Increase Emotions, Decrease Returns

Equity Market

World Markets:

• Weakness in equities continued to be witnessed for the second consecutive month ended 15th May 2012, in view of weakness being reported in economic activity coupled with increased concerns about the state of affairs in the European-Region, which had a huge impact on the investor sentiments worldwide.

• Major European indices declined in the range of 2.5% to 7.5% with the impact being more incase of France &

Greece on the outcome of the general elections in these countries. With Francois Hollande winning the French presidential elections has lead to doubts about sustaining French support in the thwarting the financial crisis looming in the Euro Region.

• This was coupled with the inconclusive outcome of the Greek elections, as Greek Left Political Parties continued to struggle to form a government. Lack of political stability is expected to have a severe impact in achieving the required austerity measures required to seek support from Euro nations and also its continuity as a Euro Member.

• Crude oil declined to its 6 month low on the back of expectation of the reduced fuel demand on the expectation that Europe's debt crisis would worsen and derail the global economic recovery. Further, oil shipments are also expected to decrease in view of the seasonal maintenance activity scheduled by Asian refiners.

Indian Markets:

• Bellwether indices like SENSEX and NIFTY declined for the second consecutive month losing 4.5% and 5.1% respectively during the period.

• The decline can be attributed to the risk aversion in view of the growing uncertainity across the globe coupled with increased concerns about the impact depreciating rupee would have on the country's economic revival.

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M F P O I N T E RIssue - 78

May, 2012

For Private Circulation only

Global Indices

Bench Mark Closing 15-Apr-12

to 15-May-12

Bovespa 56,238 -9.45

CAC 40 3,039 -4.70

DAX 6,401 -2.78

Dow Jones 12,632 -1.69

FTSE 100 5,438 -3.79

Hang Seng 19,894 -3.90

Nikkei 225 8,901 -7.65

Shanghai Composite 2,375 0.66

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• Index of Industrial Production for March 2012 contracted by 3.5%, as against the general expectation for an expansion. Contraction in the index can be attributed to weak growth of capital goods, which witnessed a de-growth of 21.3% for the month vis-à-vis a growth of

10.2% in February 2012, much on account of sluggishness in the investment activity and lower expansion of output due to weaker demand.

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• Depreciating rupee is being expected to exert increased pressure on the overall fiscal reforms being put in place by ballooning the fiscal deficit of the country. Rupee depreciated substantially a touch a high of ̀ 54.07 per USD on 14th May 2012 from `52.16 per USD a month back. Intervention by RBI was also required to support from further depreciation with the rising demand for dollars by importers.

• Further, the fuel prices are also being expected to increase as the producers would pass on the increased cost of fuel to the consumer which could subsequently lead to rising in general price levels. India Inflation has been moderating over the last few months. For april 2012 wholesale price index (WPI) was reported to be at 7.23% increasing from 6.89% mainly on account of rising food prices.

Debt Market

• Bond yields gained marginally closing at 8.50% as on 15th May 2012 marginally higher than its previous close at 8.45% a month earlier.

• Though the yields witnessed a decline during the mid of the month on account of the reduced liquidity levels in the market, recovered on the back of the open market operation to the extent of `12,000 cr by RBI towards easing liquidity levels.

Top 5/Bottom 5

Equity Schemes

Top Performers Under Performers

Absolute Absolute Scheme Name Return(%)* Scheme Name Return(%)*

SBI Magnum FMCG 12.28 Sundaram-Select Them Funds-Energy -6.76

ICICI Pru FMCG 9.80 Birla SL New Millennium -6.84

Reliance Pharma 8.81 SBI Magnum IT -9.27

SBI Magnum Emerging Businesses 7.01 DSPBR Technology.com -9.31

SBI Magnum Pharma 5.90 Franklin Infotech -9.94

Debt Schemes

Top Performers Under Performers

Annualised AnnualisedScheme Name Return(%)* Scheme Name Return(%)*

BNP Paribas Flexi Debt Fund 1.78 Taurus Gilt -1.80

Tata FRF-LTP 1.72 Escorts Income Bond -1.26

Kotak Gilt-Invest-Reg 1.52 ING Gilt-PF-Dynamic -0.50

IDFC Money Mgr-IP-A 1.52 Principal Govt Sec Fund -0.41

Morgan Stanley ST Bond-Reg 1.49 ING Income-Ret -0.21

*Returns as on 15th May 2012

Category Returns: For the one month ended 16th April 2012, all equity fund categories ended weaker in line with the benchmark indices with banking losing the most by 9.60% during the period. This was followed by Infrastructure funds losing 8.81%.

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*Returns as on 15th May 2012.

As investors into equity market, each one of us has had a fair experience of making and losing money from time to time. We may not be in a position to read or understand the entire news but just can not resist from responding on it. Many a times, we are be driven by impulse rather than logic due to the nature of stock market indices that reflect swings from bullish (upward) to bearish (downward) and vice versa, similar to a natural person's mood swings ranging from irritable to overjoyed. Following is a representation of Cycle of Investor Emotions:

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Increase Emotions, Decrease ReturnsIncrease Emotions, Decrease Returns

The Cycle of Investor Emotions

Markets overboughtDownside risk is high

Markets oversoldUpside potential is high

Optimism

Excitement

Thrill

Euphoria

Denial

Fear

Desperation

Panic

CapitulationHope

Relief

Optimism

Despondency Depression

Anxiety

A typical emotional investor depends on information that he receives from several sources, such as financial news media, word of mouth, friends and colleagues to guide their investment decisions, which are often times short term in outlook. The twin emotions of fear and greed have more effect than the other human emotions combined, and have a very serious impact on investment decisions. Emotions of greed manifest in investors with an excessive desire to acquire as much wealth as possible in the shortest time. Fear manifests as an unpleasant, strong emotion and anticipation or awareness of danger. But being too fearful can be just as costly as being too greedy.

Emotional investors make decisions by impulse and fuelled by irrational exuberance and irrational pessimism, rather than reason. They join in the race to buy or sell stocks, simply by listening to experts or breaking news that keep coming up with one story or another to support an everlasting trend.

The field of behavioral finance seeks to explain the set of psychological biases that affect people's investment decisions. For example: If you could not bring yourself to sell a stock that has been eroding continuously, or if you have picked investments because they felt “safe,” there's a good chance you are managing your money with your heart and not your head. The following is a check list of questions you should try and answer to gauge if your investment decisions are emotionally driven:

• Do you celebrate unrealised profit?

• Are you fixated on stock news?

• Do you fear stock updates?

• Do you sell your stocks if it falls by a few kobos?

• Do you make frequent calls to your broker?

• Do you panic over bad news?

Incase, to any of the above question/s your answer is “YES”, then you are an Emotional Investor.

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How does this impact?

On account of Anchoring: The concept of anchoring draws on the tendency to attach or "anchor" thoughts to a reference point - even though it may have no logical relevance to the decision at hand. This could even become a source of frustration incases where the data on which the decision is based lacks relevance. Like preference towards investing into funds which has lower NAV than others, when NAV is just an indicator of the portfolio value gained during the time of the existence of the funds and not the earning potential of the fund. The only way by which we can avoid this, is by critical thinking and be careful about which figures we use to evaluate the potential. Successful evaluation of an investment alternative from a variety of perspectives is required to derive its truest picture.

On account of Recency: This one is being put to use by many of us in our decision making especially investments. Investors with a “recency bias” assume events or patterns of the past will continue into the future. Recent memories of loss or prosperity are the guiding force for this type of investor's investment decisions. Best example, Gold was always looked upon only as jewellery in India. However in recent times, looking at the rally in gold prices, several individuals have started diverting all their money into gold increasing its portfolio concentration significantly, in the hope of continuity in the growth rate without being much aware of the underlying reasons for growth. Another example would be real estate prices bubble.

Strategies to Take the Emotion Out of Investing

The best available method to avoid emotions in investing is Rupee-cost averaging (RCA) of investment, where equal amounts are invested at a regular, predetermined interval. This strategy is good during all market conditions. During a downward trend, investors are purchasing more units at cheaper and cheaper prices. During an upward trend, the units previously held in the portfolio are producing capital gains and fewer units are being added at the higher price. The key to this strategy is to stay course-set and not tamper with it unless a major change warrants revisiting and rebalancing the established course.

Another technique to diminish the emotional response to market investing is to diversify a portfolio. Rarely had there been a scenario, when all the markets have moved in unison and diversification provided little protection. In most normal market cycles, the use of a diversification strategy provides downward protection. Diversifying a portfolio can take many forms - investing in different industries, different geographies, and different types of investments and even hedging with alternative investments.

Conclusion

Investors are no doubt familiar with the standard disclaimer, “past performance is not indicative of future results.” But this compliance truism tends to stay in the fine print, both on paper and in investors' minds, when they are making decisions based on real-time market dynamics.

Investing without emotion is easier said than done, especially because uncertainty rules the market and the media. Evidence suggests that most investors are emotional and maximize investments at the wrong times. Strategies that eliminate the emotional response to investing would produce returns that are significantly greater than those indicated by the typical investor responding to the market rather than proactively investing in the market. Rupee-cost averaging and diversification are two proven strategies within a multitude of other alternatives to reduce an investor's emotional reaction to the market.

Investment sage Warren Buffett, in a play on Sir Isaac Newton's laws of motion, has said: “For investors as a whole, returns decrease as motion increases.”

HDFC Mid Cap Opportunities Fund

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TYPE OF SCHEMEOpen ended Fund of Fund

DATE OF INCEPTION 25-Jun-2007

FUND MANAGER Chirag Setalwad, Rakesh Vyas

FUND SIZEMar 2012 `1,860Dec, 2012 `1,700Sep, 2011 `1,606Jun, 2011 `1,444

LATEST NAV NAV-Growth(G) `15.53(15-May-12)NAV-Dividend(D) `14.08(15-May-12)

52 WEEK HIGH 52 WEEK LOW` 16.83 `13.11

FUND STATISTICSStandard Deviation 16.37Beta 0.37Sharpe Ratio 0.62R Squared 0.57Portfolio T/O (Mar-12) 15.1%Expense Ratio (Apr-12) 1.91%

BENCHAMRKCNX Midcap

MINIMUM INVESTMENT` 5,000/- in multiples of ` 1000/- thereafter

LOAD STRUCTUREEntry Load NILExit Load Upto 1 Year from allotment

- 1% of applicable NAV, more than 1 Year - Nil

*Ratios are calculated on annualised basis using 3 yrs history of half yearly data; Risk free return: 8%

Fund focus: HDFC Mid Cap Opportunities Fund has coined its investment objective to be to achieve long term capital appreciation from a portfolio that is substantially constituted of equity and related securities of Small and Mid-Cap companies. The fund focuses on this segment of securities on the basic expectation that “Today's Small/Mid Cap could be tomorrow's potential Large Cap”.

Portfolio: The Fund's portfolio can be considered to be fairly diversified with 40 stocks forming the funds portfolio. The fund manager believes in the running his bets until he achieves his desire level of appreciation from the investment. Even though past one year has been very volatile as well as been negative for the mid-cap based stocks, the fund manager did not undertake too many alterations to the funds portfolio and has tried to encash on some short term gains through some surgical investments like KNR Constructions, GSK Pharma, Jain Irrigation, Marico, Oil India were the fund manager took exposure in the fund purely to gain from the brief rally that was witnessed in the equity market during stocks. The portfolio constitutes exposure into 12 sectors with Banking and Finance forming 18.66% of the overall portfolio followed by 12.4% in Pharma sector. The top 10 holdings of the fund constitute to 30.57% of the fund indicating fairly diversified portfolio holdings.

AUM Change: AUM of the fund has increased by `639crores ( 52.33%) to `1860crores on March 2012 from `1221crores a year ago. The increase in AUM has been predominantly on account fo the higher inflows into the fund can be attributed to the higher inflows into the fund amounting to `535crores ( 43.82%) which asset value increased by even though its market value declined by ̀ 110crores ( 5.59%).

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Performance: A mid cap fund is always subject to increased volatility which can be attributed to the nature of underlying stocks in the portfolio. However, amidst this volatility the fund has been able to outperform its benchmark CNX Midcap for 15 out of 18 previous quarters and that to by a substantial margin. Even on a point-to-point basis the fund has outperformed in all time horizons as can observed from the chart below. During the one year period ending 15th May 2012, the fund declined by about 0.09% as compared to decline of 13.35% by its benchmark. The outperformance can be attributed to fund's significant exposure into stocks like FAG Bearing, Bata India, Amara Raja Batteries which were amongst the highest gainers during the period.

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Top 5 Companies Holding (%) Top 5 Sectors Holding (%)

Company % N.A. Sector % N.A.

Carborundum Universal Ltd. 4.10 Diversified 19.95

Ipca Laboratories Ltd. 3.78 Banking & Finance 18.66

Allahabad Bank 3.52 Pharma 12.4

Bank Of Baroda 3.08 Auto Ancillary 6.3

Bata India Ltd. 3.07 Computers 5.97

Total 17.55 Total 63.28

Total No. of Companies 40 Total No. of Sectors 12

Corporate Office Address : Website :

A1, Kailash Industrial Complex, Park Site, Off LBS Marg, Vikhroli West, Mumbai - 400 079. Tel: +91-22-6754 7000 • E mail : mutualfunds@ventura1.com • www.ventura1.com

This document is solely for private circulation only. Mutual funds like securities investments are subject to market risks and other risks. Investors are advised to read the offer document before investing.

Performing Mutual Fund Plans

Scheme Name Corpus NAV (`) Annualised %

(` Crs)# Gr Div 1 mth 3 mths 6 mths 1 yrIncome Funds

Birla SL Dynamic Bond Fund 5348 10.55 18.22

HDFC High Interest-STP 1410 21.28 10.61

Ultra Short Term Plan

HDFC Cash Mgmt-TA 15232 23.44 10.03

Reliance Money Manager 7279 1,461.90 1,001.12

Tata Floater 2109 16.26 10.32

8.76 8.43 10.38 9.81

6.26 7.10 8.59 8.52

8.22 9.28 8.64 8.50

8.97 9.10 8.76 8.66

10.03 9.93 9.34 9.65

*Returns for less than 1 year is absolute (in case of MIP, it is annualized) and more than 1 year are compounded annualized as on 15th May 2012.#Corpus as on March 2012 as AMFI has mandated for quarterly AUM declaration.

Scheme Name* Corpus NAV (`) 6 mths 1 yr 3 yrs 5 yrs

(` Crs)# Gr Div (%) (%) (%) (%)Hybrid - Monthly Income Plans (MIPs)HDFC MIP-LTP Fund 6636 12.60 24.03Reliance MIP Fund 4142 10.74 23.22Balanced FundHDFC Prudence 6249 205.88 24.70Equity – Large CapDSPBR Top 100 Equity 3274 93.78 18.85Franklin India Bluechip 4625 198.09 32.59HDFC Top 200 11381 185.21 36.35ICICI Pru Dynamic 4119 100.55 16.47ICICI Pru Focused Blue Chip Equity 3805 15.32 14.62Equity – Multi capBirla SL Dividend Yield Plus 1163 80.34 12.05HDFC Equity 9916 241.22 37.04IDFC Premier Equity-A 2561 32.25 21.25Reliance Equity Oppor 3340 35.31 21.38UTI Dividend Yield 3713 29.01 12.46Equity – MidCapDSPBR Small & Mid Cap 1201 16.11 12.56HDFC Mid-Cap Oppor 1860 15.53 14.08ICICI Pru Discovery 1779 47.44 18.10SBI Magnum Emerging Businesses 561 45.21 14.58Sundaram Select Midcap 2062 138.04 15.62Equity - Thematic HDFC Infrastructure 746 9.16 9.16Reliance Banking 1731 86.55 31.42Reliance Pharma 564 56.39 38.17Tax Saving Scheme (ELSS)Fidelity Tax Advt 1199 19.77 15.48HDFC TaxSaver 3114 206.77 46.99ICICI Pru Tax Plan 1278 128.07 16.27Fund Of FundsDSPBR World Gold 865 15.77 12.91Sensex 16,328.25Nifty 4,942.80

4.17 3.57 10.71 9.257.00 5.85 9.52 10.06

3.66 22.97 11.84

0.96 15.58 8.8115.91 8.3516.87 10.16

3.53 19.15 8.1618.70

0.33 24.38 12.610.33 20.99 9.42

25.37 15.156.79 29.00 9.97

18.32 11.30

0.59 27.45 8.483.91 29.50 -

10.54 30.82 12.074.12 12.20 34.43 8.68

23.69 8.41

11.511.57 21.44 15.875.19 1.70 38.22 20.88

18.95 8.2319.52 7.39

1.15 22.53 7.34

6.7810.27 3.2310.41 3.70

-3.59

-5.64-1.94 -7.18-1.36 -12.36

-6.61-2.09 -5.67

-5.72-14.22

-3.39 -3.48-0.99

-4.45 -10.21

-7.74-0.54-4.09

-0.01 -7.17

-0.67 -21.27-15.38

-2.86 -8.41-0.97 -10.31

-8.62

-24.32 -9.32-3.28 -11.89-2.48 -10.86

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