This product is suitable for investors who are seeking* : Riskometer

Ÿ Regular income over medium to long term

Ÿ Investment in debt and money market instruments
as well as equity and equity related instruments

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
MIP + SWAP – An Alternative to Fixed
Savings Schemes

Breaking the Fixed Savings Scheme Barrier

Currently, fixed deposits are amongst the most sort after investment avenues for retirement savings in the country. In addition to being
locked in assets which do not grow, the income earned is tax inefficient.

Target Money

Investment Bank Fixed Deposits* NBFC Deposits* Post Office Deposit Total
Schemes**

Amount (In Cr.) 90,45,000 12,66,300 6,03,170 1,09,14,470

Source: * Reserve Bank of India - As on Feb 6th 2015. ** India Post Annual Reports - As of Mar 31st 2013

In contrast MIP's provides a comparatively more tax efficient income. When coupled with a Systematic Withdrawal Plan (SWP), income from
MIP's using SWP is treated as capital gains. In addition if units are held for a period exceeding 3 years the unit holder can make his returns
even more tax efficient by applying indexation. A comparison with similar fixed savings schemes reiterates this point.

Monthly Income Plans (MIPs)

MIPs are debt oriented hybrid funds with a small equity component. The Investment objective of Monthly Income plans is to generate
regular returns through investment primarily in Debt and Money Market Instruments, also to generate long-term capital appreciation by
investing a portion of scheme's assets in equity and equity related instruments”. Though the objective is to provide regular returns, but the
regularity and quantum is not assured. MIPs tend to provide a monthly income to investors, but the periodicity depends upon the option you
choose. MIPs with Dividend Option generally offer monthly, quarterly, half-yearly and annual options. A Growth Option is also available,
where you do not receive regular dividends, but gains in the form of capital appreciation.
Thus, an MIP offers two streams on Incomes – Dividends and Capital gains. Dividend is taxed by way of dividend distribution tax (DDT) and
capital gains tax is levied depending on the tenure of holding (Short Term(≤ 3Years)/ Long Term (>3Yrs)).

HDFC MIP – An Introduction

HDFC MF Monthly Income Plan (HDFC MIP) endeavors to provide you with regular income at a pre-defined frequency. HDFC MIP offers two
Plans as a separate investment portfolios viz. Short Term Plan (STP) and Long Term Plan (LTP). Both Plan(s) invests primarily in debt and
money market instruments (75-85%) while the remaining is invested in equities. Generally, the equity allocation is capped maximum at 25%.
The fund targets returns that are better than debt schemes, while maintaining a lower volatility vis a vis equity schemes.

MIP with Growth Option:

Here, the money keeps growing in the scheme. Hence you can reap all the benefits at the time of redeeming the funds in future. It is
important to note that you get power of compounding in growth option because your returns also earn in future.

Investors can opt for a Systematic Withdrawal Advantage Plan ('SWAP') on their holdings in growth option of the HDFC MIP plans as an
alternative to fixed savings scheme(s) and can provide a more tax efficient income as compared to fixed savings scheme(s).

What is SWAP?
Systematic Withdrawal Advantage Plan (SWAP) offered by HDFC Mutual Fund enables investors to redeem a pre-defined amount from their
investments at regular intervals, say monthly. Unit-holders has an option to select any one of the following SWAP withdrawal date i.e. 1st, 5th,
10th, 15th, 20th, 25th. Currently, Fixed Systematic Withdrawal Advantage Plan is available for Monthly/ Quarterly / Half yearly / Yearly intervals
and Variable Systematic Withdrawal Advantage Plan is available for Quarterly/ Half Yearly / Yearly intervals only. Fixed Plan is available for
Growth and Dividend option whereas Variable Plan is available for Growth Option only.

Monthly income is not assured and is subject to availability of distributable surplus. HDFC Mutual Fund/AMC is not guaranteeing return on investments made in
the scheme and/or by opting SWAP on the holdings in HDFC MIP growth option. In view of the individual circumstances and risk profile, each investor is advised to
consult his / her financial/tax advisor(s) before making a decision to invest. Unlike PPF, NSC, & Bank FDs, investment in mutual funds are subject to market risks.
Hence, these asset class performances are not strictly comparable.

1
MIPs do not enjoy the tax benefits of equity funds and are taxed just like debt funds, where the dividend is tax-free in the hands of the
investors but only after deduction of dividend distribution tax. Thus, in case SWAP is opted on your holdings in growth option of MIP, in the
initial period of SWAP, the gain portion is much smaller. Most of the payout actually consists of the principal (investment). Over time, the
principal component of the payout decreases giving way to the gain component. The short-term capital appreciation (selling price – cost of
acquisition) would be taxed at the rate applicable based on the income slabs of the investors. Long-term capital gain would be charged at
20% with indexation.

How does a Fixed SWAP in a growth option of HDFC MIP-LTP work?

1 2 3 4 5 6 7 8

Date NAV Cashflow Units Transacted Units Income Principal Component Value of
MIP LTP (Col 3/Col 1) Outstanding Component (Initial Purchase Price Investment in MIP
(G) (Col 3 - Col 7) * Col 4) - LTP (Col 5 * Col 2)

01-01-2014 27.31 1,00,000 3,661.21 3,661.21 - 1,00,000 1,00,000

01-02-2014 27.08 (700) (25.85) 3,635.36 (6) 706 98,448

01-03-2014 27.36 (700) (25.58) 3,609.78 1 699 98,776

01-04-2014 28.47 (700) (24.59) 3,585.19 28 672 1,02,066

01-05-2014 28.89 (700) (24.23) 3,560.96 38 662 1,02,873

01-06-2014 30.72 (700) (22.78) 3,538.17 78 622 1,08,704

01-07-2014 31.58 (700) (22.17) 3,516.01 95 605 1,11,031

01-08-2014 31.42 (700) (22.28) 3,493.73 92 608 1,09,778

01-09-2014 32.08 (700) (21.82) 3,471.91 104 596 1,11,383

01-10-2014 32.16 (700) (21.76) 3,450.15 106 594 1,10,974

01-11-2014 33.18 (700) (21.10) 3,429.05 124 576 1,13,772

01-12-2014 33.98 (700) (20.60) 3,408.45 137 563 1,15,821

01-01-2015 34.11 (700) (20.52) 3,387.92 139 561 1,15,545

Particulars SWAP Value Principal Taxable Income Tax to be Paid @ Tax as a % of Units Value of
Returned 30% SWAP Outstanding Investment
Amount 8,400 7,464 936 289 3.44% 3,387.92 1,15,545

Internal data Computation. The above simulation is for illustration purposes only. HDFC Mutual Fund/AMC is not guaranteeing return or investments made
in the scheme and/or by opting SWAP on their holdings in growth option with HDFC MIP - LTP. Investors should be aware that the fiscal rules/ tax laws may
change and there can be no guarantee that the current tax position may continue indefinitely.

As seen in the illustration, the rise in NAV (Column 2) leads to a lower number of units getting redeemed (Column 4) for the same transaction
amount (Column 3). Since the tax has to be paid only on the realized capital gains (Column 6), the initial taxable income is very low.
Additionally, after 3 years the entire investment becomes a long term asset thereby further enhancing the tax efficiency. This serves a
secondary benefit, where-in the unused units appreciate further during the course of the investment thus keeping the end investment value
above the original investment (Column 8). Hence to summarize, as time goes on and the NAV value increases, the principal component per
SWAP comes down, thereby retaining a larger portion for future capital appreciation.

Monthly income is not assured and is subject to availability of distributable surplus. HDFC Mutual Fund/AMC is not guaranteeing return on investments made in
the scheme and/or by opting SWAP on the holdings in HDFC MIP growth option. In view of the individual circumstances and risk profile, each investor is advised to
consult his / her financial/tax advisor(s) before making a decision to invest. Unlike PPF, NSC, & Bank FDs, investment in mutual funds are subject to market risks.
Hence, these asset class performances are not strictly comparable.

2
SWAP in HDFC MIP - An alternative to a fixed savings scheme

¦ Choice of two plans – Short term plan, Long term plan.

¦ Choice of withdrawal frequencies – Monthly, Quarterly, Semi –annually & annually.
¦ Choice of dates.
¦ No Tax Deducted at Source (Other than NRI’s)
¦ High liquidity.
¦ Tax efficient as compared to other fixed savings products.
¦ No upper limit in investment.
¦ Very low minimum amount for SWAP. (Rs. 500/-)
¦ Choice to fix tenure for SWAP. ( Recommended period is ≥60 months)

Comparison of Popular Plans with HDFC MIP

Security Rate of Return Income Returned / Month

Initial Investment 1,00,000 2,00,000 5,00,000 1,000,000

Postal MIS 8.40% 700 1,400 3,500 NA

Post Tax Return 484 967 2,419 NA

SBI Fixed Deposit 8.50% 708 1,417 3,542 7,083

Post Tax Return 489 979 2,447 4,895

LIC Varishta Bhima Yogna 9.00% 750 1,500 3,750 7,500

Post Tax Return 518 1,037 2,591 5,183

AAA Rated Fixed Deposit 8.40% 700 1,400 3,500 7,000

Post Tax Return 484 967 2,419 4,837

HDFC MIP - LTP SWAP 8.40% * 700 1,400 3,500 7,000

Post Tax Return 645 1,291 3,227 6,454

Assumptions: Post tax returns for all fixed savings products other than HDFC – MIP have been calculated assuming the investor falls in the 30%
tax bracket. Cesses levied on income taxes have also been taken into account while calculating the post tax returns. The comparison is done
assuming an investment tenure of 60 months. This SWAP percentage can be modified if the investor decides to do so. Since the taxes payable on
MIP returns are limited to the capital gains on redemption proceeds the entire redemption proceeds will not get taxed unlike other schemes The
return assumed for HDFC MIP is based on a 8.40% rate of redemption on the investment corpus in regular monthly SWAP`s. Assumed rate of
return is 10% based on past performance (Refer illustration on Page 4).
Source: CRISIL, Post Office, State Bank Of India, LIC

The need for ascertaining the correct SWAP

In order to maintain the principal component throughout the life of the investment we have to ensure that the SWAP redemption value is ≤
the return by way of capital appreciation. For this purpose we have assumed a rate of 8.40% of amount invested as monthly redemption
proceeds. In our back test model we have determined that over the past 5 years the average return on a CAGR basis was in excess of 10% in
both products. Hence the back-test model gave us the following result

Monthly income is not assured and is subject to availability of distributable surplus. HDFC Mutual Fund/AMC is not guaranteeing return on investments made in
the scheme and/or by opting SWAP on the holdings in HDFC MIP growth option. In view of the individual circumstances and risk profile, each investor is advised to
consult his / her financial/tax advisor(s) before making a decision to invest. Unlike PPF, NSC, & Bank FDs, investment in mutual funds are subject to market risks.
Hence, these asset class performances are not strictly comparable.

3
Illustration: Summary of a Back Test Model (HDFC MIP LTP)

10 Year Back-test 5 Year Back-test 3 Year Back-test

Date of Investment 01-Jan-05 01-Jan-10 01-Jan-12
Amount of Investment (`) 10,00,000 10,00,000 10,00,000
NAV on Date of Investment 11.1544 20.7448 22.8014
Units Allotted 89,650.72 48,204.85 43,856.96
Swap Start Date 01-Feb-05 01-Feb-10 01-Feb-12
Enter Swap Amount (`) 7000 7000 7000
Report Date 01-Jan-15 01-Jan-15 01-Jan-15
No of SWAP installments Completed 120 60 36
Amount Withdrawn through SWAP (`) 8,40,000 4,20,000 2,52,000
Principal Component (`) 503,717 348,092 212,449
Interest Component (`) 336,283 71,908 39,551
Units withdrawn through SWAP 45,158.62 16,779.73 9,317.38
Balance Units Available 44,492.11 31,425.12 34,539.58
Value of Investment as on Report Date (`) 1,516,460 1,071,088 1,177,240
Return (CAGR) 11.84% 10.04% 14.22%
Internal Data computation

MIP Short Term Plan (STP) V/s MIP Long Term Plan (LTP)

Points of Differenciation MIP STP MIP LTP

Equity Participation Maximum 25%. Currently maintained at 15-20% Maximum 25%. Currently maintained at 20-25%

Debt Maturity Shorter Term Maturities Longer Term Maturities

Return Volatility Lower Volatility Higher Volatility

** Current investment strategy is subject to change depending on prevailing market conditions and fund manager view.

Fund Suitability
This fund is suitable for
¦ Investors with a conservative risk outlook but tolerant towards controlled equity exposure
¦ Investors desiring a mixture of income and capital appreciation to overcome the impact of inflation
¦ Investors who are nearing retirement/retired or those investors seeking regular cash flows

Monthly income is not assured and is subject to availability of distributable surplus. HDFC Mutual Fund/AMC is not guaranteeing return on investments made in
the scheme and/or by opting SWAP on the holdings in HDFC MIP growth option. In view of the individual circumstances and risk profile, each investor is advised to
consult his / her financial/tax advisor(s) before making a decision to invest. Unlike PPF, NSC, & Bank FDs, investment in mutual funds are subject to market risks.
Hence, these asset class performances are not strictly comparable.

4
The HDFC MIP SWAP Process

Investor invests an initial lumpsum with a view to build a well funded corpus.This investment can be done topped up and
Lumpsum doesnot have any upper limit.
investment

The investor should then identify a reasonable standard of living and the monthly costs associated to retirement. Create a
monthly systematic withdrawal plan (SWAP) instruction for the said amount. Typically a correct SWAP value would be 8.40%
Create a
SWAP of investment.

The determined SWAP will ensure a redemption every month on a pre-defined date. The transaction would be calculated

Earn a
based on the repurchase price as on the date of redemption. As the NAV rises the number of units redeemed would fall. At the
Regular end of the period the initail corpus remains intact while you recieve a regular tax efficient monthly income.
Income

Returns on the SWAP will be calculated on the diffrenece between repurchase price and investment price. Difference would
be treated as capital gains. After Year 3, indexation benefit would provide better tax efficiency. Over the course of the
Post Tax
Returns investment the income component of returns will be very low ensuring lower taxation on the consolidated regular income.

Traditional fixed savings products like fixed deposits and schemes like the Postal Monthly Income Scheme (MIS) offer regular

Comparable
income but such income gets eaten away by taxes. Post tax returns are lower since tax deducted or taxes on income take up a
Debt sizeable portion of income earned by way of interest.
Products

Exit Load Structure

In respect of each purchase / switch-in of Units, 15% of the units (“the limit”) may be redeemed without any exit load from the date of
allotment. Any redemption in excess of the limit shall be subject to the following exit load:

¦ Exit load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment of units
¦ No Exit Load is payable if Units are redeemed / switched-out after 1 year from the date of allotment

(With effect from May 08, 2015)

MUTUAL FUNDS ARE SUBJECT TO MARKET RISKS,

PLEASE READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
Monthly income is not assured and is subject to availability of distributable surplus. HDFC Mutual Fund/AMC is not guaranteeing return on investments made in
the scheme and/or by opting SWAP on the holdings in HDFC MIP growth option. In view of the individual circumstances and risk profile, each investor is advised to
consult his / her financial/tax advisor(s) before making a decision to invest. Unlike PPF, NSC, & Bank FDs, investment in mutual funds are subject to market risks.
Hence, these asset class performances are not strictly comparable.