C&W Real Estate Mutuals Fund

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BUSINESSBRIEFING

AN INVESTMENT OPPORTUNITYREAL ESTATE MUTUAL FUNDS

Septemb er 2008 | A C&W India Publi cation

Research & Business Analytics Group

1 Executive Summary2 Introduction to REMFs

3 Regulations Governing REMFs in India

4 Factors Determining the Structure of the Instrument

5 Real Estate Investment Trusts (REITs) -The Future of RE Investment

6 Global and Local Impact

7 About Cushman & Wakefield India,

Research & Business Analytics Group

For more information please contact:

Sandeep SinghCushman & Wakefield14th Floor, Tower - CBuilding No. 8, DLF Cyber City,Gurgaon - 122 002Tel: +91 124 469 [email protected]

Real estate investments in the past involved a direct ownership of theasset; however over the recent years we have seen the emergence of realestate mutual funds (REMFs), a scheme of a mutual fund which investsdirectly or indirectly in real estate or other related permissible assets.

These have emerged not only as alternative investment avenues forretail investors who do not have the means to directly invest in the realestate sector; they have also paved the way for foreign funds to enter thelocal property market. The key points highlighted in the regulation suchas requisite expertise, valuation of assets, scope of investment, taxationguidelines and foreign investment guidelines would help to structure

the instrument and lead the investor decision. These also form the basisto gauge the risk profile and potential performance of the fund in theeyes of the investors. Highlighting the fundamental difference betweenREITs and REMFs in terms of structure as well as returns, the paperdelves into the global and local impact of these instruments on the realestate market, consumers, investors as well as the economy. With theintroduction of REMFs/ REITs in India there will be a large shift of assets (commercial, retail, residential, etc.) from individuals to entities(i.e. REMFs and REITs) which will impact the current highly unorganized leasing markets. As these economic benefits increase, they

further trickle down into the economy resulting in a stronger and morecompetitive business environment.

INTRODUCTION TO REMFs

A mutual fund is a trust that pools together money from a number of investors and invests in stocks, bonds,short-term money-market instruments, other securities or assets, or some combination of these investments.

The concept of mutual funds originated to enable retail investors to pool in capital to establish a corpus which would enable them to invest in assets that one could not afford in individual capacity. The first wave of near-

mutual-funds was witnessed in Europe in the mid 1800s that then spread to the United States with the firstpooled fund created in 1893 for the faculty and staff of Harvard University. In March 1924 the first mutual

CONTENTS EXEC UTIV E SUMM ARY

INDIA REPORT | SEPTEMBER 2008 1


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Real Estate Mutual Fund - An investment opportunity


A C & W I N D I A P U B L I C AT I O N

fund was created in Boston, called the Massachusetts Investors Trust, although these really capturedthe public's attention in the 1980s and 90s when mutual fund investments hit a record high andinvestors saw phenomenal returns.

The mutual fund industry in India evolved with the formation of Unit Trust of India in the year1963 and successfully grew over the years. However, real estate being a traditionally unorganised andcomplex sector adopted the concept only recently. So long, real estate investments involved a directownership of the asset; an REMF is a scheme of a mutual fund which invests directly or indirectly in real estate or other related permissible assets. REMFs have emerged not only as an alternative

1

investment avenue for retail investors who do not have the means to directly invest in the realestate sector; they have also paved the way for foreign funds to enter the local property market. LikeMutual Funds, REMFs are expected to offer diversification, expert securities selection and low costs. This provides an opportunity for the retail investor to leverage the real estate sector's growthand enhance the scope of investment while minimising risk in the investment portfolio by seeking expert guidance.

In case of REMF, the fund raises capital from investors by offering a NFO (New FundOffering). A fund manger utilizes the capital to purchase real estate assets or securities forinvestment purposes from either the developer or from the owner in the secondary market. Thefund then manages these investments and passes on the capital appreciation and rental income or

2securities dividend to the investor, less the operational and management fee, by way of higher NAV (Net Asset Value) or dividend payout. At the end of the tenure of the REMF, the properties held by it are sold and the gains arising distributed to the unit holders. This arises as a consequence of theguidelines that refrains the fund from transferring assets among various schemes floated by the fundhouse keeping in view the investor's interest. REMFs allow retail investors to participate in the real

3estate sector, avail benefit of professional management and also achieve diversification which canbe a challenge with a small investment quantum.

WORKING OF A REAL ESTATE MUTUAL FUND

Investor capital viaFund Offering

Investment

Investor capital via

Fund Offering Investment

Real Estate/SecuritiesInvestors REMF

Capital Appreciation and/or Dividend Payout less operational and management fees Source: Cushman & Wakefield


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REGULATIONS GOVERNING REMFs IN INDIAIn April 2008, Securities and Exchange Board of India (SEBI) announced amendments to the SEBI(Mutual Funds) Regulations 1996 permitting the launch of REMFs with specific stipulations addedkeeping in mind the nascent stage of the real estate market in India. The regulations offer a widedefinition of real estate to include immovable property in India located in certain specified cities orSEZs, which is fully constructed and usable, transferable and free from any encumbrances, litigationand with clear title documents. Agricultural land and vacant land however are excluded. REMFs arerequired to invest at least 35% of the net assets of the scheme directly in real estate (in ready to use

property that assures rental income and capital appreciation) although there is no ceiling on themaximum limit. The balance can be invested indirectly through investment in mortgage backedsecurities and securities in companies dealing in or engaged in the development of real estate.

REMFs are mandatorily required to be close endedand listed on stock exchange with NAV declared on adaily basis. Existing Mutual Funds are eligible tolaunch real estate mutual funds if they have adequatenumber of experienced key personnel/directors.Companies carrying on real estate business for at leastfive years can also apply to SEBI for launching REMFsif they satisfy certain criteria.

SEBI has made the effort to ensure that high level of governance and controls are imbibed in theorganisation and operations of REMFs so as to make it a safe investment for retail investors/households. Some of these aspects include restrictions on investment in the properties developedby sponsors of the REMF except in the case of listed securities up to certain limits; restrictions onover-exposures to a single city, single project and to unlisted companies; restrictions on lending orundertaking housing finance kind of activities; valuation by independent valuers; and detail

disclosures by the trustees and the asset management company.

FACTORS DETERMINING THE STRUCTURE OF THE INSTRUMENT The key points highlighted in the regulation such as requisite expertise, valuation of assets, scope of investment, taxation guidelines and foreign investment guidelines would help to structure theinstrument and lead the investor decision. These also form the basis to gauge the risk profile andpotential performance of the fund in the eyes of the investors.

Expertise The regulation stating minimum five years of experience in the real estate sector is a measure toensure sufficient sectoral expertise that the entity should possess to float an REMF. Keeping in

REMF cannot invest in:

= Projects under construction= Vacant land= Deserted property= Land specific for agricultural use= Property which is reserved or attached

to the government


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mind the regulatory eligibility condition, the entity that can propose an REMF can be a fund house,developer, an international property consultant or a combination of the above. This ensuresexcellent understanding and knowledge of the sector by the entity to instil confidence in theinvestors and raise money from the market.

Valuation and Disclosure Norms Valuation guidelinesIn India, lack of defined valuation procedures in real estate has prompted the need to stateguidelines for valuation of REMFs. The valuation disclosure norms for REMFs are aimed to

represent realistic value to the investors so that they may take rational investment decisions.

The valuation of the REMF consists of evaluating two separate asset classes: a) Real estate assetand b) Real estate related securities and other securities. The guidelines stating the valuationmethodology are formed such that a fair value can be arrived at, since the instrument is close endedand traded on stock exchange. It was essential to evaluate both asset classes, as the valuation of securities takes into account the affect of government decisions and various policy announcementson the securities market (Stock exchange) whereas the periodic valuation of the hard assets by accredited appraisers reflects the true market value of the assets held by the fund.

Disclosure normsKeeping in mind the fluctuating values of the securities on the stock exchanges, the regulationsstate that the NAV of the fund must be disclosed daily to represent the fair value of theportfolio. However, the sensitivity of the NAV to the value of the securities in the portfoliodepends on the exposure to such asset class based on the experience and knowledge of the fundmanager.

In addition, the portfolio valuation of the real estate assets has to be carried out by twoaccredited real estate appraisers at an interval of 90 days from purchase of every asset, in whichcase the lower value would be taken into consideration. It is also stated that the transaction isrequired to be routed through and accounted for by financial institution as this would reduce thecirculation of unaccounted money in the real estate sector.

Scope of Investment The market regulator (SEBI) has suggested a list of 35 cities in million plus urban agglomerations

4and 27 cities under million plus category for investment. These include cities like New Delhi,Bangalore, Mumbai, Kolkata, Chennai, Pune, Hyderabad, Ahmedabad, Nagpur and Lucknow toname a few. Also, in order to promote diversification as well as growth across various cities, aninvestment cap has been levied on a single city (30% of net assets) and a single project (15% of net

assets).


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Taxation guidelines The tax implications of REMF are still unclear and SEBI needs to ensure more clarity on this issue.From the information made available, REMF would not qualify for equity oriented mutual funds, whichhave a minimum 65% equity exposure requirement, while the maximum equity exposure that an REMFcan have is 65%. Based on this, taxation on unit holders for short term capital gains (one year or less)

would be based on the individual investors' income slab while on long term capital gains (greater thanone year) it is 20 percent (with indexation) or 10 percent (without indexation), whichever is less.However, dividends earned by individual investors who invest in REMFs is not considered as taxableincome.

Foreign investment guidelines The finance ministry has allowed NRIs and Foreign Institutional Investors (FIIs) to invest inREMFs as the investment decisions of the fund is purely dependent on the fund managementcompany and in no circumstance can the investors steer the investment decision to any asset class.Furthermore, the investment norms of REMFs do not contradict the FDI norms. The pre-initialpublic offer by FIIs is treated as FDI that attract a three year lock in period. It is likely that once theREMFs are rolled out, they may receive a positive response from foreign investors.

Regulations Implication

= REMF shall be close ended and listed onrecognised stock exchange

= The fund shall invest at least 35% of NetAsset directly in real estate assets

= At least 75% of Net Asset shall be invested inreal asset, mortgage backed securities,securities of companies engaged indeveloping properties

= Balance of investment can be made in othersecurities

= Valuation of real estate asset has to beundertaken every 90th day from the purchaseof the asset and the NAV shall be computeddaily

= The guidelines state investment limit of 15%of Net Asset in a single project and 30% of Net Asset in a single city

= REMFs can be traded on secondary market ata premium or discount depending on theperformance of the fund. They cannot beredeemed before the tenure of the scheme

= REMFs must invest in completed property,which ensures a steady stream of income andreduces volatility of the fund

= The regulation permits the investors tobenefit from the development returnsthrough lending to development entities

= The fund manager, based on his expertise andknowledge, may invest in securities exclusiveof the real estate sector to hedge against theuncertainty of the sector

= The valuation guidelines attempt to reflectthe fair value of the assets and measureperformance of the fund on a regular basis

= This safeguards investor interest by limitingexposure and promoting diversification

REMF REGULATIONS DECODED


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Real Estate Investment Trusts (REITs) are listed entities, similar to mutual funds that raise funds for

owning and managing investments in real estate projects i.e. these entities buy, develop, manage and sell

income-generating real estate such as office buildings, apartments, shopping centres, warehouses and

hotels. REITs have played a major role globally in the institutionalization of real estate sector and have

provided more stable and higher returns than real estate assets and equities. They offer investments in a

professionally managed portfolio of properties where the shares are publicly traded on major stock

exchanges. Globally REITs are established alternate investment options that were conceptualized and

rationalized in the US in 1960 to provide the average American an opportunity to invest in real estate,

as was available to the elite. Tax incentives were offered in order to promote participation of investors

in real estate as an asset class. As REITs gained popularity, other countries started to emulate a similar

model.

In India, SEBI so far put out draft rules for such trusts in December 2007 and these are likely to benefit

not just the investors but also the real estate sector by bringing about liquidity, institutionalization and

transparency within the market. Ascendas and Indiabulls are the two Indian companies which have listed

their REITs in Singapore stock exchange (SGX) under the name a-iTrust and Indiabulls Properties

Investment Trust respectively. Due to the country's investor-friendly regulations they have together

raised SGD 762 million (USD 555.6 million) on SGX. Other leading developers, DLF Assets and Unitech

Ltd were exploring opportunities to float REITs in the Singapore market to raise approximately SGD

3.7 billion (USD 2.7 billion). However, due to weak market sentiments these companies have indefinitelypostponed their plans and now intend to raise funds through private equity placements.

Even though REMFs and REITs share the broad investment objective of wealth maximization through

real estate assets/securities, both these instruments can co-exist as there are differences in their

operations and investor target group. REITs are a steady income generating instrument with dividend

yield as high as 15%, depending upon the portfolio mix of the REIT and the investment style followed by5it, attracting the more conservative investor. REMFs on the other hand would be more growth oriented ,

thus attracting more aggressive investors. Globally REITs have to distribute 90% of their income as

dividends, whereas REMFs are not under any compulsion to distribute income. There has been no clarity

on the taxation of dividends by SEBI, although universally due to the nature of the REIT i.e. it being atrust, there is a favourable tax impact for the investor. REMFs also have a broader investment scope as

compared to a REIT, thus attracting investors who want a more diversified portfolio. The realm of

operation for both the instruments is also different as REMFs can invest in real estate projects,

mortgage-backed securities as well as equity/debt/debentures of real estate companies, while REITs will

have regulated investment options in terms of commercial, retail, residential or a mix of these, which can

derive a steady stream of income. REMFs may also invest in REITs within the prescribed limit, as these

instruments invest in Real Estate assets. REITs can invest in properties that are developed with up to

20% invested in developing properties, but cannot invest in vacant land. REMFs would be promoted by

AMC's (Asset Management Companies) with a possible tie up with developers, while REITs would be

promoted by developers with a possible tie up with AMC's. That being the case, the developers are likely

to prefer a REIT as compared to a REMF in order to capitalize on the steady income being derived from

Real Estate Investment Trusts (REITs) The future of real estate investments


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their projects. These differences, both from the promoter point of view i.e. developer or AMC as well as

the investor perspective i.e. conservative or aggressive, will ensure that both these instruments fill the

void for different avenues of investment in the Indian markets.

REIT REMF

GLOBAL AND LOCAL IMPACT

Globally, REITs are more prevalent as they have been operational for a longer duration whencompared to REMF's although the latter are gaining popularity in the investor circle. India is one of the few countries to have launched exclusive REMF guidelines, without an existing operationalREIT, thus paving the way for REMFs to operate before REITs within the country. Both theseinstruments have had a profound effect on the real estate market in their area of operation. Thefirst and foremost effect is the additional capital and liquidity that REITs/ REMFs bring into thereal estate market which has a ripple effect on the sector lowering the cost of capital. For thedeveloper, lower cost of capital results in a lower hurdle rate, thus increasing the feasibility of moreprojects, achieving better margins which can together lead to improving the construction quality.

Institutions are also able to diversify the risk profile of their investments leading to higherefficiency. The consumer benefits from better interest rates (i.e. lower spreads as seen in U.S.A and

= Invests primarily in income generating realestate assets.

= May invest in under-development/developing projects, projects that are incourse of redevelopment and refurbishmentto an extent of 20% of the total NAV at thetime of acquisition.

= Lower liquidity position as investments arein properties

= Valuation of assets is done at lowerfrequencies, proposed annually

= Can borrow from financial institutions butaggregate borrowings can not exceed one

fifth of the total gross assets= Minimum 90% of income shall compulsorily

be distributed as dividend

= Income-generation oriented

= Relatively higher dividend yield (can be ashigh as 15%)

= Invests in real estate assets, mortgage-backed securities as well asequity/debt/debentures of real estatecompanies.

= Can invest in properties underdevelopment to the extent of 15% of itsNet Assets, partnering with the developerand acquiring a stake in the establishedSPV (by the developer)

= Higher liquidity position as someinvestments are in securities as well.

= Valuation of assets is done quarterly

= Cannot borrow from financial institutions.

= No compulsion on distribution of income

= More growth oriented in nature

= Relatively lower dividend yield

FUNDAMENTAL DIFFERENCE BETWEEN REMFs AND REITs


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6 7other developed countries, where PLR and Fed Fund rates have a marginal difference) as well asfrom lowering of other associated operational costs. They also allow foreign investments in thelocal property market helping investors & developers overcome the present rule that permitsforeign entities to put money only for construction and development and not in ready properties.

These Trusts/Funds are able to realize economies of scale and are thus able to pass the benefitsof the cost savings to the unit holders, resulting from more efficient operation of the assets. Theseeconomies of scale can further be translated to better negotiation and favourable contractual termsresulting in reduced operational costs and more efficiently run properties thus offering better

realization of value to the unit holder. Volatility is also reduced due to the increasing trading activity,higher competition and large influx of liquidity which contributes positively to the economy.

Increased competition and higher trading activity can result in bidding wars for certain propertiesresulting in strengthening of property prices. Historically this strengthening of rates is short livedand in the long run the trusts/ funds tend to bring more stability into the market and eliminate mis-pricing. As the funds/ trusts are measured on performance and high acquisition prices wouldreduce the shareholder's financial returns, these bidding wars do not last long and markets return tomore efficient pricing. Due to the higher levels of transactions, transparency within the sector isincreased which further curtails mispricing, leading to highly efficient markets.

Impact on real estate sector The entry of REMFs benefits the real estate sector as it results in cost efficient, well maintained andgood quality supply of properties permitting higher operational efficiency. The government isbenefited in higher tax realization, higher wealth creation and employment generation, (in the realestate sector and in the investment/ fund management industry). As these economic benefitsincrease, they further trickle down into the economy resulting in a stronger and more competitivebusiness environment.

Though the entry of REMFs in India is recent, similar benefits, as stated above, can be expectedas they would help in the churning of inventory and ease the capital position (cash flow) of developers, increase operational efficiency enabling cost reduction, provide retail investors with analternate investment option, increase transparency and accountability in the real estate sector,increase liquidity for the developers and the banks through mortgage backed securities creating asource of cheaper debt, reduce the incidence of unaccounted money as well as increase taxefficiency.

With the introduction of REMFs/ REITs in India there will be a large shift of assets(commercial, retail, residential etc.) from individuals to entities (i.e. REMFs and REITs) which will

impact the current highly unorganized leasing markets. As these markets develop, there would beimproved labour mobility, housing quality, supply and higher tax realization. As currently, the


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property prices are at historical high, the mix of portfolio would depend upon the capital raised by the fund. The macro and micro factors would determine the risk-return profile and affect thereturns of unit holders.

As real estate is currently facing a slowdown in the Indian market it will be difficult for REMF'sto raise interest in the instrument immediately. There is a direct correlation between a particularasset performance and number of NFOs in the market, thus making it hard for REMF's to witnessheavy subscription. As these are new instruments there are no previous track records that can betracked other than global performance indicators in which real estate as an asset class has been a top

performer. REMF's have to ensure that investors are educated of the returns and risks associated with the product, while investors need to curtail their expectations as the current slowing market will not witness the robust growth of the previous 4 years. REMF's should be approached with along term perspective of wealth creation and preservation.

Advantages Challenges

REMF - ADVANTAGES AND CHALLENGES

= Increased transparency and accountability

= Would clean up the balance sheet of thedevelopers

= Easy liquidation of properties

= Alternate investment opportunity for theretail investor

= Result in capital infusion, much needed by theindustry

= Will lead to a more organized and efficientreal estate market

= Greater retail and institutional investorparticipation

= Professional management

= Lack of organized valuation system for realestate sector may lead to valuation discrepancy

= Market volatility & risk associated in short term

horizon= Cannot invest overseas

= Valuing real estate assets every quarter willadd to fund costs

Impact on investors With the introduction of professionally managed real estate portfolios, the retail investor would bein a position to weather real estate cycles. On the macro front, real estate cycles become smootheras the markets become more efficient thus leading to greater stability and wealth creation.

For the investor, REITs/ REMFs allow a backdoor entry into the real estate asset class which wouldotherwise be diffucult as even direct investment in property would not be able to diversify andhedge risks. This also allows retail investors an extra avenue of investment or savings product whilereducing the hassle of multiple stamp duty, processing fees, registration fees, brokerage etc. that aretypical of direct realty investment. Real estate as a direct investment option is also highly illiquid andthis challenge will be solved by the two aforementioned instruments.


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REMF - Facts for Investors

= Entry load for closed ended mutual fund: Nil, if application made directly to AMC.8

= Expense ratio : Maximum 2.5%

= Issue Expense: None (i.e no longer initial amortizable)

= Redemption: Has to be listed on a major stock exchange, so redemption would be easier thancertain other closed ended funds but the NAV may be at a premium or discount depending upon thefund's performance

= Exit Load: At the discretion of fund, usually based upon the time invested i.e. the longer theinvestment period, the lower the exit load

Identification of growth/ returns potential Typically the returns of mutual funds are influenced by economic factors such as the supply-demand equation, interest rates, economic growth, development - physical and social, politicalscenario as well as policies, etc. Investments done by REMFs in India can be broadly divided intotwo investment classes - hard assets and equities. The investment in equities can not exceed 65% of the total portfolio with a maximum of 40% in real estate equities. The BSE realty index, as seen inthe graph below, provides higher returns when compared to the BSE Sensex which adds to the

volatility thus increasing the risk associated with real estate equities. This is countered by limitedexposure to equities and allowance of investment in hard assets to ensure a steady dividend payoutto the investor with the steady stream of rentals from the investment in hard assets. The retailinvestor is able to diversify his portfolio to include real estate as an asset class, decrease volatility (risk), benefit from higher returns and get regular income by way of dividends.

An investor can choose a fund based on his risk appetite and investment objective. Traditionally,retail as an asset class has the highest yield of approximately 12%-15%, followed by commercial

with 9%-11% and the lowest yield of 4-6% in the residential sector. REITs and REMFs tend to

GROWTH RATE COMPARISON OF REALTY AND SENSEX

Source: Bombay Stock Exchange

80%

60%

40%

20%

0%

-20%

-40% J a n

0 6

M a r

0 6

M a y

0 6 J u l 0 6

S e p

0 6

N o v

0 6

J a n 0 7

M a r

0 7

M a y

0 7 J u l 0 7

S e p

0 7

N o v

0 7

J a n 0 8

M a r

0 8

M a y

0 8

BSE Realty Index BSE 30


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Cushman & Wakefield is the world's largestprivately held commercial real estate services firm.Founded in 1917, it has 221 offices in 58 countriesand more than 15,000 employees. The firmrepresents a diverse customer base ranging fromsmall businesses to Fortune 500 companies.

It offers a complete range of services within four

primary disciplines: Transaction Services, includingtenant and landlord representation in office,industrial and retail real estate; Capital Markets,including property sales, investment management,valuation services, investment banking, debt andequity financing; Client Solutions, includingintegrated real estate strategies for largecorporations and property owners and ConsultingServices, including business and real estateconsulting.

A recognised leader in global real estate research,the firm publishes a broad array of proprietaryreports available on its online Knowledge Centerat cushmanwakefield.com/knowledge.

;

About Research & Business Analytics GroupCushman & Wakefield is committed to collation of highquality base data and assembling detailed statistics forthe major India markets on a regular basis. Thiscommitment to quality research provides a strongfoundation for all of our services. Customized,analytical reports are also developed to meet thespecific research needs of owners, occupiers, andinvestors.

Through the delivery of timely, accurate, high qualityresearch reports on the leading trends, markets andbusiness issues of the day, we aim to assist our clients inmaking pertinent and competitive property decisions.

In addition to producing regular reports such as globalrankings and local quarterly updates available on aregular basis, Cushman & Wakefield also providescustomized studies to meet specific information needsof owners, occupiers and investors.

For more information:Tanuja Rai PradhanAssociate Director - IndiaResearch & Business Analytics Group+(91 124) 469 [email protected]

For more information onCushman & Wakefield, contact :

Anurag Mathur Managing Director, IndiaTel: +91 80 4046 5555E-mail: [email protected]

2008 Cushman & WakefieldAll Rights Reserved

Disclaimer

This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. Theinformation on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do notguarantee that the information is accurate or complete.

have a specific focus in their investment profile i.e. not only are some of these instrumentsconcentrated within asset class such as residential, commercial, retail, etc. but are also geographically concentrated. For instance, peripheral regions tend to be more volatile in nature thus witnessing higher capital appreciation whereas CBD and off-CBD witness more steady growth. However,during a downturn the peripheral markets are most affected.

Thus, following the law of generalisation, an investor with a low risk profile should make sure thatthe fund manager is following the investment strategy of investing in central and establishedmarkets with investments in retail and commercial developments to ensure steady appreciation andsteady rentals. An investor with higher risk profile, on the other hand, should choose a fund thatinvests in the peripheral or emerging markets with a higher exposure to equity in order to attaingreater capital appreciation. However, investments, risk appetites and objectives are subjective and acareful analysis of these can ensure expected returns.

Glossary:

1) Retail Investor: An individual who purchases small amounts of securities for him/herself, as opposed to an institutional investor.2) Net assets: The value of an entity's assets less the value of its liabilities3) Diversification: Diversification strategy is adopted by investing in a wide array of securities and companies4) Million Plus cities: Cities or urban agglomerations with a population of one million or more5) Growth oriented: A growth and income fund is a mutual fund structured to provide both, growth in value and current income payments.

The risk level of a growth and income fund is moderate and is therefore acceptable to investors who have a moderate risk tolerance.6) PLR: Prime Lending Rate. It is the reference interest rate used by banks7) Fed Fund Rates: The Federal Funds Rate is the interest rate at which private depository institutions (mostly banks) lend balances (federal

funds) at the Federal Reserve to other depository institutions8) Expense Ratio: The expense ratio measures the percentage of a mutual fund's assets dedicated to running the fund. The expense ratio

comprises administrative costs, money used for marketing, distributing, and advertising the fund; and the investment advisory fee, used topay the manager(s) of the fund.


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