Quantum Information Services Private Limited Independent Mutual Fund Research Feb 2, 2008

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Our View Risk High Return High Snapshot Fund Manager Apoorva Shah Current NAV Rs 48.98 Min./Addl. Inv. Rs 5,000/1,000 Expense Ratio 2.09% (Sep. 07) Entry Load* 2.25% (Max.) Exit Load 1.00% (Max.) Net Assets Rs 14,467.6 m *Entry load on investments not routed through any distributor/broker is Nil Relative Performance (Base=100) NAV Performance NAV Index* 1-Yr 37.6% 28.0% 3-Yr 47.9% 38.0% 5-Yr 58.2% 38.5% Returns over 1 year are compounded annual averages (CAGR) *S&P CNX Nifty Risk measures Std. Deviation 10.47% Sharpe Ratio 0.27%

DSP ML Equity Fund Investors who wish to invest in a value fund, must consider adding the fund to their portfolios Is this fund for you? Value investing entails making investments in stocks of fundamentally strong companies that are trading at a discount to their intrinsic worth. The intention is to buy stocks at an attractive price and to stay invested until they achieve their fair value. This process of unlocking value can typically be a prolonged one. Hence value investing is often associated with longer time frames. DSP ML Equity Fund (DMEF) ranks among the premier value funds in the country. The fund has an impressive track record to show for across parameters vis-à-vis peers. The same has come at a fair degree of consistency. In our view, investors who wish to invest in a value fund, must consider adding DMEF to their portfolios. Fund Outlook DMEF has an impressive track record to show for across the risk and return parameters vis-à-vis peers. Its showing in no small measure can be attributed to the fund house’s process-driven investment style. We believe that the latter will aid the fund to deliver going forward as well. Over longer time frames, investors can expect DMEF to perform competently on the returns front without compromising on the risk parameters vis-à-vis its value peers. Fund Profile Launched in April 1997, DMEF is a value fund from DSP ML Mutual Fund (assets under management Rs 210.3 bn as on December 31, 2007). The fund invests in stocks from across market segments. Its net asset value (NAV) has risen by 47.9% compounded annualised growth rate (CAGR) and 58.2% CAGR over the 3-Yr and 5-Yr time fames respectively. DMEF has clocked a growth of 29.9% CAGR since inception. Fund Manager Mr. Apoorva Shah, Senior VP and Fund Manager, has a PGDM from IIM-Ahmedabad. Before joining DSP Merrill Lynch Fund Managers in April 2006, he held senior positions in the Global Private Client and Institutional Equity Sales divisions of DSP Merrill Lynch Limited. Mr. Shah has been managing DMEF since June 2006.

Peer Comparison

NAV (Rs) Assets (Rs m) Top 10 Stocks (%) 1-Yr (%) 3-Yr (%) 5-Yr (%) Since Incep. (%) Std. Dev. (%) Sharpe Ratio (%) DSP ML Equity (D) 48.98 14,467.6 27.4 37.6 47.9 58.2 29.9 10.47 0.27 Tata Equity P/E (G) 39.31 1,709.4 47.9 48.0 42.6 - 44.7 10.72 0.26 ICICI Pru. Discovery (G) 31.29 6,134.1 49.2 13.3 35.8 - 39.2 10.71 0.14 Templeton India Growth (D) 49.44 4,082.0 63.9 19.5 32.6 45.5 21.7 10.57 0.20 UTI Master Value (G) 39.51 26,876.3 47.9 29.9 27.7 41.8 27.4 10.71 0.14 S&P CNX Nifty 28.0 38.0 38.5 (NAV data as on January 29, 2008. Returns over 1-Yr are compounded annualised) With an NAV appreciation of 47.9% CAGR, DMEF emerges as the top performer over the 3-Yr time frame; Tata Equity P/E (42.6% CAGR) comes in at second position. A similar picture emerges over the 5-Yr time frame, with DMEF (58.2% CAGR) leading the charge. The fund has outscored its benchmark index i.e. S&P CNX Nifty over the 1-Yr, 3-Yr and 5-Yr time frames respectively. Volatility Standard Deviation is a measure of the risk that the fund has exposed its investors to. DMEF (Standard Deviation 10.47%) pitches in the best performance in the peer group. Tata Equity P/E (10.72%) fares the worst. Risk-adjusted return Sharpe Ratio is a measure of returns delivered by the fund per unit of risk borne. DMEF (Sharpe Ratio 0.27%) completes its reign of dominance, powered by yet another impressive showing. The fund occupies the top position (albeit marginally) in the peer group, followed closely by Tata Equity P/E (0.26%). ICICI Prudential Discovery (0.14%) and UTI Master Value (0.14%) jointly occupy the lowest position.

Equity Portfolio

Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 ONGC - 0.4% 3.5% 3.1% 4.0% Tata Chemicals 2.1% 2.5% 3.6% 3.3% 3.6% Reliance Industries 6.3% 5.0% 5.8% 6.8% 3.4% Indian Oil Corporation 0.6% 0.5% 1.5% 2.4% 2.8% Tata Power 0.7% 0.6% 3.0% 2.0% 2.5% Tata Steel 1.6% 1.1% 1.0% 1.0% 2.3% Larsen & Toubro 3.2% 2.0% 2.1% 2.2% 2.3% GAIL - - 1.0% 1.7% 2.3% Bharat Earth Movers 1.4% 1.5% 2.9% 2.4% 2.1% Axis Bank 2.3% 2.3% 2.6% 2.1% 2.1%

Portfolio Strategy

The fund is mandated to scout for value stocks across market segments i.e. it can invest in large cap and mid cap stocks alike. Also, its stock portfolio tends to be a well-diversified one. As on December 31, 2007, the fund held 80 stocks in its portfolio with the top 10 stocks accounting for 27.4% of assets. DMEF held the most well-diversified stock portfolio in the peer group; Templeton India Growth (63.9%) was on the other end of the spectrum. At Personalfn, we maintain that a diversified equity fund should hold no more than 40% of assets in the top 10 stocks, since a top-heavy portfolio can expose it to volatility during a downturn in equity markets. One grouse we have with the fund is its rather unduly high churn, especially in the context of a value fund.

Sectoral Allocation

Holding a concentrated sectoral portfolio is a high risk-high return investment strategy. While the same can help a fund clock impressive growth in rising markets, this strategy can also make the fund a candidate for above-average volatility in turbulent market conditions. DMEF fares well vis-à-vis the competition on the sectoral diversification front. As on December 31, 2007, its top 5 sectors accounted for 45.3% of assets. The fund scored the best on the diversification front, followed closely by ICICI Prudential Discovery (46.8%); Templeton India Growth (61.4%) fared the worst on this parameter. For the purpose of computing sectoral holdings, similar-natured sectors have been clubbed together. For example, Industrial Products and Industrial Capital Goods have been clubbed under ‘Engineering’

Objective Vs Actual

The fund’s investment objective mentions generating “long term capital appreciation, from a portfolio that is substantially constituted of equity securities and equity related securities of issuers domiciled in India”. DMEF invests in domestic equities/equity-related instruments. Furthermore, it has clocked a growth of 47.9% CAGR and 58.2% CAGR over the 3-Yr and 5-Yr time frames respectively. As a result, it can be concluded that the fund has successfully achieved its stated investment objective.