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Risk Factors
Statutory Details
Constitution :
Tata Mutual Fund (TMF) has been set up as a Trust under the Indian Trusts Act, 1882.
Sponsors :
Tata Sons Ltd., Tata Investment Corporation Ltd.
Trustee :
Tata Trustee Company Private Limited.
Investment Manager :
Tata Asset Management Private Limited.
- Mutual Funds and Securities investments are subject to market risks and there can be no assurance and no guarantee that the objectives of the Mutual Fund will be achieved.
- As with any investment in securities, the NAV of the units issued under the schemes(s) can go up or down depending on the factors and forces affecting the capital markets.
- Past performance of the Sponsors /AMC/ Mutual Fund does not indicate or guarantee the future performance of the schemes of the Mutual Fund and may not necessarily provide a basis of comparison with other investments.
- The names of the schemes do not in any manner indicate either the quality of the scheme(s), their future prospects or the returns. Investors therefore are urged to study the terms of the offer carefully and consult their Investment Advisor before they invest in the Scheme(s)
- The Sponsors are not responsible or liable for any loss resulting from the operations of the Mutual Fund beyond the contribution of an amount of 1 lac towards setting up of the Mutual Fund.
- Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and the actual returns of an Investor will be based on the actual NAV which may go up or down depending on the market conditions
- The AMC has the right to limit repurchases / redemptions, under certain circumstances. Please read the section 'Maximum Amount for redemption and switch-outs' under the heading III - A. 'Ongoing Offer Details' of the Scheme Information Document (SID) of the concerned scheme.
- Investments made by a unit holder in foreign currency in the Scheme(s) are subject to the risk of fluctuation in the value of the Rupee.
- A unitholder may invest in the Fund(s) and acquire a substantial portion of the scheme(s) units. The repurchase of units by the unitholder may have an adverse impact on the units of the scheme(s), because the timing of such repurchase may impact the ability of other unit holders to repurchase their units.
- In case of Fixed Income Investment, changes, in the prevailing rates of interest will likely affect the value of the Scheme(s) holdings and thus 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 securities held by a Scheme(s) generally will vary inversely with changes in prevailing interest rates.
- As with debt instruments, changes in interest rate may affect the Scheme's net asset value as the prices of instruments generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long-term securities generally fluctuate more in response to interest rate changes than do short-term securities. Indian debt and government securities markets can be volatile leading to the possibility of price movements up or down in fixed income securities and thereby to possible movements in the NAV.
- Credit risk or Default risk refers to the risk that an issuer of a fixed income security may default (i.e. the issuer will be unable to make timely principal and interest payments on the security). Because of this risk corporate debentures are sold at a higher yield above those offered on Government Securities which are sovereign obligations and free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the changes in the perceived level of credit risk as well as any actual event of default. The greater the credit risk, the greater the yield required for someone to be compensated for the increased risk.
- The liquidity of the scheme's investment may be inherently restricted by trading volumes, transfer procedures, and settlement periods. Additionally, from time to time, the Asset Management Pvt. Ltd. Company, the Custodian, the Registrar, any associate, any distributor, dealer, any company, corporate bodies, trusts, any retirement and employee benefit funds of any associate, or any scheme/mutual fund managed by the Asset Management Company or by any other Asset Management Pvt. Ltd. Company may invest in the scheme.While the Trustee Company Pvt. Ltd. and the Asset Management Pvt. Ltd. Company will endeavor to avoid excessive holding of units in the scheme among a few unitholders, the funds invested by the aforementioned persons may acquire a substantial portion of the scheme's outstanding units and collectively may constitute a majority unitholder in the scheme. Therefore, redemption of units held by such persons may have an adverse impact on the value of the units of the scheme due to the timing of any such redemptions and may affect the ability of other unitholders to redeem their respective units.
- The Scheme(s) may also invest in overseas financial assets. To the extent that the assets of a 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 respective foreign currencies relative to the Indian Rupee. The repatriation of capital to India may also be hampered by changes in the regulations concerning exchange controls or political circumstances as well as the application to it of other restrictions on investment.
- The Scheme(s) may invest in derivative instruments which carry a high risk return ratio. In case of investments in derivative instruments like index futures, the risk/reward would be the same as investments in portfolio of equity/fixed income securities representing an index. However, there may be a cost attached to buying an index future. Besides in case of IRS and FRA, there exists market risks. Further there could be an element of settlement risk, which could be different from the risk in settling physical securities and there is a risk attached since the Indian market for derivative instruments is untried and untested
- The securities lending activity by the Scheme(s) will have the inherent probability of collateral value drastically falling in time of strong downward market trends or due to it being comprised of tainted/forged securities, resulting in inadequate value of collateral until such time as that diminution in value is replenished by additional security. It is also possible that the borrowing party and/or the approved intermediary may suddenly suffer severe business setback and become unable to honour its commitments. This along with a simultaneous fall in value of collateral would render potential loss to the Scheme. Besides, there can also be temporary illiquidity of the securities that are lent out and the scheme may not be able to sell such lent out securities.
- Tracking errors are inherent in any index fund, and these errors may cause the scheme to generate returns that are not in line with the performance of the S&P CNX Nifty / BSE SENSEX or the securities included in these indices. If the scheme engages in stock lending or money market operations, it will be exposed to risks related to such activities, which may contribute to tracking errors.The deviation of the NAV (Net Asset Value) of the scheme from the SENSEX or Nifty is expected to be in the range of 2-3% per annum. However, the actual tracking error may be higher or lower than this range.In the case of investments in derivative instruments like index futures, the risk and reward would be similar to investments in a portfolio of shares representing an index. However, there may be costs associated with buying an index future, and there could be settlement risk, which may differ from settling physical shares. Additionally, there is a risk associated with the liquidity and depth of the index futures market, as it is an untested market.
- Pursuant to allotment of bonus units, the NAV of the schemes would fall in proportion to the bonus allotted and as a result the total value of units held by the investor would remain the same.
- Basis Risk (Interest Rate Movement): During the life of floating rate security or a swap the underlying benchmark index may be com e less active and may not capture the actual movement in interest rates or at times the benchmark may cease to exist. These type of events may result in loss of value in the portfolio. Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in NAV. In case of downward movement of interest rates, floating rate debt instruments will give a lower return than fixed rate debt instruments.
- In case of Tata Mid Cap Fund, Trading Volumes and Settlement Periods may restrict liquidity in equity and debt investments. In case of mid cap companies such liquidity risks is likely to be high. Further prices of stock in mid cap companies are also likely to be more volatile.
- Risks associated with Derivatives: Derivative products are specialized instruments that require investment techniques and risk analysis different from those associated with stocks and bonds. Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio, and the ability to forecast the price of securities being hedged and interest rate movements correctly.There is a possibility that the portfolio may sustain a loss as a result of the failure of another party (usually referred to as the "counterparty") to comply with the terms of the derivatives contract. Other risks associated with using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates, and indices.
- Investment RisksFor Non-equity schemes:
The value of an investment in the Scheme and the income generated from it can both decrease and increase, depending on various factors that affect the values and income of the securities in the Scheme's portfolio. The returns of the Scheme are influenced by factors such as capital market conditions, including price and volume fluctuations, stock market volatility, interest rates, currency exchange rates, foreign investment, changes in government and Reserve Bank of India policies, taxation, political and economic developments, and the closure of stock exchanges.Investors should be aware that the investment pattern indicated, based on prevailing market conditions, is only a hypothetical example. All investments involve risk, and there is no guarantee that the Scheme's investment objective will be achieved or that the Scheme will be able to maintain the model percentage of the investment pattern, especially under exceptional circumstances. Different types of securities in which the Scheme invests carry varying levels and types of risk. Therefore, the Scheme's risk may increase or decrease depending on its investment pattern. For example, corporate bonds carry a higher level of risk compared to government securities. Furthermore, even among corporate bonds, AAA-rated bonds are relatively less risky than AA-rated bonds.
For Equity schemes:The Scheme aims to invest in well-researched growth/value stocks with high dividend yield. However, it's important to note that investing in equities comes with high growth potential but also carries the risk of value erosion during bearish phases in the capital markets. The Net Asset Value (NAV) of the Scheme is heavily influenced by the performance of the companies and sectors in which the investments are made.To manage portfolio fluctuations and attempt to mitigate risk, the Scheme may employ various techniques and instruments. However, there is a risk that imperfect use of these techniques and instruments may lead to losses, particularly in volatile markets. The Fund's ability to use these techniques may be subject to limitations imposed by market conditions, regulatory restrictions, and tax considerations.It's worth noting that there is an imperfect correlation between the hedging instruments and the securities or market sectors being hedged. Additionally, the skills required to use these instruments differ from those needed for selecting the Scheme's securities. It's also possible that a particular instrument may not have a liquid market at a given time, even if futures and options can be bought and sold on an organized exchange. The use of these techniques may present challenges in effective portfolio management and meeting repurchase/redemption requests or other short-term obligations due to the allocation of a percentage of the Scheme's assets to cover its obligations.
- Risk Associated with Securitised Debt Scheme may invest in domestic securitized debt such as asset backed securities (ABS) or mortgage backed securities (MBS). Asset Backed Securities (ABS) are securitized debts where the underlying assets are receivables arising from automobile loans, personal loans, loans against consumer durables, etc. Mortgage backed securities (MBS) are securitized debts where the underlying assets are receivables arising from loans backed by mortgage of residential / commercial properties. ABS/MBS instruments reflect the undivided interest in the underlying pool of assets and do not represent the obligation of the issuer of ABS/MBS or the originator of the underlying receivables. The ABS/MBS holders have a limited recourse to the extent of credit enhancement provided. If the delinquencies and credit losses in the underlying pool exceed the credit enhancement provided, ABS/MBS holders will suffer credit losses. ABS/MBS are also normally exposed to a higher level of reinvestment risk as com pared to the normal corporate or sovereign debt. At present in Indian market, following types of loans are amortised:Auto Loans (cars / commercial vehicles /two vehicles)Residential Mortgages or Housing LoansConsumer Durable LoansPersonal Loans
The main risks pertaining to each of the asset classes above are described below: Auto Loans (cars / commercial vehicles /two vehicles)
The underlying assets (cars etc) are susceptible to depreciation in value whereas the loans are given at high loan to value ratios. Thus, after a few months, the value of asset becomes lower than the loan outstanding. The borrowers, therefore, may sometimes tend to default on loans and allow the vehicle to be repossessed.These loans are also subject to model risk. i.e. if a particular automobile model does not be com e popular, loans given for financing that model have a much higher likelihood of turning bad. In such cases, loss on sale of repossession vehicles is higher than usual.Commercial vehicle loans are susceptible to the cyclicality in the economy. In a downturn in economy, freight rates drop leading to higher defaults in commercial vehicle loans. Further, the second hand prices of these vehicles also decline in such economic environment.Housing LoansHousing loans in India have shown very low default rates historically. However, in recent years, loans have been given at high loan to value ratios and to a much younger borrower classes. The loans have not yet gone through the full economic cycle and have not yet seen a period of declining property prices. Thus the performance of these housing loans is yet to be tested and it need not conform to the historical experience of low default rates..Consumer Durable LoansThe underlying security for such loans is easily transferable without the bank's knowledge and hence repossession is difficult.The underlying security for such loans is also susceptible to quick depreciation in value. This gives the borrowers a high incentive to default.Personal LoansThese are unsecured loans. In case of a default, the bank has no security to fall back on.The lender has no control over how the borrower has used the borrowed money.Further, all the above categories of loans have the following common risks:All the above loans are retail, relatively small value loans. There is a possibility that the borrower takes different loans using the same in com e proof and thus the in com e is not sufficient to meet the debt service obligations of all these loans.In India, there is no ready database available regarding past credit record of borrowers. Thus, loans may be given to borrowers with poor credit record.In retail loans, the risks due to frauds are high. - In case of Tata Dividend Yield Fund, Risk associated with high dividend yield stocks: Though the investments would be in companies having a track record of dividend payments, the performance of the scheme would inter-alia depend on the ability of these companies to sustain dividends in future.
- In case of Tata Infrastructure Fund, The scheme being sectors specific will be affected by risk associated with the infrastructure sector.
- In case of Tata Service Industries Fund, The scheme being sector specific would be investing predominantly in equity and equity related instruments of the companies in the Service sector, it would be riskier than a normal diversified equity scheme.
- Not withstanding anything contained in the Offering Circular the provisions of SEBI (Mutual Funds) Regulations 1996 and guidelines thereunder shall be applicable. The Trustee Company Private Limited would be required to adopt / follow any regulatory changes by SEBI /RBI etc and /or all circulars / guidelines received from AMFI from time to time if and from the date as applicable. The Trustee Company Private Limited in such a case would be obliged to modify / alter any provisions / terms of the Offering Circular during / after the launch of the scheme by following the prescribed procedures in this regard.
- Derivatives require the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio. Risks in using derivatives include the risk of default of counter party, mis-pricing and the inability of derivatives to correlate perfectly with underlying assets, rates and indices.
- For scheme specific risk factors and other details, please read the Scheme Information Document (SID) of the concerned scheme carefully before investing.