Reliance gold exchange traded fund

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Reliance gold exchange traded fund

  1. 1. Reliance Gold ExchangeTraded Fund(An Open ended Gold Exchange Traded Fund Scheme) Scheme Information Document Continuous offer of the Units for cash at NAV based prices (subject to applicable load)The particulars of the Scheme have been prepared in accordance with the NAME OF MUTUAL FUNDSecurities and Exchange Board of India (Mutual Funds) Regulations 1996, Reliance Mutual Fund 11th floor & 12th floor, One Indiabulls Centre, Tower 1(herein after referred to as SEBI (MF) Regulations) as amended till date, and Jupiter Mills Compound, 841, Senapati Bapat Marg,filed with SEBI, along with a Due Diligence Certificate from the AMC. The units Elphinstone Road, Mumbai - 400 013 Tel No. - 022-30994600being offered for public subscription have not been approved or recommended by Fax No. - 022-30994699SEBI nor has SEBI certified the accuracy or adequacy of the Scheme InformationDocument. NAME OF SPONSOR COMPANY Reliance Capital Limited Registered Office:The Scheme Information Document sets forth concisely the information about H Block, 1st Floor, Dhirubhai Ambani Knowledge City,the scheme that a prospective investor ought to know before investing. Before Koparkhairne, Navi Mumbai - 400 710.investing, investors should also ascertain about any further changes to this Scheme Tel. 022 - 30327000, Fax. 022 - 30327202 Website : www.reliancecapital.co.inInformation Document after the date of this Document from the Mutual Fund /Investor Service Centres /Website / Distributors or Brokers. NAME OF ASSET MANAGEMENT COMPANY Reliance Capital Asset Management LimitedThe investors are advised to refer to the Statement of Additional Information Corporate Office: 11th floor & 12th floor, One Indiabulls Centre, Tower 1(SAI) for details of Reliance Mutual Fund, Tax and Legal issues and general Jupiter Mills Compound, 841, Senapati Bapat Marg,information on www.reliancemutual.com Elphinstone Road, Mumbai - 400 013 Tel No. - 022-30994600SAI is incorporated by reference (is legally a part of the Scheme Information Fax No. - 022-30994699Document). For a free copy of the current SAI, please contact your nearest NAME OF TRUSTEE COMPANYInvestor Service Centre or log on to our website wwwreliancemutual.com. Reliance Capital Trustee Co. Limited Corporate Office:The Scheme Information Document should be read in conjunction with the SAI 11th floor & 12th floor, One Indiabulls Centre, Tower 1 Jupiter Mills Compound, 841, Senapati Bapat Marg,and not in isolation. Elphinstone Road, Mumbai - 400 013 Tel No. - 022-30994600This Scheme Information Document is dated September 27, 2011. Fax No. - 022-30994699
  2. 2. Table of ContentsHIGHLIGHTS/SUMMARY OF THE SCHEME............................................................................................................................................1I. INTRODUCTION...........................................................................................................................................................................2 A. RISK FACTORS........................................................................................................................................................................................................5 B. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME...........................................................................................................................5 C. SPECIAL CONSIDERATIONS............................................................................................................................................................................... 10 D. DEFINITIONS & ABBREVIATIONS...................................................................................................................................................................... 10 E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY.......................................................................................................................... 13II. INFORMATION ABOUT THE SCHEME –.........................................................................................................................................13 Reliance Gold Exchange Traded Fund............................................................................................................................................13 A. TYPE OF THE SCHEME....................................................................................................................................................................................... 13 B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME?........................................................................................................................... 13 C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS?......................................................................................................................................... 13 D. WHERE WILL THE SCHEME INVEST?............................................................................................................................................................... 13 E. WHAT ARE THE INVESTMENT STRATEGIES?................................................................................................................................................... 13 F. FUNDAMENTAL ATTRIBUTES............................................................................................................................................................................. 16 G. HOW WILL THE SCHEME BENCHMARK ITS PERFORMANCE?..................................................................................................................... 17 H. WHO MANAGES THE SCHEME?....................................................................................................................................................................... 17 I. WHAT ARE THE INVESTMENT RESTRICTIONS?.............................................................................................................................................. 17 J. HOW HAS THE SCHEME PERFORMED?.......................................................................................................................................................... 19III. UNITS AND OFFER......................................................................................................................................................................21 A. NEW FUND OFFER (NFO).................................................................................................................................................................................. 21 B. ONGOING OFFER DETAILS................................................................................................................................................................................. 23 C. PERIODIC DISCLOSURES.................................................................................................................................................................................... 31 D. COMPUTATION OF NAV..................................................................................................................................................................................... 33IV. FEES AND EXPENSES..................................................................................................................................................................34 A. NEW FUND OFFER (NFO) EXPENSES.............................................................................................................................................................. 34 B. ANNUAL SCHEME RECURRING EXPENSES..................................................................................................................................................... 34 C. LOAD STRUCTURE.............................................................................................................................................................................................. 34 D WAIVER OF LOAD FOR DIRECT APPLICATIONS.............................................................................................................................................. 34V. RIGHTS OF UNITHOLDERS..........................................................................................................................................................35VI. PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTIONS OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR IS IN THE PROCESS OF BEING TAKEN BY ANY REGULATORY AUTHORITY...........................................35
  3. 3. HIGHLIGHTS/SUMMARY OF THE SCHEME1. Investment objective The investment objective is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Gold (and Gold related securities as permitted by Regulators from time to time). However, the performance of the scheme may differ from that of the domestic prices of Gold due to expenses and or other related factors. However, there can be no assurance that the investment objective of the scheme will be achieved.2. Liquidity All investors may sell their units in the stock exchange(s) on which these units are listed on all the trading days of the stock exchange. Alternatively Authorised Participant can directly buy /sell in blocks from the fund in ‘Creation Unit’ Size.3. Benchmark As there are no indices catering to the gold sector/securities linked to Gold, currently Reliance Gold Exchange Traded Fund (RGETF) shall be benchmarked against the price of Gold. Purity of Gold: All gold bullion held in the scheme’s allocated account with the custodian shall be of fineness (or purity) of 995 parts per 1000 (99.5%) or higher.4. Transparency/NAV Disclosure a) The NAV will be calculated and disclosed at the close of every working day which shall be published in at least two daily newspapers and also uploaded on the AMFI website and Reliance Mutual Fund website i.e. www.reliancemutual.com. b) If the NAVs are not available before commencement of business hours on the following day due to any reason, the Fund shall issue a press release providing reasons and explaining when the Fund would be able to publish the NAVs. c) The information on NAV may be obtained by the Unitholders on any day from the office of the AMC / the office of the Registrar in Hyderabad or any of the other Designated Investor Service Centres. d) Investor may also call our customer service centre at 3030 1111 (24 X 7), callers outside India, please dial 91-22-30301111 or Toll Free 1800 300 11111. e) Publication of Abridged Half-yearly Unaudited Financial Results in the newspapers or as may be prescribed under the Regulations from time to time. f) Communication of Portfolio on a half-yearly basis to the Unit holders directly or through the Publications or as may be prescribed under the Regulations from time to time. g) Despatch of the Annual Reports of the respective Schemes within the stipulated period as required under the Regulations.5. Loads Entry & Exit Load: Not Applicable There will be no entry/exit load on RGETF bought or sold through the secondary market on the NSE. However, an investor would be paying cost in the form of a bid and ask spread and brokerage, as charged by his broker for buying / selling RGETF. As per the Regulations, the redemption price shall not be lower than 93% of NAV and the purchase price shall not be higher than 107% of the NAV and the difference between the redemption price and purchase price shall not exceed 7% of the purchase price. In case, there are no quotes on the NSE for five trading days consecutively, an investor can sell directly to the fund with an exit load of 5% of NAV. The payout of such redemptions will be on the respective pay-out day.6. Minimum Application Amount Purchases directly from the Mutual Fund would be restricted to Authorised Participants provided the value of units to be purchased is in creation unit size.7. CHOICE OF INVESTMENT PLANS Dividend Payout Option only8. REPATRIATION Full Repatriation benefits would be available to NRIs, PIOs and FIIs, subject to applicable conditions/regulations notified by Reserve Bank of India from time to time9. Listing The units of RGETF is listed on the Capital Market Segment of the National Stock Exchange of India (NSE). The trading will be as per the normal settlement cycle. The minimum number of units that can be bought or sold through the stock exchange is 1 (one) unit. The AMC reserves the right to list the units of the Scheme on any other recognized stock exchange.10. The advantages of RGETF over direct investment in gold : 1. Investors who want a cost effective and convenient way to invest in gold can get instantaneous exposure to a physical asset viz gold. 2. RGETF units can be traded like a share and therefore it provides the ability to buy and sell them quickly at the ruling market price unlike gold that can be sold only for a discount and by a cumbersome process. 3. The expenses incurred in buying and selling units and the schemes ongoing expenses will be less than the costs associated with buying and selling of gold and storing and insuring gold bullion in a traditional gold bullion market. 1
  4. 4. 4. Minimum investment in ETF in secondary markets is one unit representing approximately one gram of gold in the beginning and the weight of gold representing 1 unit keeps reducing to the extent of expenses.5. Helps investors to diversify across asset classes.6. Investor’s get an opportunity to access to Gold Bars conforming to LBMA Good Delivery status, in a cost effective manner. RGETF is listed on NSE and/or may be listed on any other stock exchange(s) as may be decided by the Reliance Capital Asset Management Ltd. in the form of Gold Exchange Traded Fund tracking the prices of Gold bullion. 2
  5. 5. I - INTRODUCTIONA. RISK FACTORS 1. STANDARD RISK FACTORS a) Mutual Funds and securities investments are subject to market risks such as trading volumes, settlement risk, liquidity risk and default risk including the possible loss of principal and there is no assurance or guarantee that the objectives of the Scheme will be achieved. b) 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 c) Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the scheme. d) Reliance Gold Exchange Traded Fund is only the name of the Scheme and does not in any manner indicate either the quality of the scheme or its future prospects and returns. e) The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh made by it towards the setting up of the Mutual Fund and such other accretions and additions to the corpus. f) The present scheme is not a guaranteed or assured return scheme. The Mutual Fund is not guaranteeing or assuring any dividend/ bonus. The Mutual Fund is also not assuring that it will make periodical dividend/bonus distributions, though it has every intention of doing so. All dividend/bonus distributions are subject to the availability of distributable surplus of the Scheme. 2. SCHEME SPECIFIC RISK FACTORS • Risks associated with investing in Bonds Investment in Debt is subject to price, credit, and interest rate risk. The NAV of the Scheme may be affected, inter alia, by changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. Investing in Bonds and Fixed Income securities are subject to the risk of an Issuer’s inability to meet principal and interest payments obligation (credit risk) and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (market risk). The timing of transactions in debt obligations, which will often depend on the timing of the Purchases and Redemptions in the Scheme, may result in capital appreciation or depreciation because the value of debt obligations generally varies inversely with the prevailing interest rates. Interest Rate Risk As with all debt securities, changes in interest rates will affect the Scheme’s Net Asset Value as the prices of securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of longer-term securities generally fluctuate more in response to interest rate changes than do shorter-term securities. Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV. Liquidity or Marketability Risk This refers to the ease at which a security can be sold at or near its true value. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by a dealer. Liquidity risk is characteristic of the Indian fixed income market. Credit Risk Credit risk or default risk refers to the risk which may arise due to default on the part of the issuer of the fixed income security (i.e. will be unable to make timely principal and interest payments on the security). Because of this risk debentures are sold at a yield spread above those offered on Treasury securities, which are sovereign obligations and generally considered to be free of credit risk. Normally, the value of a fixed income security will fluctuate depending upon the actual changes in the perceived level of credit risk as well as the actual event of default. Reinvestment Risk This risk refers to the interest rate levels at which cash flows received from the securities in the Scheme or from maturities in the Scheme are reinvested. The additional income from reinvestment is the “interest on interest” component. The risk refers to the fall in the rate for reinvestment of interim cashflows. Risks associated with various types of securities CREDIT RISK LIQUIDITY RISK PRICE RISK Listed Depends on credit quality Relatively Low Depends on duration of instrument Unlisted Depends on credit quality Relatively High Depends on duration of instrument Secured Relatively low Relatively Low Depends on duration of instrument Unsecured Relatively high Relatively High Depends on duration of instrument 3
  6. 6. Rated Relatively low and depends on the rating Relatively Low Depends on duration of instrument Unrated Relatively high Relatively High Depends on duration of instrument Different types of securities in which the scheme would invest as given in the Scheme Information Document carry different levels and types of risk. Accordingly, the scheme’s 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, bonds which are AAA rated are comparatively less risky than bonds which are AA rated.• Risk associated with investing in Derivatives Valuation Risk The risk in valuing the Debt & Equity derivative products due to inadequate trading data with good volumes. Derivatives with longer duration would have higher risk viz a viz the shorter duration derivatives. Mark to Market Risk The day-to-day potential for an investor to experience losses from fluctuations in underlying stock prices and derivatives prices. Systematic Risk The risk inherent in the capital market is due to macro economic factors like Inflation, GDP, Global events. Liquidity Risk The risk stemming from the lack of availability of derivatives products across different maturities and with different risk appetite. Implied Volatitly The estimated volatility of an underlying security’s price and derivatives price. Interest Rate Risk The risk stemming from the movement of Interest rates in adverse direction. As with all the debt securities, changes in the interest rates will affect the valuation of the portfolios. Counterparty Risk (Default Risk) Default risk is the risk that losses will be incurred due to the default by the counterparty for over the counter derivatives. System Risk The risk arising due to failure of operational processes followed by the exchanges and OTC participants for the derivatives trading.• Risk attached with the use of derivatives As and when the Scheme trades in the derivatives market there are risk factors and issues concerning the use of derivatives that investors should understand. 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. 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 price or interest rate movements correctly. There is a possibility that a loss may be sustained by the portfolio 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 in 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. 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 he 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. 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.• Risk Associated with Securitised Debt The Scheme may invest in Securitised debt including Pass through Certificates (PTCs). As with any other debt instrument, the following risk factors have to be taken into consideration while investing in PTCs: Credit Risk Since most of the PTCs are drawn from a cherry picked pool of underlying assets, the risk of delay / default due to poor credit quality is low. Further more most of the PTCs enjoy additional cashflow coverage in terms of subordination by another lower class of PTCs or in terms of excess cash collateralisation. Liquidity Risk Since the maturity of the PTCs will be in line with the maturity of the FMP, the risk arising from low secondary market liquidity of such instruments is low. Price Risk / Interest Rate Risk The price risk of these instruments shall be in line with the maturity / duration of such instruments. However given the fact that these instruments will have a maturity profile upto 2 years, the duration risk is relatively less. 4
  7. 7. Domestic Securitised debt Domestic Securitised debt can have different underlying assets and these assets have different risk characteristics. These may be as given in the following example: Security 1 -Backed by receivables of personal loans originated by XYZ Bank, Specific Risk Factors: Loss due to default and/or payment delay on Receivables, Premature Termination of Facility Agreements, Limited loss cover, Delinquency and Credit Risk, Limited Liquidity and Price Risk, Originator/Collection Agent Risk, Bankruptcy of the Originator, Co-mingling of funds. Security2 - Senior Series Pass Through Certificates backed by commercial vehicles and two-wheeler loan and loan receivables from ABC Bank LimitedB. REQUIREMENT OF MINIMUM INVESTORS IN THE SCHEME The Scheme/Plan shall have a minimum of 20 investors and no single investor shall account for more than 25% of the corpus of the Scheme/ Plan(s). However, if such limit is breached during the NFO of the Scheme, the Fund will endeavor to ensure that within a period of three months or the end of the succeeding calendar quarter from the close of the NFO of the Scheme, whichever is earlier, the Scheme complies with these two conditions. In case the Scheme / Plan(s) does not have a minimum of 20 investors in the stipulated period, the provisions of Regulation 39(2)(c) of the SEBI (MF) Regulations would become applicable automatically without any reference from SEBI and accordingly the Scheme / Plan(s) shall be wound up and the units would be redeemed at applicable NAV. The two conditions mentioned above shall also be complied within each subsequently calendar quarter thereafter, on an average basis, as specified by SEBI. If there is a breach of the 25% limit by any investor over the quarter, a rebalancing period of one month would be allowed and thereafter the investor who is in breach of the rule shall be given 15 days notice to redeem his exposure over the 25 % limit. Failure on the part of the said investor to redeem his exposure over the 25 % limit within the aforesaid 15 days would lead to automatic redemption by the Mutual Fund on the applicable Net Asset Value on the 15th day of the notice period. The Fund shall adhere to the requirements prescribed by SEBI from time to time in this regard. As per Circular number SEBI/IMD/CIR NO 10/22701/03 dated December 12, 2003, the above guidelines are not applicable for Exchange Traded Funds. As RGETF is an exchange traded fund, same is not applicable.C. SPECIAL CONSIDERATIONS Market Risk Mutual funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. The NAV of the Scheme will react to the prices of gold, Gold Related Instruments and stock market movements. The Unit holder could lose their investments money over short periods due to fluctuation in the NAV of the Scheme in response to factors such as economic and political developments, changes in interest rates and perceived trends in stock prices market movements, and over longer periods during market downturns. Additionally, the prices of gold may be affected by several factors such as global gold supply and demand, investors’ expectations with respect to the rate of inflation, currency exchange rates, interest rates, etc. Crises may motivate large-scale sales of gold, which could decrease the domestic price of gold. Some of the key factors affecting gold prices are: a) Central banks’ sale: Central banks across the world hold a part of their reserves in gold. The quantum of their sale in the market is one of the major determinants of gold prices. A higher supply than anticipated would lead to subdued gold prices and vice versa. Central banks buy gold to augment their existing reserves and to diversify from other asset classes. This acts as a support factor for gold prices. b) Producer mining interest: Bringing new mines on-line is a time consuming and at times economically prohibitive process that adds years onto potential supply increases from mining production. On the other hand, lower production has a positive effect on gold prices. Conversely excessive production capacities would lead to a downward movement in gold prices as the supply goes up. c) Macro-economic factors: A weakening dollar, high inflation, the massive US trade deficits all act in favor of gold prices. The global trend of rising interest rates also had a positive impact on gold prices. Gold being regarded as a physical asset would lose its luster in a deflationary environment as gold is used effectively as an inflation hedge. d) Geo political issues: any uncertainty on the political front or any war-like situation always acts as a booster to gold prices. The prices start building up war premiums and hence such movements. Stable situations would typically mean stable gold prices. e) Seasonal demand: Since the demand for Gold in India is closely tied to the production of jewellery pices tend to increase during the times of year when the demand for jewelry is the greatest, the demand for metals tends to be strong a few months ahead of these festive seasons, especially Dussera, Diwali, Akshaya Trithya festival and summer wedding season in in India. Christmas, Mothers Day, Valentine’s Day, are also major festive and shopping for Gold. f) Change in duties & levies: The gold held by the Custodian of RGETF may be subject to loss, damage, theft or restriction of access due to natural event or human actions. The Trustees may not have adequate sources of recovery if its gold is lost, damaged, stolen or destroyed and recovery may be limited, even in the event of fraud, to the market value of gold at the time the fraud is discovered. The custodian will maintain adequate insurance for its bullion and custody business. The liability of the Custodian is limited under the agreement between the AMC and the Custodian which establish the Mutual Fund’s custody arrangements, or the custody agreements. Market Trading Risks Absence of Prior Active Market: Although RGETF units described in this Scheme information document are to be listed on the Exchange, there can be no assurance that an active secondary market will develop or be maintained. 5
  8. 8. Lack of Market Liquidity Trading in RGETF on the Exchange may be halted because of market conditions or for reasons that in the view of the market authorities or SEBI, trading in RGETF is not advisable. In addition, trading in RGETF is subject to trading halts caused by extraordinary market volatility and pursuant to Stock Exchange(s) and SEBI ‘‘circuit filter’’ rules. There can be no assurance that the requirements of the market necessary to maintain the listing of RGETF will continue to be met or will remain unchanged. RGETF may suffer liquidity risk from domestic as well as international market. Time lag in procurement/redemption of physical gold Procurement of gold bars may take upto 1 month in case of adverse shortage of gold bars. It may not be possible to sell gold bar intentionally and may delay redemption depending on the market conditions. RGETF may trade at prices other than NAV RGETF may trade above or below its NAV. The NAV of RGETF will fluctuate with changes in the market value of Scheme’s holdings. The trading prices of RGETF will fluctuate in accordance with changes in their NAVs as well as market supply and demand of RGETF. However, given that RGETF can be created and redeemed only in “Creation Units” directly with the fund, it is expected that large discounts or premiums to the NAVs of RGETF may not sustain due to arbitrage possibility available. Operational Risks RGETF are relatively new product and their value could decrease if unanticipated operational or trading problems arise. Regulatory Risk Any changes in trading regulations by the Exchange or SEBI may affect the ability of Authorised Participants arbitrage resulting into wider premium/ discount to NAV. Although RGETF are proposed to be listed on Exchange, the AMC and the Trustees will not be liable for delay in listing of Units of the Scheme on Exchange / or due to connectivity problems with the depositories due to the occurrence of any event beyond their control. Political Risks Whereas the Indian market was formerly restrictive, a process of deregulation has been taking place over recent years. This process has involved removal of trade barriers and protectionist measures, which could adversely affect the value of investments. It is possible that the future changes in the Indian political situation, including political, social or economic instability, diplomatic developments and changes in laws and regulations could have an effect on the value of investments. Expropriation, confiscatory taxation or other relevant developments could affect the value of investments. Competition Risks An investment in RGETF may be adversely affected by competition from other methods of investing in gold. The value of the units relates directly to the value of the gold held by the scheme and fluctuations in the price of gold could adversely affect investment value of the units. The RGETF is designed to mirror as closely as possible the performance of the price of gold bullion and the value of units directly relate to the value of the Gold held by the Scheme less the Scheme’s liabilities (including accrued but unpaid expenses). Gold prices have been quite volatile historically. The price of gold has fluctuated from a low of $1316/Oz530 to a high of $726 1886.5/Oz between Jan-06Jan 11 and Feb- 07Aug 11 between based on the London LBMA AM Fix. Several factors may affect the price of gold, including: • Global gold supplies and demand, which is influenced by factors such as forward selling by gold producers, purchases made by gold producers to unwind gold hedge positions, central bank purchases and sales, and productions and cost levels in major gold producing countries such as the South Africa, the United States and Australia. • Investors’ expectations with respect to the rate of inflation; • Currency exchange rates; • Interest rates; • Investment and trading activities of hedge funds and commodity funds; and • Global or regional political, economic or financial events and situations. • In addition, investors should be aware that there is no assurance that gold will maintain its long-term value in terms of purchasing power in the future. In the event that the price of gold declines, the value of investment in units is expected to decline proportionately. • Changes in indirect taxes like custom duties for import, sales tax, VAT or any other levies will have an impact on the valuation of gold and consequently the NAV of the scheme. • Although, the objective of the Fund is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Gold and Gold related securities, the performance of the scheme may differ from that of the domestic prices of Gold due to expenses and or other related factors Credit & Interest Rate Risk The Fund may also invest in Gold Related Instruments, money market instruments, bonds, securitised debts & other debt securities as permitted under the Regulations which are subject to price, credit and interest rate risk. Trading volumes and settlement periods and transfer procedures may restrict liquidity in debt investments. Right to Limit Redemptions The Trustee, in the interest of the Unit holders of the Scheme offered in this Scheme information document and keeping in view of the 6
  9. 9. unforeseen circumstances / unusual market conditions, may limit the total number of Units, which can be redeemed on any Working Day depending on the total “Underlying Stock of Gold” that can be readily sold in the local market available with the fund. Redemption Risk The Unit Holders may note that even though this is an open-ended scheme, the Scheme would ordinarily repurchase Units in Creation Unit size. Thus unit holdings less than the Creation Unit size can normally only be sold through the secondary market, unless no quotes are available on the Exchange for 2 trading days consecutively. Further, the price received upon the redemption of RGETF units may be less than the value of the gold represented by them. The result obtained by subtracting the Fund’s expenses and liabilities on any day from the price of the gold owned by the fund on that day is the net asset value of the fund which, when divided by the number of units outstanding on that date, results in the net asset value per unit, or NAV. Asset Class Risk The domestic price of gold may vary from time to time. Further, the returns from the types of securities in which a Scheme invests may under perform returns from the various general securities markets or different asset classes. Different types of securities tend to go through cycles of out-performance and under performance in comparison of the general securities markets. Passive Investments As RGETF is not actively managed, the underlying investments may be affected by a general decline in the domestic price of gold and other instruments invested under the plan. RGETF invests in the Gold & securities mentioned in the asset allocation regardless of their investment merit. The AMC does not attempt to take defensive positions in declining markets. Further, the fund manager does not make any judgment about the investment merit nor shall attempt to apply any economic, financial or market analysis. Tracking Error Risk Tracking error means the variance between daily returns of the underlying benchmark (gold in this case) and the NAV of the scheme for any given period. NAV of the Scheme is dependant on valuation of gold. Gold has to be valued as per the formula provided by SEBI in its circular no. SEBI/IMD/CIR No. 2/65348/06 dated April 21, 2006, Gazeted Notification Dated December 20, 2006 and such other circulars as issued by SEBI from time to time. NAV so computed may vary from the price of Gold in the domestic market. Factors such as the fees and expenses of the Scheme, cash balance, changes to the Underlying assets and regulatory policies may affect AMC’s ability to achieve close correlation with the Underlying assets of the scheme. The Scheme’s returns may therefore deviate from those of its Underlying assets. Tracking error could be the result of a various of factors including but not limited to: • Delay in the purchase or sale of gold due to • Illiquidity of gold, • Delay in realisation of sale proceeds, • Creating a lot size to buy the required amount of gold • The scheme may buy or sell the gold at different points of time during the trading session at the then prevailing prices which may not correspond to its closing prices. • The potential for trades to fail, which may result in the Scheme not having acquired gold at a price necessary to track the benchmark price. • The holding of a cash position and accrued income prior to distribution of income and payment of accrued expenses. • Disinvestments to meet redemptions, recurring expenses, dividend payouts etc. • Execution of large buy / sell orders • Transaction cost (including taxes and insurance premium) and recurring expenses • Realisation of Unit holders’ funds The scheme will endeavor to minimise the tracking error by • Setting off of incremental subscriptions against redemptions, during liquidity window • Use of gold related derivative instruments, as and when allowed by regulations • Rebalancing of the portfolio Given the structure of RGETF, the AMC expects the tracking error to be lower. The AMC will endeavor to keep the tracking error as low as possible. Under normal circumstances, such tracking errors are not expected to exceed 2% per annum. However this may vary when the markets are very volatile. Tax Issues Repurchase of RGETF by the Fund or sale of RGETF by the investor on the Stock Exchange may attract short or long term capital gain tax depending upon the holding period of the Units. Moreover, converting RGETF units to Gold may also attract Wealth tax. The tax benefits described in this Scheme information document are as available under the present taxation laws and are available subject to relevant conditions. The information given is included only for general purpose and is based on advice received by the AMC regarding the law and practice currently in force in India and the Unit holders should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment or redemption in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each investor is advised to consult his / her own professional tax advisor. Gold is subject to indirect tax not restricted to the following: Sales Tax, Octroi, VAT, Stamp Duty, and Custom Duty. 7
  10. 10. The Mutual Fund is not assuring or guaranteeing that it will be able to make regular periodical distributions/distribute bonus units to its Unit holders though it has every intention to manage the portfolio so as to make periodical income/bonus distributions to Unit holders. Periodical distributions will be dependent on the returns achieved by the Asset Management Company through the active management of the portfolio. Periodical distributions may therefore vary from period to period, based on investment results of the portfolio. Past performance of the Sponsor/ the AMC/ the Mutual Fund is not indicative of the future performance of the Scheme. RGETF is the name of the Scheme and does not in any manner indicate either the quality of the Scheme; its future prospects or returns. All dividend distributions are subject to the availability of distributable surplus in the Scheme. When an investor switches from this scheme to another scheme on a future date, the scheme specific risk factors applicable to such scheme into which he switches, will apply. Right to Limit Redemption The Trustee may, in the general interest of the Unit holders of the Scheme under this Scheme Information Document and keeping in view the unforeseen circumstances / unusual market conditions, limit the total number of Units which may be redeemed on any Business Day to 5% of the total number of Units then issued and outstanding under any Scheme / Plan or such other percentage as the Trustee may determine. The Trustee may, at its sole discretion in response to unforeseen circumstances or unusual market conditions including, but not limited to, extreme volatility of the stock, fixed income and money markets, extended suspension of trading on the stock exchanges, natural calamities, communication breakdowns, internal system breakdowns, strikes, bandhs, riots or other situations where the Trustee in consultation with RCAM, considers that such suspension is necessary, limit the total number of Units which may be redeemed on any Business Day to 5% of the total number of Units then in issue or such higher percentage as the Trustee may determine in any particular case. Any Units, which by virtue of these limitations are not redeemed on a particular Business Day, will be carried forward for redemption to the next Business Day, in the order of receipt. Redemptions so carried forward will be priced on the basis of the Redemption Price of the Business Day on which redemption is made. Under such circumstances, to the extent multiple redemption requests are received at the same time on a single Business Day, redemption’s will be made on pro-rata basis, based on the size of each redemption request, the balance amount being carried forward for redemption to the next Business Day(s). The Custodian The Trustee has appointed Deutsche Bank, who have been approved by SEBI to act as Custodian for Mutual Funds including gold exchange traded funds vide registration no. IN/CUS/003, as the Custodian for RGETF. The registration of the Custodian is still valid and effective. The custodian shall hold the custody and possession of the securities and investment of the Fund and will discharge all the functions as are ordinarily discharged by a Custodian. It does not have any power or authority to sell or dispose of or deal with the securities/investment held by it on behalf of the Fund except as instructed by the AMC. The Trustee reserves the right to change the custodian, if required. In terms of Custody Agreement in accordance with SEBI Regulations, entered into with Deutsche Bank as amended from time to time, the Custodian shall, inter alia: • Provide post-trading and custodial services to the Mutual Fund; • Keep gold, Gold Related Instruments, securities and other instruments belonging to the Scheme in safe custody; • Ensure smooth inflow/outflow of gold, Gold Related Instruments, securities and such other instruments as and when necessary, in the best interests of the Unit holders; • Ensure that the benefits due to the holdings of the Mutual Fund are recovered; and • Be responsible for loss of or damage to the gold, Gold Related Instruments, securities due to negligence on its part or on the part of its approved agents. The Custodian will charge the Mutual Fund, portfolio fee, transaction fee and out-of-pocket expenses in accordance with the terms of the Custody Agreement and as per any modification made thereof from time to time. Role Of The Custodian The Custodian is responsible for safekeeping of the Scheme’s gold deposited with it by an Authorised Participants in connection with the creation of Baskets. The Custodian is responsible for allocating specific bars of gold bullion to the scheme Allocated Account. The Custodian will provide the AMC with regular reports detailing with identifying the gold bars held in the scheme Allocated Account. The Custodian may also from time to time act as Authorized Participants or purchase or sell gold or units for their own account, as agent for their customers and for accounts over which they exercise investment discretion. Custody Of the Scheme’s Gold Custody of the gold bullion deposited with and held by the scheme is provided by the custodian at its Vaults in Mumbai and other places. The custodian, as instructed by the AMC, is authorized to accept, on behalf of the AMC, deposits of gold. On the instructions given by the AMC, the custodian allocates gold by selecting bars of gold bullion for deposit to the scheme’s allocated account. The AMC and the custodian enter into the custody agreements, which establish the allocated account. The gold deposited with the scheme is held in the scheme allocated account. Under the agreement entered into by the AMC and the custodian, the custodian is responsible for the safekeeping of the gold held on behalf of the AMC. The custodian is responsible for any loss or damage suffered by the scheme as a direct result of any negligence, fraud or willful default in the performance of its duties. The custodian’s liability is limited to the market value of the gold held in the scheme’s allocated account at the time such negligence, fraud or willful default is discovered by the custodian, provided that the custodian promptly notifies the AMC of its discovery. In the event of a loss caused by the failure of the custodian to exercise reasonable care, the AMC has the right to seek recovery with respect to the loss against the custodian in breach. 8
  11. 11. Allocated Accounts An allocated account is an account with a Bank or Custodian, to which individually identified gold bars owned by the account holder are credited. The gold bars in an allocated gold account are specific to that account and are identified by a list which shows, for each gold bar, the refiner, assay or fineness, serial number and fine weight. The account holder has full ownership of the gold bars and, except as instructed by the account holder, the Bank or Custodian may not trade, lease or lend the bars. Transfer of Gold At the end of each business day gold is transferred to the schemes allocated account. The custodian allocates specific bars of gold from its gold stocks, so that allocated gold bars represent the amount of gold credited to the extent such amount is representable by whole bars. The bars of gold should be held directly by the Custodian. The custodian updates its records at the end of each business day to identify the specific bars of gold allocated to the scheme. The withdrawal of gold from the scheme for the purpose of redemption will follow the same procedure in the reverse order. Description Of The Custody Agreements Reports The custodian provides the AMC with reports for each business day, no later than the following business day, identifying the movements of gold in and out of the scheme’s allocated account. The monthly statement contains sufficient information to identify each bar of gold held in the scheme allocated account and the custodian or subcustodian having possession of such bar. Sub-Custodians The custodian may select Subcustodians to perform any of its duties, including holding gold for it. The sub-custodians selected by the custodians will have to be informed by the custodians to the AMC. Any additions or deletion of subcustodians will have to be reported to the AMC on a periodic basis. Custodian may, with the prior written consent of AMC, entrust Gold held in the Account to a specified subcustodian that is eligible to act as a custodian of Gold under applicable laws and regulations (a “Sub-Custodian”) selected by Custodian with due care. The custodian shall remain responsible in all respects to its client for safekeeping of the gold kept with such other person, including any associated risks. The custodian of securities shall continue to fulfill all duties to the clients relating to the gold so kept with the other person. Role of Sub custodian • Safe keeping and segregation of gold bars belonging to the Scheme. • Ensuring proper receipt, safekeeping, accounting and delivery of the gold bars from the place of collection to sub-custodian’s vault as well as from sub-custodian’s vault to the counterparty as specified and directed by the Custodian. • Providing security for the gold bars belonging to the Scheme and equipping the vault with security features as per best International Standards and requirements of the Insurer.. • Facilitating safe transportation of gold bars belonging to the scheme, by providing armed security, armoured vans and taking other precautions. • Providing all other support services and facilities to ensure safe custody of gold bars as well as for uninterrupted operation of the vaults. • The Insurance of the Gold bars will be the responsibility of the Custodian. Appointment of sub-custodian • Deutsche Bank has appointed a sub-custodian after carrying out necessary due diligence of the sub-custodian in line with RBI’s Outsourcing Policy and best International Practices. • Deutsche Bank may not restrict itself to operating through a single sub-custodian but will explore availing the services of more than one sub custodian based on the clients’ needs. Loss / Damage of Physical Gold and Securities Deutsche Bank will be responsible for loss of / or damage to the physical gold and securities due to fraud, bad faith, negligence,willful neglect, default, or willful default on its part or on the part of its approved agents. Location & Segregation of Gold Gold held for scheme’s allocated account by the custodian or sub-custodians appointed by the custodians is held at the custodian’s Vaults in Mumbai. The custodian’s books and records will identify every bar of gold held in the scheme’s allocated account in its own vault by refiner, assay or fineness, serial number and gross and fine weight. The AMC may upon reasonable notice, visit the custodian’s premises and examine the scheme’s gold held there and the custodian’s records concerning the scheme’s allocated account. The AMC’s independent auditors may also visit the custodians premises in connection with their audit of the financial statements of the scheme. Insurance The custodian will ensure adequate insurance for its bullion and custody business. The AMC and the sponsor may subject to confidentiality restrictions, review this insurance coverage from time to time. 9
  12. 12. D. DEFINITIONS AND ABBREVIATIONS In this Scheme Information Document, the following words and expressions shall have the meaning specified below, unless the context otherwise requires: Applicable Net Asset Value Applicable NAV is the Net Asset Value per Unit at the close of the Business Day on which the application (NAV) for purchase or redemption/switch is received at the designated investor service centre and is considered accepted on that day. An application is considered accepted on that day, subject to it being complete in all respects and received prior to the cut-off time on that Business Day. Asset Management Company Reliance Capital Asset Management Limited, the Asset Management Company incorporated under the (AMC/RCAM)/ Investment Companies Act,1956, and authorized by SEBI to act as the Investment Manager to the Schemes of Manager Reliance Mutual Fund. Allotment Price Allotment price is the price at which each unit will be allotted and will be equal to the face value of Rs100/- plus premium equivalent to the difference between the face value and price of one gram of gold on the date of allotment. Application Form Application form for subscribing to Units of RGETF as specified in this Scheme Information Document. AMFI Association of Mutual Fund in India. Authorised Participants Member of the National Stock Exchange or any other recognised stock exchange or any other person who is appointed by the AMC to act as Authorised Participant as decided by the AMC. Collecting Bank Branches of Banks for the time being authorized to receive application(s) for units, as mentioned in this document. Continuous Offer Offer of the Units when the scheme becomes open-ended after the closure of the New Fund Offer. Custodian Deutsche Bank, NV Mumbai, acting as Custodian to the Scheme, or any other custodian who is appointed by the Trustee. Crore Ten Million Indian Rupees Creation unit Creation unit is the number of units of scheme, which is exchanged against a predefined quantity and purity of physical Gold called the Portfolio Deposit and a Cash Component. For redemption of units it is vice-versa i.e. fixed number of units of scheme are exchanged for Portfolio Deposit and Cash Component. ‘Creation Unit’ is a fixed number of RGETF, which is exchanged for Portfolio Deposit which would consist of physical Gold of defined purity and quantity and/or Cash Component. The facility of creating/redeeming units in Creation Unit size will be available with the Authorised Participants (whose names will be available on the website of the Fund i.e. (www.reliancemutual.com) on the ongoing basis. Each creation unit consists of 1000 units of RGETF and cash component, if any. CDSL Central Depository Services (India) Ltd. Designated Investor Service Any location as may be defined by the Asset Management Company from time to time, where investors Centres (DISC) / Official point can tender the request for subscription, redemption or switching of units, etc. of acceptance for transaction) Depository Depository means a body corporate as defined in the Depositories Act, 1996 (22 of 1996) and includes National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL). Entry Load Load on subscriptions / switch in. Exit Load Load on redemptions / switch out. ETF Exchange Traded Fund Exchange The Stock Exchange Limited, Mumbai or The National Stock Exchange of India Limited or any other exchange where the Units are listed. Foreign Institutional Investors Foreign Institutional Investors, registered with SEBI under the Securities and Exchange Board of India (FII) (Foreign Institutional Investors) Regulations, 1995. Gold Related Instruments Instrument having gold as underlying security, as may be specified by SEBI from time to time Investment Management The Agreement entered into between Reliance Capital Trustee Co. Limited and Reliance Capital Asset Agreement (IMA) Management Limited by which RCAM has been appointed the Investment Manager for managing the funds raised by RMF under the various Schemes and all amendments thereof. Lakh One hundred thousand LBMA London Bullion Market Association Large investor Large investor means investors who are eligible to invest in the Scheme and who would be creating units of RGETF in creation unit size by depositing predefined quantity and purity of physical gold or cash which should be acceptable by the Custodian for such purposes. Further large investor would also mean those investors who would be redeeming units of RGETF in creation unit size. However vide addendum dated February 10, 2009, this facility of creation/ redemption of units in Creation Unit Size shall no longer be available to large investors, which may please be noted. 10
  13. 13. Load A charge that may be levied as a percentage of NAV at the time of entry into the scheme or at the time of exiting from the scheme. Local Cheque A Cheque handled locally and drawn on any bank, which is a member of the banker’s clearing house located at the place where the application form is submitted. Mutual Fund Regulations Securities and Exchange Board of India (Mutual Funds) Regulations as amended from time to time and such (Regulations) other Regulations as may be in force from time to time to regulate the activities of Mutual Funds. Net Asset Value (NAV) Net Asset Value of the Units in each plan of the Scheme is calculated in the manner provided in this Scheme Information Document or as may be prescribed by Regulations from time to time. The NAV will be computed upto four decimal places. Non-Resident Indian (NRI) Non-Resident Indian. NSDL National Securities Depository Ltd OTC Over the counter. Person of Indian Origin (PIO) Person of Indian Origin Purchase Price Purchase Price to the investor of Units of any of the plans computed in the manner indicated in this Scheme Information Document. Portfolio Deposit These are LBMA Good Delivery physical gold bars imported by Banks authorized by RBI to deal in Gold and other securities. The value of gold and other instruments will be linked to the domestic prices of gold. Portfolio Deposit can change from time to time. Reserve Bank of India (RBI) Reserve Bank of India, established under the Reserve Bank of India Act, 1934. Reliance Mutual Fund (RMF) Reliance Mutual Fund (formerly known as Reliance Capital Mutual Fund), a Trust under Indian Trust Act, /Mutual Fund/the Fund 1882 and registered with SEBI vide registration number MF/022/95/1 dated June 30, 1995. Reliance Capital Trustee Co. Reliance Capital Trustee Co. Limited, a Company incorporated under the Companies Act, 1956, and Limited (RCTC) /Trustee / authorized by SEBI and by the Trust Deed to act as the Trustee of RMF. Trustee Company Reliance Capital Limited (RCL) Reliance Capital Limited /Sponsor/Settlor Redemption Price Redemption Price to the investor of Units of any of the plans computed in the manner indicated in this Scheme Information Document. Registrar /Karvy Karvy Computershare Pvt. Ltd., who have been appointed as the Registrar or any other Registrar who is appointed by RCAM. Statement of Additional Statement of Additional Information, the document issued by Reliance Mutual Fund containing details of Information (SAI) Reliance Mutual Fund, its constitution, and certain tax, legal and general information. SAI is legally a part of the Scheme Information Document Scheme Reliance Gold Exchange Traded Fund (RGETF), An Open - ended Gold Exchange Traded Fund. Scheme Information Document Scheme Information Document issued by RMF, offering units of RGETF for Subscription. (SID) Securities and Exchange Board Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 as amended from time to time, of India (SEBI) including by way of circulars or notifications issued by SEBI and the Government of India. Trust Deed The Trust Deed entered into on April 24, 1995 between the Sponsor and the Trustee, and all amendments thereof. Trust Fund The corpus of the Trust, unit capital and all property belonging to and/or vested in the Trustee. Tracking Error Tracking error means the variance between daily returns of the underlying benchmark (gold in this case) and the NAV of the scheme for any given period. Unit The interest of the investors in any of the plans, of the scheme which consists of each Unit representing one undivided share in the assets of the corresponding plan of the scheme. Unitholder A person who holds Unit(s) under the scheme. Unitholders Record Unitholders whose names appear on the unitholders register of the concerned plan/(s) on the date of determination of Dividend/Bonus, subject to realisation of the cheque. Underlying Stock / Securities Instruments invested in by the Fund manager, other than gold and Gold Related Instruments, for the scheme, subject to the approval of the Regulator and / or in compliance with the Regulations. Working Day / Business Day Any day, other than a Saturday or Sunday or any day on which Banks in Mumbai are Closed for commercial transactions or The Stock Exchange, Mumbai and/or National Stock Exchange are closed for transactions or a day on which banks are open but The Stock Exchange, Mumbai and/or The National Stock Exchange are closed for transactions or a day on which sale of units is suspended by the AMC / Trustee or a day on which normal business could not be transacted due to storms, floods, bandhs, strikes or any other calamities, etc, subject to modifications by RCAM from time to time. Words and Expressions used in this Scheme Information Document and not defined shall have the same meaning as in the Regulations. 11
  14. 14. E. DUE DILIGENCE BY THE ASSET MANAGEMENT COMPANY It is confirmed that: 1. The Scheme Information Document of Reliance Gold Exchange Traded Fund, forwarded to SEBI, is in accordance with the SEBI (Mutual Funds) Regulations, 1996 and the guidelines and directives issued by SEBI from time to time. 2. All legal requirements connected with the launching of the Scheme as also the guidelines, instructions etc., issued by the Government and any other competent authority in this behalf, have been duly complied with. 3. The disclosures made in the Scheme Information Document are true, fair and adequate to enable the investors to make a well informed decision regarding investment in the proposed Scheme. 4. The intermediaries named in the Scheme Information Document and Statement of Additional Information are registered with SEBI and their registrations are valid, as on date, to the best of our knowledge and belief.Mumbai Muneesh SudSeptember 22, 2011 Designation: Head - Legal, Secretarial & ComplianceNote: The Due Diligence Certificate as stated above was submitted to the Securities and Exchange Board of India on September 30, 2011. 12
  15. 15. II. INFORMATION ABOUT THE SCHEME – Reliance Gold Exchange Traded FundA. TYPE OF THE SCHEME An Open ended Gold Exchange Traded Fund that tracks the domestic prices of gold through investments in physical Gold.B. WHAT IS THE INVESTMENT OBJECTIVE OF THE SCHEME? The investment objective is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Gold (and Gold related securities as permitted by Regulators from time to time). However, the performance of the scheme may differ from that of the domestic prices of Gold due to expenses and or other related factors. However, there can be no assurance that the investment objective of the scheme will be achieved.C. HOW WILL THE SCHEME ALLOCATE ITS ASSETS? Under normal circumstances, the anticipated asset allocation would be: Instruments Indicative asset allocation (% of total assets) Risk Profile Minimum Maximum Physical Gold or Gold Related Instruments as permitted by regulators 90% 100% Medium to High from time to time# Money Market instruments, Bonds, Debentures, Government 0% 10% Low to Medium Securities including T-Bills, Securitised Debt* & other debt securities as permitted by regulators from time to time # Presently, investment only in physical gold is allowed as per SEBI guidelines. Investment in gold or gold related instruments may be undertaken as and when permitted by SEBI. *Upto 10% in securitised debt Use of gold related derivative instruments, as and when allowed by regulations The above Asset Allocation Pattern is only indicative. The investment manager in line with the investment objective as may alter the above pattern for short term and on defensive consideration.D. WHERE WILL THE SCHEME INVEST? The Fund will, in general invest a significant part of its corpus in Physical Gold or Gold Related Instruments as permitted by regulators from time to time (as per the asset allocation mentioned above). Presently, investment only in physical gold is allowed as per SEBI guidelines. Investment in gold or gold related instruments may be undertaken as and when permitted by SEBI. However pending investments, the surplus amount of the Fund shall be invested in securitized debt, other debt securities, bonds and money market instruments as permitted by regulators from time to time. Purchase of Gold Bars The Fund will purchase Gold Bars from the RBI Authorised Banks and Agencies that are Refined at LBMA Registered Refiners (Updated list of the Refiners can be obtained from the LBMA Website – www.lbma.org.uk).E. WHAT ARE THE INVESTMENT STRATEGIES? The fund manager would use a ‘passive’ approach to try and achieve the investment objective of the scheme. The fund manager shall not try to ‘‘beat’’ the Gold Market, but aims to replicate the returns, which commensurate the returns generated, by Gold during that period. It will however endeavor to seek temporary defensive positions when markets decline or appear over valued to the extent of its investment in Money Market or other debt securities. The fund manager would not make any judgment about the investment merit of a particular security nor will it attempt to apply any economic, financial or market analysis. This style of Passive Fund Management would eliminate the risks involved with active management with regard to over / underperformance vis-à-vis a benchmark. The Fund will, in general invest a significant part of its corpus in Physical Gold or Gold Related Instruments as permitted by regulators from time to time (as per the asset allocation mentioned above). Presently, investment only in physical gold is allowed as per SEBI guidelines. Investment in gold or gold related instruments may be undertaken as and when permitted by SEBI. However pending investments, the surplus amount of the Fund shall be invested in securitized debt, other debt securities, bonds and money market instruments as permitted by regulators from time to time. Also whenever good investment opportunity is not available in the view of the Fund manager, the Fund will reduce its exposure to gold and Gold Related instruments and during that period the surplus asset of the Fund shall be invested in securitized debt, other debt securities, bonds and money market instruments. However there is no assurance that all such buying and selling activities would necessarily result in benefit for the Fund. The allocation will be decided based upon the prevailing market conditions, prices of gold, macro economic environment, and the performance of the corporate sector, the debt market and other considerations. At times, such churning could lead to higher brokerage and transaction costs. To achieve its primary objective as mentioned above, the Fund would invest in gold and Gold Related Instruments as permitted by regulators from time to time. To achieve its secondary objective, the fund would invest in securitized debt, other debt securities, bonds and money market securities as permitted by regulators from time to time. These securities could include: • Obligations of Indian Companies (both public and private sector) including term deposits with the banks as permitted by SEBI/ RBI from time to time and developmental financial institutions 13
  16. 16. • Certificate of Deposits (CDs) • Commercial paper (CPs) • In Securitized Debt upto 10% of the corpus. • The non-convertible part of convertible securities • Any other domestic fixed income securities • Money market instruments permitted by SEBI/ RBI, having maturities upto 1 year in call money market instruments as may be provided by the RBI to meet the liquidity requirements • Any other instruments as allowed by the Regulations from time to time. • The Fund may also enter into “Repo”, or such other transactions as may be allowed to Mutual Funds from time to time. Subject to the Regulations, the investments may be in securities which are listed or unlisted, secured or unsecured, rated or unrated, having variable maturities, and acquired through secondary market purchases, RBI auctions, open market sales conducted by RBI etc., Initial Public Offers (IPOs), other public offers, placements, rights, offers, negotiated deals, etc The Scheme may also enter into repurchase and reverse repurchase obligations in all securities held by it as per the guidelines and Regulations applicable to such transactions. No investments shall be made in foreign securitised debt. Investment Process The AMC will initially decide the quantity of gold to be imported / procured and kept with the Custodian (who acts as a warehouse/ custodian for the Fund). Against this quantity, AMC issues units to the investor. Therefore the entire corpus (except for some portion to meet liquidity) shall be invested upfront into Gold. Case for Investing In Gold The price of gold is the benchmark. All forms of investments carry some degree of risk. Holding gold directly also has risks. However, including gold in a well-balanced portfolio can help diversify risk. Gold’s ability to serve as a portfolio diversifiecation is due to its historically low-to- negative correlation with stocks and bonds. The economic forces that determine the price of gold are different from the forces that determine the prices of most financial assets. The price of gold depends upon various factors, including the supply and demand for gold, the strength or weakness of major foreign currency especially dollar, the rate of inflation, and interest rates and the current political environment. Gold is not subject to the risk of default or bankruptcy. Tracking Error Tracking error means the variance between daily returns of the underlying benchmark (gold in this case) and the NAV of the scheme for any given period. NAV of the Scheme is dependant on valuation of gold. Gold shall be valued based on the formula mentioned in SEBI circular no. SEBI/IMD/CIR No. 2/65348/06 dated April 21, 2006, Gazeted Notification Dated December 20, 2006 and such other circulars as issued by SEBI from time to time. NAV so computed may vary from the price of Gold in the domestic market. Factors such as the fees and expenses of the Scheme, corporate actions, cash balance, changes to the Underlying assets and regulatory policies may affect AMC’s ability to achieve close correlation with the Underlying assets of the scheme. The Scheme’s returns may therefore deviate from those of its Underlying assets. Tracking error could be the result of a variety of factors including but not limited to: • Delay in the purchase or sale of gold due to • Illiquidity of gold, • Delay in realisation of sale proceeds, Creating a lot size to buy the required amount of gold • The scheme may buy or sell the gold at different points of time during the trading session at the then prevailing prices which may not correspond to its closing prices. • The potential for trades to fail, which may result in the Scheme not having acquired gold at a price necessary to track the benchmark price. • The holding of a cash position and accrued income prior to distribution of income and payment of accrued expenses. • Disinvestments to meet redemptions, recurring expenses, dividend payouts etc. • Execution of large buy / sell orders • Transaction cost (including taxes and insurance premium) and recurring expenses • Realisation of Unit holders’ funds The scheme will endeavor to minimise the tracking error by • Setting off of incremental subscriptions against redemptions, during liquidity window • Use of gold related derivative instruments, as and when allowed by regulations • Rebalancing of the portfolio 14
  17. 17. Investment Philosophy and Focus India today is the world’s largest democracy with a vibrant electorate, active Judiciary and civil society groups, and a fiercely independent media. For thousand of years, gold has been prized for its parity, its beauty, and above all its unique characteristics as a store of value. In today’s uncertain climate, many investors turn to gold because it is an important and secure asset that can be tapped at any time, under virtually any circumstances. But there is another side to gold that is equally important, and that is its day-to-day performance as a stabilizing influence for investment portfolio. These advantages are currently attracting considerable attention from financial professionals and sophisticated investors worldwide. Recent independent studies have revealed that traditional diversifiers often fall during times of market stress or stability. On these occasions most asset classes (including traditional diversifiers such as bonds and alternative assets) all move together in the same direction. There is no “cushioning” effect of a diversified portfolio - leaving investors disappointed. However, a small allocation of gold has been proven to significantly improve the consistency of portfolio performance, during both stable and unstable financial periods. Greater consistency of performance leads to a desirable outcome - an investor whose expectations are met. The consumers and public have realized the benefits of liberalization through increase in the choice and quality of products and decrease in prices. The business and industry have also adjusted themselves with the liberalization and globalization. The unprecedented high level of foreign exchange reserves, upward trend in FDI inflows and the general growth of the economy has given more confidence and encouragement to the policy-makers to further accelerate its economic reforms and liberalization process. Both at the central and state levels and across political parties, in general, there is consensus on further economic liberalization. The Macro view • India is a major player in the global gold market, both through ownership and annual flow of purchases of gold, and through enormous success in the labour-intensive export-oriented jewellery business. • Modernisation of the gold market has been a long-standing policy goal in India. A key element of modernising any financial market is shifting away from closed clubs of dealers engaging in private transactions and bilateral negotiation, to a framework with anonymous trading taking place between participants from all across the country, all of whom are on a level playing field. An essential feature of modernisation of finance is the removal of entry barriers, so that it is easy for finance companies to enter and exit any kind of financial activity. RGF promises to be a step forward for the gold spot market in offering such a trading framework, characterised by nationwide participation by households and without entry barriers faced by finance companies. • RGF is a gold spot instrument, which is distinct from gold futures. However, there are synergies between both initiatives, since they both strengthen different aspects of the gold market. A strong gold ETF market helps to strengthen the gold futures market, and vice versa. The Micro View From the narrow viewpoint of a household also, the RGF offers many benefits. Gold is a part of the portfolio of millions of households in the country. For households, the gold ETF offers the following advantages. • Zero concerns about physical security, theft or adulteration when faced with the tasks of custody and spot transactions. • A transparent secondary market, which will offer reduced transactions costs when compared with existing OTCtransactions on the gold spot market. The existing unregulated spot market suffers from acute problems of wide bid -offer spreads, and penalisation of customers on questions of purity. • Once banks and other moneylenders accept the transparency and liquidity of the Gold ETF, it would become possible to pledge Gold ETF Units as collateral for loans. This would greatly assist many low-income households by easing the credit constraints that they face. A household which may possess physical gold today would, in comparison, obtain more limited credit access owing to concerns about the purity and liquidity of the physical gold. In contrast, the Gold ETF Units will eliminate concerns about purity, and will offer assured secondary market liquidity. • RGETF is likely to trade in Units which correspond to 0.1 grams of gold. This would make transactions accessible to a large number of households who presently find it difficult to do transactions of 1 gram or 1 tola of gold. Debt market in India The Indian Debt market is facing major shift in the recent times. The substantial growth in Mutual Fund collections in the past few years have provided an easy route for the investors to channelise their savings into the debt market, which otherwise is largely dominated by Banks and other Institutional investors. At present, the Indian debt market is dominated by issues of Central Government bonds, Coporate Debentures and PSU Bonds. The new Securitised instruments are also very attractive in the primary market. Risk associated with securitized Debt or PTCs are credit risk, liquidity risk and price risk/interest rate risk. The other instruments available for investment are Commercial Papers, Certificate of Deposits, Government guaranteed bonds, etc. Brief details about the instruments are given below as on September 05, 2011. Instruments Listed/ Unlisted Current Yield Range As on Liquidity Risk profile September 05, 2011. Central Government Securities Listed 8.18%- 8.63% High Low Corporate Debentures / PSU Bonds Listed 9.38%-9.40% Moderate Low CDs (short term) Unlisted 9.05%-9.50% High Low Call Money Unlisted 7.75%-8.05% High Low Mibor linked Papers Listed 250-254 bps Low Low 15
  18. 18. A brief description about yields presently available on Central Govt. Securities /Bonds & Debentures of various maturities is as follows: Annualised yields (as May on September 05, 2011.) are: Yrs =< 1yr 2-6yrs 7-10yrs 11-20 yrs Central Government securities 8.47%-8.52% 8.35%-8.52% 8.46%-8.64% 8.56%-8.75% Debentures / Bonds (AAA rated) 9.39%-9.40% 9.38%-9.40% 9.39%-9.40% - The price and yield on various debt instruments fluctuate from time to time depending upon the macro economic situation, inflation rate, overall liquidity position, foreign exchange scenario, etc. Also, the price and yield varies according to maturity profile, credit risk etc Portfolio Turnover Policy Given the nature of the scheme, the portfolio turnover ratio may be high and AMC may re-allocate the portfolio according to liquidity requirements, commensurate with the investment objectives of the scheme. The effect of higher portfolio turnover may result in higher expenses and transaction costs. F. FUNDAMENTAL ATTRIBUTES For the purposes of this section, "fundamental attributes" of the scheme shall mean: (i) Type of Scheme An Open ended Gold Exchange Traded Fund that tracks the domestic prices of gold through investments in physical gold. (ii) Investment Objectives : Refer to Section C: “How will the Scheme allocate its assets?” (iii) Terms of Issue a) Liquidity provisions such as repurchase/redemption of units As RGETF is listed on the Exchange, subsequent buying or selling by Unit holders can be made from the secondary market. The minimum number of Units that can be bought or sold on the exchange is 1 (one) unit. All investors may sell their units in the stock exchange(s) on which these units are listed on all the trading days of the stock exchange. Repurchase / redemption of units as referred to ‘Redemption’. b) Aggregate Fees and expenses charged to the Scheme i) New Fund Offer (NFO) Expenses These expenses are incurred for the purpose of various activities related to the NFO like sales and distribution fees paid marketing and advertising, registrar expenses, printing and stationary, bank charges etc. As per SEBI circular SEBI/IMD/CIR No.1/64057/06 dated April 4, 2006, open ended schemes are not permitted to charge NFO Expenses to the scheme. ii) Annual Scheme Recurring Expenses These are the fees and expenses for operating the scheme. These expenses include Investment Management and Advisory Fee charged by the AMC, Registrar and Transfer Agents’ fee, marketing and selling costs etc. as given in the table below: For the actual current expenses being charged, the investor should refer to the website of the mutual fund. Particulars % of average daily net assets (estimated) Investment Management & Advisory Fee 0.50 Custodial Fees 0.50 Registrar & Transfer Agent Fees including cost related to providing accounts statement, dividend/ 0.05 redemption cheques/warrants etc. Marketing & Selling Expenses including Agents Commission and statutory advertisement 1.00 Brokerage & Transaction Cost pertaining to the distribution of units 0.10 Audit Fees / Fees and expenses of trustees 0.00 Costs related to investor communications 0.15 Costs of fund transfer from location to location 0.10 Listing Fees 0.01 License Fees 0.01 Other Expenses 0.08 Total Recurring Expenses 2.50 Securities And Exchange Board Of India (Mutual Funds) (Amendment) Regulations, 2010 states that in case of an Exchange Traded Fund, the total expenses of the scheme including the investment and advisory fees shall not exceed one and one half percent (1.5%) of the weekly average net assets. Accordingly following is the revised estimated recurring expenses of the scheme. 16

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