Mutual Fund

Investor’s dilemma

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Expectations Reality

Investor’s dilemma

Expectations Reality

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Typical investor behavior observed through different phases of markets

Often seen that with highermarket valuations, the flows inequities mutual fund schemesgrows and vice versa.

Whereas to optimize returns, thecase should be reverse.

Every bull and bear run in the marketwitnesses different emotional and sentimentalbehaviors of investors.

Source: www.nseindia.com, www.amfiindia.com

Flexibility is the key to Success

Hence, you need to know when to be invested into equities and to what extent of your assets.

Bouncers have to be left untouched

Defend the in-swinging yorkers

And drive to boundaries on good length balls

To score high, the batsman have to adapt to different deliveries in a differently, like…

Likewise, in investing, one cannot generate returns from same asset class, EVERYTIME.

Principal Balanced Advantage Fund

To make your expectations meet the reality

To build long term wealth using market timing

To overcome sentimental and emotional investing

Equity Debt ArbitragePower of 3, based on market PE.

Our asset allocation is based on simple indicator called “Price to Earnings” or “PE”.

Typically, the Price to Earnings or PE is a measure of how are company’s earnings valued in the market.

What is Price to Earnings Ratio or PE?

Decoding PE:

PE is referred to as the price multiple

because it shows how much the

investors are willing to pay for per

Rupee of company’s earnings.

If a stock is currently trading at a

multiple (PE) of 20, the

interpretation is that an investor is

willing to pay Rs. 20 for Re. 1 of

current earnings.

Data Source – www.nseindia.com

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Nifty 50 TRI (LHS)

Historical P/E (RHS)

Nifty 50 TRI - 1 year rolling return on daily frequency since Jan 2000

Average Returns 17.12%

73.78%

39.16%27.29% 25.20%

0.00% 0.00%

-26.22%

-60.84%-72.71% -74.80%

-100.00% -100.00%

+ve Observations (%) -ve Observations (%)

<=18>18 but

<=20

>20 but

<=22

>22 but

<=24

>24 but

<=26

>26PE Bands

The adjoining chart depictsthat at lower PE, theprobability of generatingabove average returns ishigher and vice versa.

Historically, if one hasinvested in markets valuedover 24 PE (red circle), thereturns generated on 1years daily rolling basishave always been belowthe average of Nifty 50 TRI.

2418 1231 1396 996 258 92No of observations

Data as on 30th Jun 2018. Past performance may or may not be sustained in future.

Why is PE a reliable market indicator?

Internal analysis. Data Source – www.nseindia.com and www.amfiindia.com

Though equities have history of generating wealth in the longer run, they also have a tendency to be most volatile in shorter time frames.

Why invest in a Balanced Advantage Fund?

A Balanced Advantage Fund endeavors to minimize the volatility

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Internal analysis. Data Source – www.nseindia.com, www.cirisil.com; Data from 1st Apr 2010 to 30th Sep 2018.

Nifty 100 TRI 50% Nifty 100 TRI + 35 Crisil Short Term Bond Index + 15% Nifty Arbitrage Index

Difference

Annualized Standard Deviation 15.64% 7.87% -7.77%

Compounded Annualized Returns 10.77% 9.50% -1.27%

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Nifty 100 TRI 50% Nifty 100 TRI + 35 Crisil Short Term Bond Index + 15% Nifty Arbitrage Index

The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategy as mentioned in the Scheme Information Document of the scheme. The views contained herein are not to be taken as an advice orrecommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. This material should not be relied upon by you in evaluating the merits of investing in any securities or products.Diversification does not guarantee investment returns and does not eliminate the risk of loss. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may notget back the full amount invested. Past performance may or may not be sustained in future. The views and strategies described may not be suitable for all investors. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s),there can be no assurance that those objectives will be met. Investors are advised to consult their Investment advisors for determining their risk appetite and Tax Advisor before taking any investment decision.

How Principal Balanced Advantage Fund works?

Weighted Average PE (Standalone) of Nifty 50 IndexValuations from

Long Term PerspectiveTypical Retail

Investors ResponseFund’s

Response

Less than or equal to 18 Very AttractiveIndifferent /

CautiousBullish

Above 18 – Less than or equal to 20 Very AttractiveIndifferent /

CautiousBullish

Above 20 – Less than or equal to 22 Attractive Skeptic Positive

Above 22 – Less than or equal to 24 Reasonable Skeptic Positive

Above 24 – Less than or equal to 26 Not Attractive Bullish Cautious

Above 26 Overpriced Bullish Cautious

Market valuations alters the investment response

PE bands and net equity allocation

As per the investment strategy of the scheme (as per SID), the rebalancing of the portfolio (if required) to bring the equity component in line with the new PEband would be done latest before the end of the subsequent month.

How Principal Balanced Advantage Fund works?

The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategy as mentioned in the Scheme Information Document of the scheme. The views contained herein are not to be taken as an advice orrecommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. This material should not be relied upon by you in evaluating the merits of investing in any securities or products.Diversification does not guarantee investment returns and does not eliminate the risk of loss. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may notget back the full amount invested. Past performance may or may not be sustained in future. The views and strategies described may not be suitable for all investors. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s),there can be no assurance that those objectives will be met. Investors are advised to consult their Investment advisors for determining their risk appetite and Tax Advisor before taking any investment decision.

We use the month-endTrailing PE Ratio of Nifty 50Index to understand if themarket is overvalued orundervalued or fairlyvalued.

Based on the currentvaluation and using apredefined table of PElevels we add or reduceequities in the portfolio.

Weighted Average PE (Standalone) of Nifty 50 Index Net Equity Component (%)

Less than or equal to 18 80-100

Above 18 – Less than or equal to 20 60-80

Above 20 – Less than or equal to 22 40-60

Above 22 – Less than or equal to 24 30-50

Above 24 – Less than or equal to 26 20-40

Above 26 15-25

Principal Balanced Advantage Fund – Historical Asset split vs the PEAllocation to Net Equity reduced sharply when markets turn expensive

Internal analysis. Data Source – www.nseindia.com; Equity allocation is of Principal Smart Equity Fund

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Net Equity P/E Ratio

The Investment Strategy

Equity Investment Strategy

A large cap oriented portfolio.

Equity stock selection with endeavor topotentially outperform benchmark in 2-3 yearstimeframe.

Active management of the portfolio inresponse to dynamic market conditions.

Fixed Income Strategy

Average maturity of debt portion is managedsimilar to a mix of Low Duration to Short Termdebt fund category.

Endeavors to invest in high quality short termCorporate Bonds and Money Market Instruments.

Tactical short term trading exposure to GILTS maybe undertaken.

DISCLAIMER: The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategy as mentioned in the Scheme Information Document of the scheme.

The Investment Philosophy

At Principal we firmly believe:

3 key attributes distinguish superior stock selection : ▪ Sustainable Fundamental Change▪ Rising Investor Expectations▪ Attractive Relative Valuations

Bottom-up stock selection is the most reliable and repeatable source of consistent investment performance

Integration of traditional and quantitative fundamental research

▪ Breadth through a sophisticated comparative stock selection framework

▪ Depth through focused due diligence and expertise

Idea Generation

Preliminary Screening

Research & Analysis

Portfolio Construction

Portfolio Monitoring

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Benchmark Aware, Risk Controlled Process backed by Global Best Practices

The Investment Process

Performance Attribution

Liquidity Analysis

Limit Report

Sector Active Weights

Coverage Ratio

P.V.K. Mohan joined Principal PNB Asset ManagementCompany as Senior Fund Manager- Equity and is currentlyHead - Equity.

He has over 25 years of experience in equity research and fundmanagement. In his previous assignments he has worked withICICI Prudential Mutual Fund PMS as Senior Fund Manager(Equity) DSP BlackRock Mutual Fund PMS as PortfolioManager (Equity) and IL&FS, initially as part of a teamproviding Advisory Services to an India-dedicated Fund andlater as Fund Manager of IL&FS Mutual Fund.

He holds a Post Graduate Diploma in Management from TheIndian Institute of Management, Bangalore and degree inElectrical Engineering from NIT Calicut.

Bekxy has over 18 years of experience in dealing, research andfund management. In her previous assignments she hasworked with L&T Mutual Fund as AVP (Fixed Income) handlingall fixed income funds, Reliance Life Insurance as FundManager (Fixed Income) and SBI Mutual as Fund Manager forsome debt schemes.

She has completed her PGDM from IIM Bangalore and holds aB.A.(Hons) degree in Economics from Lady Shri Ram College,Delhi University.

The Investment Managers

Fund Facts

Top 10 Equity Holdings Sectoral Allocation

Standard^@ Deviation:

6.32%

Portfolio^@ Beta:

0.82

Sharpe^@ Ratio:

0.06

Portfolio Turnover:**@

6.32

Gross YTM:

8.46%

@ For equity portion only. Data as on Sep 30, 2018

^ The above measures have been calculated by taking rolling returns for a 3 year period with 6.6% risk free rate of return (1 days - MIBOR Rate as on Sep 30, 2018).** The Portfolio Turnover Rate (PTR) means the lower of aggregate sales or purchases made during the 12 month rolling year/period divided by the 12 month rolling year/period Average asset under Management for the relevant year/period (As on Sep 30, 2018).

Key Ratios

Scrip Name % of NAV

Tata Consultancy Services Ltd. 1.54%

Reliance Industries Ltd. 1.34%

Infosys Ltd. 1.18%

NTPC Ltd. 1.11%

ITC Ltd. 1.03%

GlaxoSmithKline Consumer Healthcare Ltd. 0.99%

Marico Ltd. 0.99%

Hindustan Unilever Ltd. 0.97%

Power Grid Corporation of India Ltd. 0.96%

Larsen & Toubro Ltd. 0.93%

13.64

12.47

10.27

9.49

5.79

3.47

3.27

1.87

1.34

1.08

Banks

Pharmaceuticals

Finance

Auto

Consumer Non Durables

Software

Power

Cement

Petroleum Products

Construction Project

Fund DetailsNature of Scheme An open ended dynamic asset allocation fundInception date (Regular Plan)

16th Dec 2010

Investment Objective

The primary objective of the scheme is to seek to generate long term capital appreciation with relatively lower volatility through systematic allocation of funds into equity; and in debt /money market instruments for defensive purposes. The Scheme will decide on allocation of funds into equity assets based on equity market Price Earnings Ratio (PE Ratio) levels. When the markets becomeexpensive in terms of ‘Price to Earnings’ Ratio; the Scheme will reduce its allocation to equities and move assets into cash future arbitrage/ equity derivatives, debt and/or money market instruments and vice versa

Fund ManagerMr. PVK Mohan (for equity component).Ms. Bekxy Kuriakose (for debt component).

Investment Plan Direct & Regular.Investment Options Growth & Dividend.

Min Application Amount

Initial Investment – Rs.5,000/- and any amount in multiple of Rs.1/- thereafter under each plan/option.Subsequent investment – Rs.1,000 and any amount in multiple of Rs.1/- thereafter under each plan/option.Systematic Investment Plan: Minimum Twelve installments of Rs.500/- each.Systematic Transfer Plan: Minimum Six installments of Rs.1,000/- eachRegular Withdrawal Plan (RWP): Minimum six installments of Rs.500/- each.

Load Structure

If redeemed/ switched on or before 1 year from the date of allotment:- Nil for redemption/ switch out of units up to 24% of the units allotted (the limit)- 1% on redemption in excess of 24% of the limit stated above- Redemption of units would be done on First in First out Basis (FIFO)Nil thereafter

Benchmark 50% Nifty 100 Index + 35% CRISIL Short Term Bond Index + 15% NIFTY Arbitrage Index

DISCLAIMER: The investment strategy stated above may change from time to time without any notice and shall be in accordance with the strategy as mentioned in the Scheme Information Document of the scheme. The viewscontained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. This material should notbe relied upon by you in evaluating the merits of investing in any securities or products. Diversification does not guarantee investment returns and does not eliminate the risk of loss. It should be noted that the value ofinvestments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Past performance may or may not be sustained infuture. The views and strategies described may not be suitable for all investors. Furthermore, whilst it is the intention to achieve the investment objective of the investment product(s), there can be no assurance that thoseobjectives will be met. Investors are advised to consult their Investment advisors for determining their risk appetite and Tax Advisor before taking any investment decision.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

For Distributors only and not for further circulation