Transcript Reliance

Reliance Infrastructure Fund
An Open-Ended Equity Scheme
NFO Opens on: 25th May 09
NFO Closes on: 23rd June 09
A Reliance Capital company
Table of Contents

Equity Markets

India Infrastructure

Funding Options

Investment Opportunities

Reliance Infrastructure Fund
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Indian Equity Markets – Visible Change
Oct 2008
Now
- Major global banks failed, more probable
- Looks remote
- Liquidity evaporated
- Liquidity all around
- Risk aversion
- Risk appetite returning
- Companies facing capital shortage
- Equity raising easier, change in B/S
- Election uncertainty in India
- Biggest Election verdict since 1984
- FIIs major sellers
- FIIs becoming big buyers
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Now
Equity Markets – Our View

The Catapult
- Election - A big positive game changer
- Accompanied by improving monetary and economic conditions
- Governance, infrastructure and inclusive growth looks to be key goals of
incumbent Government
- FII/FDI inflows can be very strong
- Earnings upgrades may follow
- Sustainable attractive returns from Indian equities look possible

What can go wrong?
- Another global financial catastrophe
- Big disappointment in pace of Government actions over next 6 months
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Everything Going For India

Youngest population in the world

Largest middle-class and consuming population

Domestic focused economy

Banking system proved to be amongst the healthiest

Global leader in services

Lowest cost producer in metals

Huge savings and investment rates
However……
Source: Internal - RMF Research
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Infrastructure – Miles To Go
World Bank’s “ Global Competitiveness Report 2007-08”

‘Inadequate supply of infrastructure’
- Most problematic factor for doing business in India

India ranked 48th out of 131 counties in the Global Competitive Index 2007
- Ranked 67th on the quality of infrastructure

India lags behind in infrastructure facility usage compared to US & China
Comparision of Infrastructure Facilities
Particulars
India
US
China
618
14240
1684
2983
21443
1471
Steel Consumption per capita (kg)
34
357
244
Rail route per mn people (km)
56
755
57
572
7953
4265
71
4780
151
Electric consumption per capita (KwH)
Roads per mn people (km)
Cargo handled at ports per capita (kg)
No. of passengers handled at airports per 1,000 persons
Source: Published Media, Global Research 2007-08
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Infrastructure Investment – China Vs India
8.5% Of 2008 GDP(USD 380 Bn)
6% Of 2008 GDP(Rs. 267,356 Cr)
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Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Infrastructure Investment – China Vs India
8.5% Of 2008 GDP(USD 380 Bn)
6% Of 2008 GDP(Rs. 267,356 Cr)
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Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Realisation – Very Evident
Prime Minister Dr. Manmohan Singh
Ex – Finance Minister P. Chidambaram
Our growth potential will be realized only if we can
ensure that our infrastructure does not become a
severe handicap
Infrastructure development is essential to sustain high
growth rates in future
Dy. Chairman – India Planning Commission
Montek Singh Ahluwalia
Chairman – Tata Sons – Ratan Tata
One of the critical constraints which holds back our
growth rate is really the quality of infrastructure
We have a large deficit in almost every infrastructure
sector whether airports, power, roads, etc. This is an
area that needs large amounts of investment.
Ex-CEO Infosys, Nandan Nilekani
CEO, Bharti Airtel, Sunil Mittal
India has achieved excellence in human capital, but
the country’s shabby infrastructure is proving to be a
major stumbling block for the country’s development
Indian industry would expect significant initiatives in
the area of resource mobilization for infrastructure
projects
Source: CLSA Research April 2008
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Factors Driving Demand For Better Infrastructure
Economic
Factors
Demographic
Factors
Global
Integration
Growing economy
Rising population
Rising international
Rising disposable incomes
Increasing urbanization
trade and travel
Inadequate road width,
Massive under capacity
in railways for freight
and passenger traffic
poor riding quality,
low speeds
10-14% power
shortages, frequent
Poor WSS is major
contributor to diseases
brown outs
WSS: Water Supply & Sanitation
Delays, congestion,
fuel wastage in
air travel
High turnaround time,
poor connectivity
at ports
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Source: CLSA research, April 2008
Now Also Political Pressure
Source: Election Commission 2009
GSDP: Gross State
Domestic Product
Source: RBI: A study of budgets of 2008-09
States with focus on higher development expenditure has proved to be a boon for the Ruling Party
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Manifestos Unanimous On Infrastructure
BJP
- Commits to an agenda for change guided by three goals:
Good Governance, Development & Security
- Investing heavily in infrastructure projects are at the top of our agenda
DMK
- Implement the Sethu Samundaram project early
- Super fast bullet train service between Chennai, Madurai & Coimbatore
- Dedicated freight corridor is to be implemented between Chennai & New
Delhi
Trinamool
Congress
Left
The party aimed at forming a secular, progressive and stable government at
the centre which would focus on economic reforms, industry, agricultural
development and adopt pro-people policies
- Reviewing of privatisation of infrastructure through PPP
- Emphasis on rural infrastructure
- Increased outlay on rural roads, electrification etc
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Source: Media Reports, Election Manifesto of Respective Parties
Congress Manifesto

Manifesto makes intentions clear
-
Increase public investment in infrastructure
-
Ensure that India adds at least 12000-15000 MW of power capacity every year
-
Rural electrification & reduction in distribution losses
-
Implement a scheme to supply energy to poor families at affordable prices
-
Promises a very significant increase in the share of nuclear power
-
Connect villages through broadband network within 3 years
Source: Congress Manifest 2009
Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial
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Intentions Evident In Interim Budget 2009

Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August,
2008 to January, 2009 alone

Under PPP mode, 54 Central sector infrastructure projects, in-principal or final
approval and 23 projects approved for viability gap funding in 2008-09

IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving
investment of Rs.1,00,000 Cr in infrastructure over the next 18 months
IIFCL: India Infrastructure Finance Company Limited
Source: http://indiabudget.nic.in
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The Size Of Opportunity
Particulars
Expressways (Km)
Air Passenger Traffic (Mn)
Cargo Traffic (Major Ports) (Mn Tons)
Power Generation Capacity (GW)
Finished Steel (Mn Tons)
Cement (Mn Tons)
India
(2008)
Year when
China
Achieved
200
120
519
143
58
218
1989
2006
1991
1992
1991
1989
Source: India Infoline Research, Department of shipping India, National Bureau of statistics China
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China
(2007)
53,000
186
3,882
720
465
1,500
XIth FYP – Infrastructure Investment
Sector
2007-08
2008-09
2009-10
th
2010-11 2011-12 Total XI FYP
Power
Roads
Telecom
Railway
Irrigation
Water Supply & Sanitation
Ports
Airports
Storage
Gas
74,205
51,352
33,075
33,207
27,002
25,840
9,691
6,223
3,777
2,984
92,829
54,318
39,834
39,964
33,839
31,110
11,740
6,459
4,098
3,454
116,541
58,729
50,293
48,626
42,625
37,868
14,271
6,814
4,446
4,005
146,914
67,901
63,408
59,738
53,946
46,555
17,397
7,296
4,824
4,651
186,038
79,516
80,390
76,466
65,718
57,754
20,841
7,956
5,234
5,407
616,527
311,816
267,000
258,001
223,130
199,127
73,940
34,748
22,379
20,500
Total Investment
Total (USD Billion)
Investment as % of GDP
267,356
65
6.0
317,645
77
6.5
384,218
94
7.2
472,630
115
8.1
585,320
143
9.2
2,027,168
494
7.5
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure
FYP : Five Year Plan
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Much Bigger Outlay In The XIIth FYP

The projected investment in infrastructure sector in the XIIth FYP would be
USD 1,128 Billion
th
Projected GCFI (XII Plan)
2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E
GDP at Market Prices
2016E-17E
6,347,900
6,919,300
7,542,000
8,220,800
8,960,600
9,767,100
Rate of growth of GDP (%)
9.00%
9.00%
9.00%
9.00%
9.00%
9.00%
GCF in Infrastructure as a % of GDP
9.00%
9.25%
9.50%
9.75%
10.00%
10.25%
571,311
640,035
716,490
801,528
896,060
1,001,128
GCF in Infrastructure (Rs. Crore)
Total GCFI (Rs. Crore)
Total GCFI (USD Billion)
4,626,552
1,128
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07)
Source: Planning Commission of India
Estimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17
FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure
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Plans Fine – Show Me The Money

Question marks on infrastructure spending
- Huge budgetary and fiscal deficit
- Past record on foreign flows so-so and not very robust

However, future looks brighter
- Avenues to control deficit in sight
- PPP
- Foreign investments
PPP: Public Private Partnership
Source: Internal - RMF Research
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Fiscal Deficit – Likely To Reduce Going Forward
Subsidy and Fiscal Deficit
2007A-2010E (Rs bn)
2007A
2008A 2009RE
Food
Fertilizer
Petroleum
Total
24,014
12,977
2,699
39,690
31,330
27,060
14,080
72,470
43,630
47,500
78,820
169,950
55,000
31,700
28,100
114,800
28
57
52
28
Subsidy/Fiscal deficit %
2010E
Subsidies as a contributor to fiscal
deficit is expected to decrease
Source: Ministry of Finance, Kotak Institutional Equities Estimates
3 G Auctions
Bids at reserve price
Bids at 2x reserve price
Bids at 3x reserve price
Rs Crore
8,590
17,180
25,770
Source: Internal - RMF Research
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Expected revenue from 3G
spectrum auction
Divestment…
Name
Mcap
Govt.
(Rs. Cr) Holding (%)
Oil & Natural Gas Corp Ltd
NTPC Ltd
MMTC Ltd
NMDC Ltd
Bharat Heavy Electricals Ltd
Steel Authority Of India Ltd
Indian Oil Corp Ltd
Power Grid Corp of India Ltd
GAIL India Ltd
Power Finance Corp Ltd
National Aluminium Co Ltd
Neyveli Lignite Corp Ltd
Rural Electrification Corp Ltd
Container Corp Of India
Mahanagar Telephone Nigam
Shipping Corp Of India Ltd
Engineers India Ltd
Rashtriya Chemicals & Fert
Total
212,026
171,794
118,137
110,219
99,884
68,276
56,049
49,791
38,955
24,591
23,517
19,923
12,446
12,016
5,572
5,164
4,320
3,603
1,036,282
74
90
99
98
68
86
80
86
57
90
87
94
82
63
56
80
90
93
Divestment of minority stake in listed PSUs
to reduce fiscal burden
Divestment of profitable unlisted PSUs like
BSNL, DVC etc
Sale of residual minority stake in privatised
PSUs like VSNL(26%), Balco(49%) &
Divestment can give
5% Divestment
10% Divestment
Hindustan Zinc(29%)
51,814
103,628
Source: Bloomberg
Note: The name of the companies mentioned above are for illustration purposes only
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Cash – Rich PSUs

Will be key infra-developers without needing resources from Government budget :
- NTPC: Cash on books as on FY08 is Rs15,360 Crs
It can develop 20GW of capacity without raising capital
- ONGC: Cash on books as on FY 08 is Rs 18,652 Crs
- Railways: Generating cash of over Rs20,000crs every year
- Others like BSNL, AAI, DVC also have enough cash to fund their projects
Source: Internal - RMF Research
Note: The name of the companies mentioned above are for illustration purposes only
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PPP Concept Gaining Credence
Growth Rate of PPP Projects by
value in the last 3 years over
previous 8 years is 104%
PPP Projects Awarded – Sector Wise
Sector
More than 117 PPP deals closed
in last 3 years when compared
to 104 in the previous 8 years
Road
Urban Development
Airports
Ports
Railways
Total
Source: Company, DEA PPP Database and Citi Investment Research and Analysis
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% by Volume
% by value
71%
12%
2%
14%
1%
37%
5%
14%
43%
1%
100%
100%
PPP & Privatisation

Government is targeting around 30% of the total funding to come from PPP
Schemes
- As compared to 17% in Xth FYP
- 4x times the investment by private sector in the Tenth FYP

In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going
to witness increased private participation
Funding by PPP
30% of total Infrastructure Investment in 11th FYP
Power
Investment Target
% of Sector Share
PPP Oppourtunity
% of Private Share
616,527
30
162,517
26
Road Telecom Railways Irrigation Sanitation Ports Airports Storage
311,816
15
112,503
36
267,000
13
177,689
67
258,001
13
50,491
20
223,130
11
N.A
0
Rs. Crore(At 2006-07 prices)
Source: Planning Commission of India
199,127 73,940
10
4
5,396 54,457
3
74
34,748
2
21,165
61
Gas
Total
22,379 20,500 2,027,168
1
1
100
11,190 6,499 601,905
50
32
30
PPP : Public Private Partnership, FYP : Five Year Plan
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Funding Pattern - XIth FYP
Funding of XI FYP
X Plan
Sectors
Electricity
Roads & Bridges
Telecommunication
Railways
Irrigation
WSS
Ports
Airports
Storage
Gas
Total
Centre
102,463
71,534
49,013
108,950
13,617
42,316
2,185
3,823
577
8,713
403,191
State
97,553
66,354
10,402
97,886
21,465
1,530
12
866
296,068
Private
91,834
7,004
54,352
307
1,022
10,356
2,936
3,377
1,000
172,188
Total
291,850
144,892
103,365
119,659
111,503
64,803
14,071
6,771
4,820
9,713
871,447
Rs. Crore(At 2006-07 prices)
Source: Planning Commission of India
Private Funding Gains Importance
FYP : Five Year Plan
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Centre
255,316
107,359
80,753
201,453
24,759
42,003
29,889
9,288
4,476
10,327
765,623
XI Plan
State
Private
225,697
185,512
100,000
106,792
177,686
10,000
50,354
228,543
96,306
5,421
3,627
54,479
50
21,630
6,713
11,189
6,528
670,936
619,591
Total
666,525
314,151
258,439
261,807
253,302
143,730
87,995
30,968
22,378
16,855
2,056,150
Success Stories Of Infrastructure Privatisation
Mundra Port
Mumbai – Pune Expressway
New Hyderabad Airport
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Case For Foreign Investments In Infrastructure

Attractive returns - 16% in power (through PPA Arrangement), attractive double
digits in others over a 20-30 year period

Potential to invest huge sums of money given India’s need for infrastructure

Stable political environment with the current decisive mandate

Currency outlook - stable to appreciating Rupee

Liberal policies – FDI allowed 74% to 100% in most infrastructure sectors
PPA: Power Purchase Agreement
Source: Internal - RMF Research, CERC
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FDI – India Can Attract Much More
Sector
Rs. Crore
2005-06
2006-07
2007-08
(Apr-Mar)
(Apr-Mar)
(Apr-Dec)
2,399
2,776
667
171
386
21,047
2,155
4,424
2,121
713
26,589
5,103
6,989
8,749
3875
24,074
11,155
8,287
11,316
4268
79,771
27,902
21,672
22,477
13,898
24,613
5.5
70,630
15.7
98,664
24.6
112,896
25.4
382,996
87.9
Services Sector
Telecommunications
Construction Activities
Housing & Real Estate
Power
Total FDI in India(2000-09)(Rs. Cr)
Total FDI in India(2000-09)(USD Billion)
China attracted 9X FDI as
compared to India
Source: Department of Industrial Policy & Promotion, Internal - RMF Research
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2008-09
Cumulative
(Apr-Feb) (Apr00-Feb 09)
% Of Total
Inflows
22.00%
8.00%
6.00%
6.00%
4.00%
Private Equity – An Important Source Of Funding
Source: Grant Thornton
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Infrastructure Fund – Why Now ?
2008
Now

Valuations very stretched

Despite recent spurt, still attractive

Political concerns at peak

Political stability for five years

Global scenario –very scary and

Some stability. Investors will move
hazy

to higher growth economies
Raising debt and equity

Interest rates plunge, debt
impossible – a must for
available, investors looking for
infrastructure
equity investments
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Valuations: Reasonable given growth prospects
Source: Bloomberg
Note: The name of the companies mentioned above are for illustration purposes only
We do not recommend any action based on the above illustration
% Change in price from 2007-08 high is compared to prices as on 22nd May 09
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Introducing
Reliance Infrastructure Fund
A Reliance Capital company
Investment Strategy

Investment in Equities of Infrastructure Companies : 65%-100%*

Investment in Debt & Money Market Securities : 0% - 35%*

Multi – Cap Strategy

Investment with a medium to longer term horizon
* Please refer detailed asset allocation on slide no 33
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Scheme Features
Investment Objective
Nature of Scheme
The primary investment objective of the scheme is to generate long term
capital appreciation by investing predominantly in equity & equity related
instruments of companies engaged in infrastructure & infrastructure
related sectors & which are incorporated or have their area of primary
activity, in India & the secondary objective is to generate consistent
returns by investing in debt & money market securities
An Open Ended Equity Scheme
Benchmark
Proposed Asset
Allocation
BSE 100
Equity & Equity Related Securities including derivatives engaged in
infrastructure sectors & infrastructure related sectors#
65%-100%
Debt & Money Market Securities **
0% - 35%
Fund Manager
Sunil Singhania
New Fund Offer Price: Rs.10/- per unit plus applicable load
** including securitised debt up to 30%
#An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivate
exposure will be restricted to such limit so that the scheme does not leverage upon margin requirements
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Scheme Features
Choice of Plans/Options
Retail & Institutional Plan
Growth Plan:
Growth & Bonus Option
Dividend Plan :
Dividend Payout Option
Dividend Reinvestment Option
Minimum Application Amount
For Retail Plan : Rs.5000/For Institutional Plan: Rs.5 Crs
SIP
Available : Retail Plan
Mode of Payment :
Only through Direct Electronic Debit to the
investor’s bank account. This facility is offered
only to the investors having bank accounts in
HDFC Bank, Axis Bank
Load Structure : During New Fund Offer &
Continuous Offer including SIP Installments
For Retail Plan:
Entry Load:
• For subscription below Rs. 2 Crs – 2.25%
• For subscription of Rs.2 Crs & above & below Rs.5 Crs – 1.25%
• For subscription of Rs.5 Crs & above - Nil
Exit Load:
For subscriptions of less than Rs 5 Crs per purchase transactions
• 1% If redeemed/ switched on or before completion of 1 year from
the date of allotment
• Nil If redeemed/ switched after completion of 1 year from the date
of allotment
For subscriptions of more than Rs. 5 Crs : Nil
For Institutional Plan:
Entry Load : Nil
Exit Load : Nil
Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications received
by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through any
distributor/agent/broker
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Risk Factors
The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or
recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this
opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due caution
and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or opinion
which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of their
affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The information
contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best efforts to avoid
any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy,
completeness, adequacy and reliability of such information.
Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details:
The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956.
Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio
according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and
transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during the
New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of the
New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily
newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: 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. As with any
investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past
performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme
and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. 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 towards the setting up of the Mutual Fund and such other accretions and additions to the corpus.
The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it has every
intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart from those
mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and KIM cum
application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before investing. The
information contained herein has been obtained from sources published by third parties.
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Thank you
A Reliance Capital company