MARS

For Private Circulation Only

MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

Every investor while investing wishes to maximise his
returns while minimising his risk. Asset Allocation and
Superior scheme selection are time tested proven ways for
doing the same. But time and again it has been proven that
for an investor to manage his asset allocation and select
superior schemes is extremely tough and difficult to execute
due to operational and behavioural reasons.

MARS (Mutual Fund Automated Portfolio Rebalancing

System) tries to overcome these issues for investors
whereby they can manage their asset allocation and invest
in better performing schemes by the click of a mouse and
maximise their returns. As the process is system driven and
operationally smooth, it also helps weed out behavioural
biases. MARS gives a wide array of portfolios to choose from
to the investor based on his risk appetite and periodically
triggers portfolio rebalancing based on deviations from the
asset allocation of the model portfolio resulting in superior
returns to the investor over a period of time.
PRESENTING

MARS
MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

MARS stands for Mutual Fund Automated Portfolio Rebalancing System

SALIENT FEATURES OF MARS
It gives clients access to a range of well diversified portfolios to choose from.
There are 2 broad sets of asset allocation portfolios:
A) Dynamic Asset Allocation: the asset allocation between equity and debt would vary
depending on the risk in the equity markets; higher the risk, lower will be the allocation into
equities and vice versa.
B) Fixed Asset Allocation: the asset allocation between equity and debt will be kept fixed.
The underlying MF schemes will be selected by the NJ Research Team.
The asset allocation rebalancing would be done yearly for Fixed Asset Allocation and quarterly for
Dynamic Asset Allocation.
The MARS portfolios are only available to clients holding Trading and Demat Accounts with NJ.

BENEFITS OF MARS
Client can select a model portfolio depending on his requirements and investment needs.
Helps the client to invest in well researched mutual fund schemes in his portfolio.
Simple execution tools for portfolio rebalancing.
Enhanced returns resulting from disciplined asset allocation.

HOW DOES MARS WORK

Portfolios designed by the NJ Research team will be made available on the MARS platform.
Client has an option to select any of the available portfolios with the help of his NJ partner.
The client can buy into MARS by transferring his existing MF portfolio.
The client can also buy into MARS through cheque / net banking / debit card / auto debit mandate
The client will be required to authorize all the purchase transactions either online through a single
click or signing the TIS provided by NJ Partner.
Rebalancing of the portfolio is triggered as per schedule of various portfolios. The client needs to
authorise the same to realign the portfolio with his target asset allocation.

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MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

WHAT IS ASSET ALLOCATION

Asset Allocation, simply means, investing money across asset classes, namely equities, bonds and
cash. It is the key ingredient for any investor wanting to create wealth in the long term.

Asset allocation is also important because different asset classes, due to their inherent nature,
behave differently. Equity, which represents ownership in a business or enterprise, is volatile in
nature and tends to go up and down in the short term. On the other hand, bond, which represents
lending money to a business or enterprise, is relatively more stable and provides regular income in
the form of interest. Diversifying the client's investments across different asset classes will result in
diversifying the investment risk and create a well balanced portfolio that can offset the impact of
investments that are currently not doing well and take advantage of investments that are currently
growing and performing well.

PORTFOLIO REBALANCING
Values of individual asset classes can go up and down in line with the underlying market
movements. While this is no reason for the client to panic, it is important for the client to review his
initial asset allocation with the current asset allocation and make course correction through
portfolio rebalancing. Let us look at this example:
On January 1st, 2007, two clients invested R 10 lakhs each in a portfolio with the following asset
allocation:

Equities : 70% invested in CNX 500 portfolio Debt : 30% invested in Bank FD

Debt 30%

Equity 70%

The first client, whom we will call Client A followed a disciplined portfolio rebalancing strategy as
recommended by his advisor. The second client, Client B did not follow any rebalancing strategy. He
invested his money and did not look at it for the next 3 years.

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Here is what happened: As can be seen from table, Client A rebalanced his portfolio on an annual
basis while Client B followed a buy and hold strategy.

Client A Client B
Starting AA Equity R 7,00,000
Debt R 3,00,000
Year 1 Returns Equity 62.51%
(CY 2007) Debt 8.07%
Portfolio Value Equity R 11,37,570
@ end of Yr 1 Debt R 3,24,210
Rebalanced PV Equity R 10,23,246 R 11,37,570
@ start of Yr 2 Debt R 4,38,534 R 3,24,210
Year 2 Returns Equity -57.13%
(CY 2008) Debt 8.06%
Portfolio Value Equity R 4,38,666 R 4,87,676
@ end of Yr 2 Debt R 4,73,880 R 3,50,341
Rebalanced PV Equity R 6,38,782 R 4,87,676
@ start of Yr 3 Debt R 2,73,764 R 3,50,341
Year 3 Returns Equity 88.57%
(CY 2009) Debt 6.47%
Portfolio Value Equity R 12,04,551 R 9,19,611
@ end of Yr 3 Debt R 2,91,476 R 3,73,008
Totals R 14,96,027 R 12,92,620
Abs. Return 49.60% 29.26%
XIRR 14.37% 8.93%
CY = Calendar Year

POINTS TO NOTE:
In year 1 i.e. CY 2007, when equities gave returns of 62.51%, Client A booked profits in equities and
reinvested the proceeds in bonds bringing the asset allocation back to 70:30.
In year 2 i.e. CY 2008, when equities gave returns of -57.13%, Client A invested more money in
equities by reducing allocation to bonds bringing the asset allocation back to 70:30.
In year 3 i.e. CY 2009, when equities bounced back and gave returns of 88.57%, Client A's overall
portfolio value increased to R14.96 Lakhs while Client B was at R12.92 Lakhs.
Client A's CAGR return is an impressive 14.36% p.a. while Client B is only 8.93% p.a.
Source:
1. Equity Returns are derived from CNX 500.
2. Debt Returns are based on 1 year FD rates available in Handbook of Statistics on Indian Economy on RBI website.

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PERFORMANCE OF DIVERSIFIED EQUITY FUNDS

Diversified equity mutual funds, over the long term, have outperformed the popular benchmarks
and inflation by a very impressive margin. Let us briefly analyse the table below. On a 5 year basis,
equity funds have generated CAGR returns of 19.85% p.a. which is 1.18% p.a. more on CAGR basis
than the BSE Sensex. If we look at 10 years and 12 years, the difference in returns widens to 1.76% p.a.
and 4.77% p.a. respectively, on a CAGR basis over the Sensex.

5 Years 7 Years 10 Years 12 Years

Average of Diversified Schemes 19.85% 7.00% 16.58% 21.42%
BSE 200 18.89% 5.75% 14.00% 17.82%
BSE Sensex 18.67% 5.98% 14.82% 16.65%
NSE 500 18.16% 6.41% 13.97% 15.75%
Source: Internal, Performance is as on Nov 30, 2013 and on a CAGR basis;Past Performance may or may
not be sustained in future

If a client would have invested R1 Lakh in a portfolio of average diversified equity funds, his
investment would have grown to R2.47 lakhs in 5 years, R4.63 lakhs in 10 years and R10.26 lakhs in
12 years. The corresponding numbers for BSE Sensex are R2.35 lakhs for 5 years, R3.98 lakhs for
10 years and R6.34 lakhs for 12 years.
Therefore, it is extremely rewarding to invest in diversified equity funds with a longer term view.
Though diversified equity funds as a category has outperformed the benchmarks by huge margins
over long periods of time, there is a huge variation in terms of returns of individual schemes.
Let us look at some data to corroborate this fact. If we split the entire universe of diversified equity
funds into 4 parts and do a 3 year rolling return analysis of the top and bottom quartiles ( Top 25%
and Bottom 25% schemes) only, the difference in returns between the Top 25% and Bottom 25%
schemes is anywhere between 14% - 18% p.a. on a 3 year CAGR basis.

3 Years Rolling Returns of Diversified Equity Schemes

2010-2012 2009-2011 2008-2010 2007-2009 2006-2008
Average of Top 25% Schemes 13.94% 26.03% 6.23% 16.76% 6.30%
Average of Bottom 25% Schemes -4.52% 9.29% -8.85% 2.17% -9.41%
Difference 18.46% 16.74% 15.08% 14.59% 15.71%
Universe 229 224 199 165 133
Source: Internal

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PERFORMANCE OF DIVERSIFIED EQUITY FUNDS

If a client would have invested R1 Lakh in a portfolio of the Top 25% diversified equity schemes, his
investment would have grown to R1.47 lakhs in 2010-2012 vs. R0.87 lakhs in the Bottom 25%
schemes. Similarly, had he invested the same amount in 2007-2009, his invested would have grown
to R1.59 lakhs in the Top 25% schemes vs. R1.06 lakhs in the Bottom 25% schemes.
Not being in the right vehicle i.e. Top 25% schemes can result in a lot of unhappy clients as they
will underperform substantially.
Let us extend this data to 5 years. If we look at any of the periods below, the difference in returns
between the Top 25% and Bottom 25% schemes is anywhere between 10.71% p.a. going up to as
high as 15.08% p.a. on a 5 year CAGR basis.

5 Years Rolling Returns of Diversified Equity Schemes

2008-2012 2007-2011 2006-2010 2005-2009 2004-2008
Average of Top 25% Schemes 6.18% 8.74% 21.42% 27.43% 19.60%
Average of Bottom 25% Schemes -8.90% -2.18% 10.71% 15.25% 6.35%
Difference 15.08% 10.92% 10.71% 12.18% 13.25%
Universe 184 164 133 92 70
Source: Internal

If a client would have invested R1 Lakh in a portfolio of the Top 25% diversified equity schemes,
his investment would have grown to R2.63 lakhs in 2006-2010 vs. R1.66 lakhs in the Bottom 25%
schemes. Similarly, if the client would have invested the same amount in 2008-2012, his
investment would have grown to R1.34 lakhs in the Top 25% schemes vs. R0.62 lakhs in the
Bottom 25% schemes.
The results are very evident that in diversified equity mutual funds, Scheme Selection plays
vital role in determining the return for the investor.

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MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

HOW TO DETERMINE THE BEST ASSET ALLOCATION

Asset classes vary on the basis of their average returns and volatility. Equities have the potential
to give higher returns but the volatility of the returns is also high. Bonds are relatively more
stable and pay fixed interest at defined frequencies.
The best approach to asset allocation is to find out the risk appetite of each client. The greater
the appetite for risk, the larger the share of the portfolio that can be allocated to equities.
Risk appetite may differ from individual to individual based on his investment horizon, ability to
bear loss, current financial status, current job status, social background etc. These are some of
the factors affecting risk appetite for any person. The advisor should determine the right asset
allocation for the client based on his understanding of all these factors.

MARS PORTFOLIOS
MARS broadly offers 3 types of portfolios based on the risk profile of an individual:
CONSERVATIVE PORTFOLIO
MODERATE PORTFOLIO
AGGRESSIVE PORTFOLIO

DAA - CONSERVATIVE PORTFOLIO

Dynamic Asset Allocation - Conservative Portfolio is suitable for a client who is risk averse, wants
minimal risk to principal, is comfortable with low volatility and modest capital appreciation and
has a time horizon of 1 - 3 years. The equity allocation may vary from 0% - 30% based on the
asset allocation model developed by NJ Research Team. The said model takes in account equity
market scenario, valuations and economic growth indicators. The rebalancing will happen on a
quarterly basis.

Equity: 0% - 30% Debt: 70% - 100% Risk Profile: CONSERVATIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 11.73% 11.85% 11.84% 12.38%
NO. OF OBS. WITH NEGATIVE RETURNS 19 0 0 0
MAXIMUM RETURN 35.51% 22.48% 18.54% 14.10%
MINIMUM RETURN -11.11% 2.73% 7.46% 11.21%

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MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

DAA - MODERATE PORTFOLIO

Dynamic Asset Allocation - Moderate Portfolio is suitable for a client with a moderate risk
appetite, portfolio gives a balanced mix of equity and debt. Ideal investment horizon for this
portfolio is 3 – 5 years and the volatility level in these portfolios is medium. The equity allocation
may vary from 0% - 60% based on the asset allocation model developed by NJ Research Team.
The said model takes in account equity market scenario, valuations and economic growth
indicators. The rebalancing in the portfolio will happen on a quarterly basis.

Equity: 0% - 60% Debt: 40% - 100% Risk Profile: MODERATE

Historical Risk / Return (Jan 1997 – Nov 2013)
1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 15.98% 15.77% 15.84% 16.97%
NO. OF OBS. WITH NEGATIVE RETURNS 37 2 0 0
MAXIMUM RETURN 68.46% 39.62% 30.70% 20.56%
MINIMUM RETURN -28.50% -1.18% 6.09% 14.07%

DAA - AGGRESSIVE PORTFOLIO

Dynamic Asset Allocation - Aggressive Portfolio is suitable for a client who wants a growth
oriented equity portfolio, is comfortable with medium to long term volatility and is looking
at long term capital appreciation with a time horizon of 5 – 10 years. The equity allocation
may vary from 0% - 100% based on the asset allocation model developed by NJ Research
Team. The said model takes in account equity market scenario, valuations and economic
growth indicators. The rebalancing in the dynamic portfolio will happen on a quarterly basis.

Equity: 0% - 100% Debt: 0% - 100% Risk Profile: AGGRESSIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 21.62% 19.92% 19.92% 21.69%
NO. OF OBS. WITH NEGATIVE RETURNS 46 9 0 0
MAXIMUM RETURN 115.07% 62.46% 46.55% 28.19%
MINIMUM RETURN -49.00% -6.46% 2.93% 16.52%

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FIXED ASSET ALLOCATION PORTFOLIOS

Apart from the DAA Portfolios, MARS also offers Fixed Asset Allocation portfolios. There are
multiple portfolios which offer the option to invest in FAA ranging from 10% Equity upto 100%
Equity exposure. The rebalancing in these portfolios will happen on a yearly basis.
The details of these portfolios are mentioned as under:

FAA – E 10 Equity: 10% Debt: 90% Risk Profile: CONSERVATIVE

Historical Risk / Return (Jan 1997 – Nov 2013)
1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 8.80% 8.73% 8.64% 8.74%
NO. OF OBS. WITH NEGATIVE RETURNS 0 0 0 0
MAXIMUM RETURN 18.67% 12.16% 10.35% 9.43%
MINIMUM RETURN 1.54% 4.09% 6.42% 7.94%

FAA – E 20 Equity: 20% Debt: 80% Risk Profile: CONSERVATIVE

Historical Risk / Return (Jan 1997 – Nov 2013)
1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 10.09% 10.11% 10.15% 10.48%
NO. OF OBS. WITH NEGATIVE RETURNS 10 0 0 0
MAXIMUM RETURN 28.95% 16.71% 14.63% 11.54%
MINIMUM RETURN -4.98% 1.36% 6.71% 9.13%

FAA – E 30 Equity: 30% Debt: 70% Risk Profile: CONSERVATIVE

Historical Risk / Return (Jan 1997 – Nov 2013)
1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 11.31% 11.33% 11.48% 12.04%
NO. OF OBS. WITH NEGATIVE RETURNS 25 3 0 0
MAXIMUM RETURN 39.39% 22.48% 18.85% 13.46%
MINIMUM RETURN -11.50% -1.35% 6.10% 10.11%

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MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

FAA – E 40 Equity: 40% Debt: 60% Risk Profile: MODERATE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 12.47% 12.39% 12.63% 13.42%
NO. OF OBS. WITH NEGATIVE RETURNS 35 5 0 0
MAXIMUM RETURN 49.97% 28.27% 23.02% 15.20%
MINIMUM RETURN -18.02% -4.05% 5.35% 10.89%

FAA – E 50 Equity: 50% Debt: 50% Risk Profile: MODERATE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 13.57% 13.28% 13.60% 14.61%
NO. OF OBS. WITH NEGATIVE RETURNS 38 8 0 0
MAXIMUM RETURN 60.70% 34.09% 27.15% 16.73%
MINIMUM RETURN -24.53% -6.73% 4.38% 11.45%

FAA – E 60 Equity: 60% Debt: 40% Risk Profile: MODERATE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 14.60% 14.01% 14.39% 15.62%
NO. OF OBS. WITH NEGATIVE RETURNS 44 12 0 0
MAXIMUM RETURN 71.55% 39.94% 31.24% 18.21%
MINIMUM RETURN -31.05% -9.39% 3.21% 11.80%

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FAA – E 70 Equity: 70% Debt: 30% Risk Profile: AGGRESSIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 15.56% 14.57% 14.99% 16.42%
NO. OF OBS. WITH NEGATIVE RETURNS 50 12 0 0
MAXIMUM RETURN 82.55% 45.84% 35.29% 19.63%
MINIMUM RETURN -37.57% -12.05% 1.94% 11.93%

FAA – E 80 Equity: 80% Debt: 20% Risk Profile: AGGRESSIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 16.46% 14.96% 15.38% 17.02%
NO. OF OBS. WITH NEGATIVE RETURNS 53 15 0 0
MAXIMUM RETURN 93.67% 51.78% 39.31% 20.92%
MINIMUM RETURN -44.09% -14.69% 0.58% 11.81%

FAA – E 90 Equity: 90% Debt: 10% Risk Profile: AGGRESSIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 17.29% 15.15% 15.55% 17.38%
NO. OF OBS. WITH NEGATIVE RETURNS 57 19 2 0
MAXIMUM RETURN 104.91% 57.77% 43.31% 22.10%
MINIMUM RETURN -50.61% -17.33% -0.88% 11.43%

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MUTUAL FUND AUTOMATED PORTFOLIO REBALANCING SYSTEM

FAA – E 100 Equity: 100% Debt: 0% Risk Profile: AGGRESSIVE

Historical Risk / Return (Jan 1997 – Nov 2013)

1 Year 3 Year 5 Year 10 Year
Rolling Rolling Rolling Rolling
NO. OF OBSERVATIONS 192 168 144 84
AVERAGE RETURN 18.05% 15.14% 15.47% 17.47%
NO. OF OBS. WITH NEGATIVE RETURNS 57 31 8 0
MAXIMUM RETURN 116.27% 63.81% 47.35% 23.15%
MINIMUM RETURN -57.13% -19.97% -2.42% 10.75%

Methodology used for calculating historical returns

Equity Returns are derived from CNX 500.
Debt Returns are based on 1 year FD rates available in Handbook of Statistics on Indian Economy on
RBI website.
In Fixed Asset Allocation Model Portfolios, rebalancing is done on a yearly basis in the month of
December.
In Dynamic Asset Allocation Model Portfolios, rebalancing is done on a quarterly basis.
Period of Analysis: January 1st, 1997 to November 30th, 2013.
Rolling returns are returns for overlapping cycles within a particular period of analysis. Returns have
been calculated for 1, 3, 5 and 10 year cycles using monthly values within the period mentioned
above. For e.g. 1 year rolling period starts from Jan 1st, 1997 – Dec 31st, 1997, Jan 31st, 1997 – Jan
31st, 1998, Nov 30th, 2012 – Nov 30th, 2013 and so on. 3 year rolling period starts from Jan 1st, 1997
– Dec 31st, 1999, Jan 31st, 1997 – Jan 31st, 2000, Nov 30th, 2010 – Nov 30th, 2013 and so.
Ideal Risk Profile is mention against each portfolio. Client should select the portfolio for investment
according to his risk appetite.

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www.njwealth.in

Disclaimer:
This Handbook document is made by NJ India Invest Private Limited (“NJ India”) for private
circulation and information purposes only. The information/data mentioned in this document is
taken from various sources for which NJ India does not assume any responsibility or liability and
neither does guarantee its accuracy or adequacy. Mutual Fund investments are subject to market
risks. Investors are advised to read the offer documents/scheme related documents and other risk
factors carefully before investing in any scheme. The past performance of a scheme is not indicative
of its future performance. Investors are advised to take advice of experts before making any
investment decisions. This document shall not be construed as a financial/investment advice
and/or as solicitation/advice to buy or sell any financial product.

NJ India Invest Pvt. Ltd. Block No. 901 & 902, 6th Floor, 'B' Tower,
Udhna Udyog Nagar Sangh Commercial Complex, Central Road No. 10, Udhna,
Surat - 394 210, Gujarat. Phone: 0261 398 5500.