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JPMORGAN India Alpha Fund

1. JPMorgan India Alpha Fund: What does it do?. Market risk has risen sharply: the growth/return expectations of the past is now tempered by the risk of volatilityMarket volatility could continue in the near futureLong-only funds look through the volatility: Alpha funds take advantage of the volatilityThe

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JPMORGAN India Alpha Fund

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    1. JPMORGAN India Alpha Fund The all-seasons fund for any market condition

    2. 1 JPMorgan India Alpha Fund: What does it do? Market risk has risen sharply: the growth/return expectations of the past is now tempered by the risk of volatility Market volatility could continue in the near future Long-only funds look through the volatility: Alpha funds take advantage of the volatility The ALPHA fund: an investment avenue that aims to deliver returns in all seasons by making paired trades based on common trends

    3. 2 JPMorgan India Alpha Fund : How does it work? Based on our research we identify an economic trend Which benefits one stock, but harms another We then create paired trades We buy stocks / futures of the company that is benefiting We sell / short the stocks/ futures of the company that is losing We try to remain market neutral in rupee terms by re-balancing the paired trades daily Pair trades can also be done on stocks and indices Basic premise: Generate returns in all market conditions

    4. 3 JPMorgan India Alpha Fund PRG Process extended The best stock selection methodology now works to identify non-performers & pairs them with performers to generate returns for you

    5. 4 Investment philosophy: Portfolio construction At some points of time, the net position in value terms will be close to zero as the fund endeavors to neutralize the market risk as an integral part of the strategy The portfolio at some point of time could have a higher cash component (apart from margin money) as the fund manager may not foresee any good market neutral strategy

    6. 5 Investment strategies Strategy A: Long stock Short stock futures Strategy B: Long stock futures Short stock futures Strategy C: Long stock / stock futures Short index futures Strategy D: Long index futures Short stock / futures Strategy E (possible due to stock lending, recently allowed by SEBI): Long stock Short stock

    7. 6 Investment scenario: Portfolio returns Situation A: Stock A long stock futures; stock B short stock futures Post trade, price of stock A goes up and post trade, price of stock B goes down This is a best case scenario, where such trades will result in profits in both the legs of the trade resulting in super normal profit Situation B: Stock A long stock futures; stock B short stock futures Post trade, price of stock A goes up more than stock B Relative out performance of stock A compared with stock B Situation C: Stock A long stock futures; stock B short stock futures Post trade, price of stock A goes down less than stock B Relative out performance of stock A compared with stock B Situation D: Stock A long stock futures; stock B short stock futures Post trade, price of stock A goes down while stock B goes up (worst case scenario) Trade going the other way (our fund managers unwind positions quickly, based on internal risk management norms)

    8. 7 BSE 200 (excluding Top 20 and Bottom 20 performing stocks)

    9. 8 Nifty

    10. 9 Results of a back-testing experiment

    11. 10 Results of a back-testing experiment (contd.) Correlation between long short market neutral strategy and Nifty: 5 year period at monthly intervals : 0.141 4 year period at monthly intervals : 0.167 3 year period at monthly intervals : 0.167 2 year period at monthly intervals : 0.245 1 year period at monthly intervals : 0.320

    12. 11 Example of a pair trade

    13. 12 Example of a pair trade

    14. 13 Example of a pair trade

    15. 14 Possible disappointments

    16. 15 Product positioning This product is an ideal fit for any investor who owns equity mutual funds or direct equity in his portfolio It is a complement to the existing long-only portfolio as it endeavors to reduce the overall risk (beta) of the portfolio because of the investment strategy The Fund is meant as an alternate investment targeted at the investor who is worried about the market direction in the mid-term The Fund would also be ideal for institutional investors who wish to take equity exposure but would prefer not to take exposure to short-term market volatility

    17. 16 How is the fund different from an arbitrage fund An arbitrage fund endeavors to capture inefficiencies which might be existing in the cash and derivatives markets, whereas the alpha fund endeavors to benefit from active fund management skills An arbitrage fund takes cash/derivatives positions in the same stock whereas the alpha fund takes positions in cash/derivatives segment in different stocks

    18. 17 How is the fund different from a 130/30 fund Exposure : A 130/30 fund would have maximum 130% long position and 30% short position. As a result, the net exposure (130% long 30% short) to equities would be maximum 100%, in line with other long -only Funds. JPMorgan India Alpha Fund will endeavor to have a net market exposure of close to zero (in value terms). Market risk : The market risk (beta) remains in case of a 130/30 fund as there are long positions in the funds, JPMorgan India Alpha Fund will endeavor to minimise market risk (in value terms) due to the pair trade strategy..

    19. 18 Group competitive advantages Our experience: The JPMorgan group has over 14 years of experience in managing client money in India through FII route Our people: JPMorgan Asset Management India has four portfolio managers and one analyst. Our culture encourages rapid decision making and fosters individual responsibility Our size: Our US$8.0* billion dedicated assets under management in India through FIIs gives us unparalleled corporate access In CY2007, we have made over 700 company visits Our compliance: Our unit holders are protected by our strong commitment to risk control

    20. 19 Scheme type Interval Scheme As the fund will be investing primarily in equity derivatives, it may take time to unwind some of the strategies adopted by the fund, hence it is prudent for us to impose additional restrictions on exit apart from exit load Redemption Where the application is received on any given Business Day up to 3:00 pm on the 7th of each month Closing NAV of the last Business Day of the month Where the application is received after 3:00 pm on the 7th day of each month Closing NAV of the last Business Day of the next month * In case 7th of the month is a non-Business Day, the application received by the last Business Day immediately prior to 7th of the month would be processed at the closing NAV of last Business Day of that month

    21. 20 Entry Load Of less than Rs5crores 2.25% Of Rs5Crores or more Nil By a FOF (irrespective of the amount of purchase) Nil As a result of dividend re-investment Nil Through SIP where single instalment is less than Rs.5 Crores 2.25% Through SIP where single instalment is more than or equal to Rs.5Crores Nil Through STP where a single instalment is less than Rs.5 crores 2.25% Through switch-in or STP, provided that Units are switched out from the Scheme or any other equity scheme of the Fund to another scheme of the Fund and to the Scheme within 90 days of switch-out/STP Nil Through systematic transfers other than above Entry Load as applicable to any Purchase (as mentioned in point (i) and (ii) above Through switch-in from other equity schemes of the Fund NIL Applications / switch applications received directly by the AMC, collection centre, Investor Service Centre or through the internet (as and when available) NIL

    22. 21 Exit load For each redemption exit load (% of applicable NAV): Within 6months from the date of allotment in respect of purchase made other than through SIP 1.00% Within 24 months from the date of allotment in respect of the first purchase made through SIP 1.00% A switch-out shall also attract an exit load like any redemption. No entry/exit loads will be chargeable in case of switches made between different options of the scheme Exit load flows to NAV benefiting investors

    23. 22 Asset allocation pattern Minimum Cash availability at all times to be maintained at 15-20% of the Assets Under Management (AUM)

    24. 23 Disclaimer Investment objective: The investment objective of the Scheme is to achieve a total return in excess of the return on short-term instruments through various strategies of buying and selling equity and equity-linked Securities including derivatives. The strategies would be designed to minimise market exposure for investors with a medium to long term horizon. However, there can be no assurance that the investment objective of the Scheme will be realized. Asset allocation pattern: Equity Derivatives exposure - 40-100%, Equity and equity related securities 25-100% & Debt, money market instruments and mutual fund units 0-35%. *Offshore Securities, ADRs and GDRs up-to 50% of the net assets of the scheme. Investment in securitised debt may be made to the extent of 20% of net assets of the Scheme. The notional value of derivatives shall not exceed the AUM of the scheme. Minimum initial application: Rs. 5,000 per application (and in multiples of Re. 1 thereof) Minimum additional / SIP application: Rs. 1,000 per application (and in multiples of Re. 1 thereof) Entry load: - Less than Rs. 5 crores: 2.25%. - Rs. 5 crores and above: Nil. Exit Load 1% (Within 6 months from the date of allotment in respect of Purchase made other than through SIP or Within 24 months from the date of allotment in respect of the first Purchase made through SIP). Risk Factors: Mutual funds and Securities investments are subject to market risks and there is no assurance or guarantee against loss in the Scheme or that the Scheme's objectives will be achieved.As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets.Past performance of the Sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme. Investors in the Scheme are not being offered a guaranteed or assured rate of return. JPMorgan India Alpha Fund is the name of the Scheme, and this does not in any manner indicate the quality of the Scheme or its future prospects and returns. For scheme specific risk factors, please refer to the Offer Document. Terms of Issue and Mode of Sale and Terms of issue: Issue of Units of Rs. 10 per Unit plus Applicable Load (if any) during the New Fund Offering (NFO) period and at Net Asset Value (NAV) subject to applicable Entry and Exit Loads thereafter. Investor benefit and General services: NAVs will be calculated on all business days and published in at least two daily newspapers. Purchase on all business days. Redemptions on an interval basis. Statutory details: Sponsor: JPMorgan Asset Management (Asia) Inc. Trustee: JPMorgan Mutual Fund India Private Limited, a company incorporated under the Companies Act, 1956. Asset Management Company: JPMorgan Asset Management India Private Limited, a company incorporated under the Companies Act, 1956. JPMorgan Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, by JPMorgan Asset Management (Asia) Inc., liability restricted to initial contribution of Rs.1 lakh. Please refer to the Offer Document before investing. Offer Documents, Key Information Memorandum and application forms are available at Investor Service Centres and distributors.

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