High Yield Portfolio

Risk associated with the Investment Approach:

1.Investment in Debt Instruments: The Portfolio Manager expects to invest in debt instruments including non-convertible debt instruments, listed debt instruments, The obligor of a debt security or instrument may not be able or willing to pay interest or to repay principal when due in accordance with the investment documents. An obligor’s willingness to pay interest or to repay principal due in a timely manner may be affected by, among other factors, its cash flow. Sometimes, the fluctuation in the market price of such instruments is likely to have a direct bearing on the value of the investment in the Portfolio Entities. Further, there may be additional costs involved in complying with the disclosure and regulatory requirements. Further, such investments in listed debt instruments may be required to be made on the basis of publicly available information only due to the limited ability to conduct due diligence on such companies.

2.Credit Risks One of the fundamental risks associated with the intended investments is credit risk, i.e., the risk of non-payment of agreed amounts by Portfolio Entities and other obligors, to the Client. Such non payment will result in a reduction of the returns and a reduction in the value of the relevant investments in the Portfolio Entities. In addition, in case of the bankruptcy of a Portfolio Entity, the Client could experience significant delays in the enforcement and realization of the collateral securing an investment in a Portfolio Entity. Further, such collateral may be released without the consent of the Portfolio Manager.

3.Interest Rate Risk: The Portfolio Investments may be exposed to interest rate risks. Changes in prevailing market interest rates could affect the value of such investments. Factors that may affect market interest rates include inflation, deflation, slow or stagnant economic growth or recession, unemployment, money supply, governmental monetary policies, international disorders and instability in domestic and foreign financial markets. The Portfolio Manager may or may not seek to hedge its interest rate risk.

4.Risk of Rating Migration: Change of rating (credit worthiness) would impact the price of debt securities. If it is downgraded, its market value would drop. If the security is upgraded its market value would increase. The extent of decline or increase would depend on the extent of rating change and the residual tenor of the debt security.

5.Basis Risk: During the life of floating rate security, the underlying benchmark index may become less active and may not capture the actual movement in the interest rates or at times the benchmark may cease to exist. These types of events may result in loss of value in the portfolio.

6.Spread Risk: In a floating rate security the coupon is expressed in terms of a spread or mark up over the benchmark rate. However, depending upon the market conditions the spreads may move adversely or favourably leading to fluctuation in valuation of the assets of the Client.

7.Liquidity Risk : The corporate debt market is relatively illiquid vis-a- vis the government securities market. There could therefore be difficulties in exiting from corporate bonds in times of uncertainties. Liquidity therefore may suffer. Even though the government securities market is more liquid compared to that of other debt instruments, on occasions, there could be difficulties in transacting in the market due to extreme volatility or unusual constriction in market volumes or on occasions when an unusually large transaction has to be put through. The liquidity, in general, in the Indian debt market is considerably lower than that of developed markets.

8.Inadequate Collateral: If there is a decrease in the value of the underlying securities of the Portfolio Investment, the Client may not have sufficient collateral to cover losses and may experience losses upon foreclosure. It is generally believed that the Portfolio Entities generally are and will be able to repay the debt investments from their available capital, from future capital-raising transactions or from cash flow from operations. However, to mitigate the credit risks, the Portfolio Manager may take a security interest in all or a portion of the assets of the Portfolio Entities, including the equity interests of their subsidiaries. There is a risk that the collateral securing the debt investments may decrease in value over time, may be difficult to appraise or sell in a timely manner and may fluctuate in value based upon the business and market conditions, including as a result of an inability of the Portfolio Entity to raise additional capital, and, in some circumstances, the lien could be subordinated to claims of other creditors. In addition, deterioration of a Portfolio Entity’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration of the value of the collateral for the debt investments. Consequently, although such debt investment is secured, the Client may not receive principal and interest payments according to the debt investment’s terms and the value of the collateral may not be sufficient to recover the Client’s investment should the Client be forced to enforce the remedies.

In addition, because the Portfolio may be invested in small and medium sized companies in the target industries, a portion of the assets securing the investment may be in the form of intellectual property, if any, inventory, equipment, cash and accounts receivables. Intellectual property, if any, which secures a debt investment could lose value if the company’s rights to the intellectual property are challenged or if the company’s license to the intellectual property is revoked or expires. In addition, in lieu of a security interest in a Portfolio Entity’s intellectual property the Client may sometimes obtain a security interest in all assets of the Portfolio Entity other than intellectual property and also obtain a commitment by the Portfolio Entity not to grant liens to any other creditor on the company’s intellectual property. In these cases, the Client may have additional difficulty recovering the Client’s principal in the event of a foreclosure.

9.Other Debt in Portfolio Entities ranking pari-passu / senior: In a few instances, the Portfolio Entities may incur debt that ranks equally with, or senior to, the Portfolio’s investments in such companies. The Portfolio Manager plans to invest in debt investments issued by the Portfolio Entities. Some of the Fund’s Portfolio Entities are permitted to have other debt that ranks equally with, or senior to, the Fund’s debt investments in the Portfolio Entity. By their terms, these debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which the Client is entitled to receive payments in respect of the Portfolio’s debt investments. These debt instruments may prohibit the Portfolio Entities from paying interest on or repaying the Fund’s investments in the event of, and during, the continuance of a default under the debt instruments. In addition, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a Portfolio Entity, holders of debt instruments ranking senior to the Client’s investment in that Portfolio Entity would typically be entitled to receive payment in full before the Client receives any payment in respect of its investment. After repaying senior creditors, a Portfolio Entity may not have any remaining assets to use for repaying its obligation to the Client. In the case of debt ranking equally with the Client’s debt investments, the Client would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy.

10.Pre-payments of the debt investments: The Portfolio is subject to the risk that the investments made in Portfolio Entities may be repaid prior to maturity. At the time of a liquidity event, such as a sale of the business, refinancing or public offering, many of the Portfolio Entities may avail themselves of the opportunity to repay the debt investments prior to maturity. The Portfolio Investments generally allow for repayment at any time subject to certain penalties. When this occurs, the Portfolio Manager generally re-invests these proceeds in temporary investments, pending their future investment in new Portfolio Entities. These temporary investments have substantially lower yields than the debt being prepaid, and the Client could experience significant delays in reinvesting these amounts. Any future investment in a new Portfolio Entity may also be at lower yields than the debt that was repaid. As a result, the Client’s results of operations could be materially adversely affected if one or more of the Portfolio Entities elects to prepay amounts owed to the Client.

11.Bankruptcy of Portfolio Company: Various laws enacted for the protection of debtors may operate to the detriment of the Portfolio if it is a creditor of a Portfolio Entity that experiences financial difficulty. For example, if a Portfolio Entity becomes insolvent or files for bankruptcy protection, there is a risk that a court may subordinate the Portfolio Investment to other creditors or require the Client to return amounts previously paid to it by such Portfolio Entity.

12.Temporary Investments: To the extent that the Portfolio Manager has already called capital from the Investors, pending investment in Portfolio Entities, these funds may be retained in cash or may be invested in Temporary Investments. Such investments may substantially reduce the Portfolio’s overall return.

13.Development Risk: The investments may be made in stressed projects of the Portfolio Entities. There may arise scenarios where the development of such stressed projects are not completed, and the Portfolio Manager may appoint a development manager to complete the same. In such a scenario, the Portfolio may be exposed to additional risks, including but not limited to risks of title of property, approvals from statutory authorities, construction, marketing, sales, legal, taxation and environmental risks. The Portfolio Manager will take steps to mitigate the same on a best effort basis, including by appointing an experienced development manager as mentioned above.

Kindly refer to the Disclosure Document for detailed statement on risks associated with the Investment Approach and Other Risks.

Disclaimer

The views expressed herein constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purposes only and is not meant to serve as a professional guide for the readers. Certain factual and statistical (both historical and projected) industry and market data and other information was obtained by Nippon Life India Asset Management Limited (NAM India) from independent, third-party sources that it deems to be reliable, some of which have been cited above. However, NAM India has not independently verified any of such data or other information, or the reasonableness of the assumptions upon which such data and other information was based, and there can be no assurance as to the accuracy of such data and other information. Further, many of the statements and assertions contained in these materials reflect the belief of NAM India, which belief may be based in whole or in part on such data and other information. NAM India or any of its respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given are fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice, verify the contents and arrive at an informed investment decision before making any investments. NAM India or any of its directors, employees, affiliates or representatives shall not be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. NAM India or any of its directors, employees including the fund managers, affiliates, representatives including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities thereof, of company(ies) / specific economic sectors mentioned herein. The portfolio would endeavour to generate capital appreciation by investing in a judicious mix of Large cap, Mid cap and Small Cap stocks. The portfolio may also have large allocation to cash and money market instruments/Funds as an investment tool Investments in securities are subject to market risks. There are no assurances or guarantees that the objectives of any of the Investment Approach will be achieved. The investments may not be suited to all categories of investors. The value of the Portfolios can go up or down depending on various market factors. Past performance of the Portfolio Manager does not indicate the future performance of the Investment Approach or any other future Investment Approach of the Portfolio Manager. Investors are not being offered any guaranteed or indicative returns through any of the Investment Approach. The names of the Investment Approach do not in any manner indicate their prospects or returns. The performance of the Investment Approach may be adversely affected by the performance of individual companies, changes in the market conditions, micro and macro factors and forces affecting capital markets in particular like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative/future and options products are affected by various risks including but not limited to counter party risk, market risk, valuation risk, liquidity risk, basis risk and other risk. Besides the price of the underlying asset, the volatility, tenor and interest rates affect the pricing of derivatives. In the case of stock lending, risks relate to the defaults from counterparties with regard to securities lent and the corporate benefits accruing thereon, inadequacy of the collateral and settlement risks. The portfolio Manager is not responsible or liable for any loss resulting from the operations of the Investment Approach / Portfolios. Each portfolio will be exposed to various risks depending on the investment objective, investment approach and the asset allocation. Non-Diversified Portfolio tends to be more volatile than diversified portfolio. Please read the Disclosure Document before investing.

Nippon Life India Asset Management Limited (NAM India) is registered with Securities & Exchange Board of India as a Portfolio Manager vide Registration Number INP000007085 having registered office and corporate office at 4th Floor, Tower A, Peninsula Business Park, Ganapatrao Kadam Marg, Lower Parel (W), Mumbai 400013.Reach us at pms@nipponindiaim.com | Call on 022-68087000 | Visit us at pms.nipponindiaim.com