophy Mutual Fund investments are subject to market risks, read all scheme related documents carefully 7

IIFL CAPITAL ENHANCER FUND – SERIES 1 INVESTMENT APPROACH LIMIT THE DOWNSIDE MAXIMISE THE UPSIDE • Aims to protect the downside by • Invest in a theme that is expected to investing in a put option capitalize on the exponential acceleration in the Indian economy • A hedge against any fall in the • Equity exposure to large companies market that will lead the economic growth Other Equity Scrips with Equity Scrips forming Nifty 50 Put Option a Market Cap of > USD part of Nifty 50 Universe Premium for Hedge 2BN 0-8% 75-100% 0-25% Dual advantage of limiting the downside and potentially unlimited upside benefits For complete details on investment strategy (Including illustrations on derivative strategies refer SID/KIM available on the website www.iiflmf.com) *Indicative Allocation at the time of initial portfolio construction, post closure of NFO. IIFL Mutual Fund/AMC is not guaranteeing returns on investments 8 made in this scheme. The portfolio allocation is subject to change depending on the market conditions. Please refer the risks factors associated with the investmentin SID/KIM.

LIMITING DOWNSIDE USING A ONE-YEAR PUT • A put option is a right, but not an obligation to sell a prescribed number of shares at a specified price on or before the specific expiry date. • It comes with a specific cost called the premium. • The specified price at which the underlying is contracted to be sold is called the strike price. Nifty 50 Put Option will increase in Risk of loss for an option buyer is value when Nifty goes down from the limited only to the premium paid. strike price & vice versa. ENABLES UNCAPPED UPSIDE LIMITS THE DOWNSIDE The investment strategy of hedging by investing in NIFTY 50 PUT Option may or may not enable the downside protection. The strategy of protecting the downside is based only on the movement of value of NIFTY 50 and not the scheme’s stock portfolio. Using Index Option of NIFTY 50 PUT for the purpose of 9 hedging may not be efficient due to mis – pricing, improper valuations, portfolio composition and coloration and liquidity. For complete Risk Factors, please read the offer document.

HOW DOES A PORTFOLIO WITH A PUT OPTION WORK? The maximum loss that a buyer of a put option can incur is the option premium paid and this premium cost is as low as only 4% p.a.* Portfolio Illustration based on the following assumptions +30% Nifty 50 Levels +20% Today +10% Loss capped at 4% (option premium cost) 0% -4% -10% -30% -25% -20% -15% -10% -5% Nifty 50 Today +5% +10% +15% +20% +25% * Premium of 4% based on counterparty quotes received by IIFL AMC. Actual premium may or may not be at the same levels and shall depend on market 10 conditions at the timeof deploymentevery year

PUT OPTION ILLUSTRATION Illustration based on the following assumptions: Invested Amount = Rs.100, Cost of Put = 4% of hedged amount, Allocation to Stocks Portfolio = 96.15% NIFTY 50* Level = 10000 Fund Return NIFTY 50* Level at NIFTY 50* (with 0% Fund Return (with 3% Outperformance)# Maturity Returns Outperformance) 5000 -50.00% -3.85% -0.96% 6000 -40.00% -3.85% -0.96% Downside protection as put payoff offsets 7000 -30.00% -3.85% -0.96% loss in the portfolio 8000 -20.00% -3.85% -0.96% 9000 -10.00% -3.85% -0.96% 11000 10.00% 5.77% 8.65% Enables Uncapped 12000 20.00% 15.38% 18.27% Upside due to 13000 30.00% 25.00% 27.88% investment in 14000 40.00% 34.62% 37.50% equities 15000 50.00% 44.23% 47.12% The above illustrates the payoff in multiple scenarios of index levels at maturity. For e.g., if the index falls to 8000 after 3 years (i.e. a 20% fall), the scheme falls only by 3.85% assuming 0% outperformance. However, given an outperformance of 3% over the 3 year period, the scheme returns -0.96% (see row corresponding to NIFTY 50 level at 8000). The scheme thereby aims to provide downside protection. However, in scenarios with higher index levels, the scheme delivers commensurate returns with no upside cap. The above illustration does not in any manner offer any assured returns and is subject to market risks. The above illustration does not take expenses into account and that the returns shown are assumed figures and not to be constructed as actual returns and/or guaranteed returns. IIFL AMC is not guaranteeing returns on investments made in the Scheme. The information provided herein is used to explain the concept and is given for illustrative purposes only. The same is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as an investment advice to any party. Past performance may or may not be sustained in future. In view of the individual circumstances and risk profile, each investor is advised to consult his / her professional advisor before makinga decision to invest in the scheme. 11 *NIFTY 50 has been used for illustration purpose. Benchmark ofthe fund is Crisil Balanced (Aggressive) Index. # Outperformance inthis illustrationrefers to excess returns over the NIFTY 50 index post fees.