CRISIL's Approach to Asset Allocation_CITIBANK

CRISILs approach to Asset AllocationCRISIL FundServices23rd August, 2007

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Agenda NoTopicSlide

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CRISILs experience in the Mutual Funds Space

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Unique Position of CRISIL FundServices in the MF IndustryWorlds fourth largest and Indias most influential credit rating agencyCRISIL FundServices (CFS) is the Mutual Fund arm of CRISIL RatingsMarket leader in Funds space Close association with the Domestic IndustryCFS focus areas of MF RankingRatingsResearchValuationIndex servicesStrong 50 members-team with professionals (CAs, MBAs and Engineering graduates).New Product initiatives supported by Centre for Excellence (COE)Access to international products and services through Standard & Poor's

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Deep understanding of Indian capital market Established provider of independent and in-depth industry researchMajority of the rated debt schemes in India are rated by CRISIL 50 credit quality ratings 35 ratings in structured funds including CPPI and DPI structuresOur Composite Performance rankings is most trusted and most relied upon we cover 50% of the AUM in the funds industryFund Managers looked forward to better performance as per CPR rankingCNBC TV18 CRISIL Mutual Fund Awards, Asias most respected awards for mutual funds is based on CRISIL~CPR

Market Leader in funds space

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Our Funds research provides reliable and timely data to our customers 2100 NAVs, 650 schemes, 400 plus corporate events and 35 indices on a daily basisComplete portfolio details of all funds on a monthly basisOur valuation services for corporate bonds and gilts used by all mutual funds, insurance companies and BanksRs.1500 billion assets priced every dayRs.750 billion assets of banks priced every monthOur debt indices are used by over 500 schemes of mutual funds and insurance companies to benchmark performance

Market Leader in funds space

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We provide Investment advisory services to several leading Wealth management advisors in IndiaFunds recommendation based on CRISIL CPRTools to understand customer needsAnalytics to map customer needs and risk appetite with investment options available in IndiaAsset allocation and model portfoliosPeriodical newsletters and fact sheets with high quality customised contentSoftware tools to track and manage investor portfoliosMajor clients include Citi Bank, DBS Bank, Amex, ABN Amro, Deutsche Bank and a few leading brokers and distribution housesMarket Leader in funds space

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CRISILs approach to Asset allocation

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CRISILs approach to Asset allocation Key featuresProduct Risk Calibration for asset classes offered under the Asset Allocation ModelAsset Allocation at Product and Scheme levelModel Portfolios for Client Risk ProfilesAllocation based on historic risk return data for underlying product classesScheme Level allocation based on CRISIL~CPR frameworkConcept of Strategic Asset Allocation followedReviews on a quarterly basisWaterfall approach in the Asset Allocation allows flexibility for movement across product classesComposite Benchmarks for each Model PortfolioIndices based on market and mutual fund indices

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CRISILs approach to Asset allocationProduct Risk CalibrationCategorisation of asset classes into different risk categories based on their inherent risk characteristicsCategorisation of structured productsCategorisation of universe of mutual fund schemes based on asset class risk calibrationOngoing support from CRISIL in categorizing newer asset classes, mutual fund launches and other structured offeringsAlternate investment category considered for asset classes without a price series

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CRISILs approach Product Level Asset allocation Risk & Reward theoryAssumes that investors are risk averse i.e. for the given two assets that offer the same expected return, investors will prefer the less risky one. Mean Variance theoryMean-variance theory assumes that Investors prefer (1) higher average returns for a given level of standard deviation and (2) lower standard deviations for a given level of expected return. Portfolios that provide the maximum expected return for a given standard deviation and the minimum standard deviation for a given expected return are termed efficient portfolios. All others are inefficient. Mathematically

Efficient FrontierEvery possible asset combination is plotted on the risk-return space, and the collection of all such possible portfolios defines a region in this space. The line along the upper edge of this region is known as the efficient frontier.

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CRISILs approach Product Level Asset allocationThe process involves identification of all possible combination of portfolios. For the identified combination of portfolios, expected returns and portfolio standard deviation is computed based on historical risk - return behavior of individual asset class.At a given level of risk, portfolio with highest expected return is selected. This select group of portfolios are identified to be present on the efficient frontier.

Subject To

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CRISILs approach Product Level Asset allocationAsset Allocation at the category levelStrategic Asset allocation based on portfolio optimization Number of asset classes to be considered are decided based on discussionsOptimization technique followed for all asset classes with a price seriesRepresentative indices for each of the asset classes used for optimization CRISILs internal indices for the Indian debt market are used for debt oriented categoriesAssets without a defined price series are considered under Alternate Investment Category

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CRISILs approach Scheme Level Asset allocationScheme Level Ranking of mutual fund schemesRanking based on CRISILs CPR FrameworkCan be customised to suit your requirementsPortfolio Management Schemes analyzed on the same lines with mutual fund schemesUnit Linked Insurance Plans (ULIPs) analyzed on risk return basisDefined criteria for scheme inclusion / exclusion in the Asset Allocation Model, based on the ranking exercise

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CRISILs approach Asset Allocation BenchmarkingComposite Benchmarks for each Model PortfolioModel portfolio Index based on mutual fund indices as per the suggested allocation Benchmark Index based on market indices used in the optimization exercisePeer group index based on mutual fund peer performance

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CRISILs approach Asset allocation reviewProduct level allocation reviewed on a quarterly basisModel provides flexibility to take tactical calls, if need be.Scheme level allocation reviewed on a quarterly basisQuarterly performance report of mutual fund schemes Quarterly performance report of Model Portfolios based on benchmark indicesDefined methodology for rebalancing of client portfolios given in the event of rank changes for top performers

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Why CRISIL?

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CRISILs widest market reachLargest market share of bond/debenture ratings over 65% Rated over 6,600 debt instruments worth USD 215 billion Largest ratings database in India, encompassing over 4200 issuers drawn from ratings history of 14 yearsWidest industry coverage 60 industriesSector focused analytical teamIn-depth knowledge; enhanced analytical rigor Dedicated analytical, technical and data teams for Fund Services businessLargest pool of analytical resources in the countryQuick turnaroundEnsures ability to handle significant volume of rating requirements

The CRISIL advantage

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Dedicated industry research teams supported by Centre of Economic Research and Data centre for compiling financial informationRobust knowledge management systems CRISIL Fund Services provides seamless, high quality, customised services to its customersMajority of the product deliverables can be customised and made unique to suit your requirementsNew product ideas and solutions would be arrived at based on mutual discussionsContinuous and round the year service from our analytical teamWe partner our customers and provide solutions to them

The CRISIL advantage contd..

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www.crisil.com

Annexure - Illustrations

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Illustration Product Risk CalibrationNote: Asset Classes used in illustrations can be customised based on client requirements

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Illustration Product Level Asset Allocation

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Illustration Scheme Level Asset Allocation

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Illustration Scheme Level Asset Allocation contd..

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Illustration - Model Portfolio performance : Conservative

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Illustration - Model Portfolio performance : Moderate

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Illustration - Model Portfolio performance : Aggressive

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Illustration - Model Portfolio performance : Very Aggressive