CRISIL has assigned the first ever rating in India to a mutual fund based on a Dynamic Asset Allocation (DAA) structure. CRISIL has assigned the ‘AAA(so)’ ratings to ING Vysya Dynamic Asset Allocation Fund; a scheme being launched by ING Investment Management (India) Private Limited (ING IM India), the investment manager for ING Vysya Mutual Fund. The assigned rating indicates the highest degree of certainty regarding timely payment of the face value of the units to unit holders on the scheme’s maturity. The rating is not a comment on the scheme’s Net Asset Value (NAV) in relation to its face value, in case the units are repurchased any time prior to the scheme’s maturity date.

The rating reflects significant degree of protection expected to be available to investors from erosion in the value of their invested corpus owing to the frequent rebalancing the portfolio will undergo. For instance, in case of a sharp fall in the equity portfolio beyond a tolerance limit, as determined by CRISIL’s analysis of historical equity price movements, conversion to fixed income securities of highest credit quality will happen. This will ensure that the probability of investors receiving at least their invested capital at maturity is extremely high. The trigger point of conversion to debt is sized in such a way that the future value of this debt at the time of redemption will be equal to or greater than the invested amount initially. In sizing the debt corpus, CRISIL has factored in the following: default risk of debt securities, the reinvestment risk of interim cash flows, the impact on the portfolio value due to interim redemptions and the tenor risk arising from the inability to fully invest the fund’s corpus for the same time frame as that of the fund.

The DAA strategy to be used by ING IM India allocates portfolio wealth between equity and debt assets in order to maintain a constant risk exposure. If equity investments increase in value, more of the portfolio is invested in equity in an effort to take advantage of the rising equity values. If the equity investment declines in value, the portfolio is rebalanced to reflect an increased weightage in debt. The strategy will endeavour to maintain a portfolio’s risk exposure at a constant multiple of the excess of wealth in the portfolio over a pre-defined floor level. The floor is computed as the present value of a minimum payoff on maturity; the floor increases gradually over the life of the fund to equal the minimum payoff at the time of maturity. The portfolio’s funds would be constantly rebalanced at regular intervals to reflect the performance of the equity investment and to maintain a constant risk exposure. The exposure to equity will always be maintained at levels such that the fund manager can, at short notice, convert the entire equity investment into debt investments up to an overall predetermined floor, thus ensuring the minimum, specified payoff on maturity.

ING IM India has furnished a set of warranties to CRISIL, including a commitment to invest the equity component of the scheme only in BSE 100 and BSE 500 scrips and the scheme’s debt component only in securities of very high credit quality. Before the trigger point of conversion to debt as indicated above is reached, the fixed income component of the portfolio will be invested in securities of very short tenor. ING IM India has also furnished the regulatory clearance for the scheme, and the final offer document.

About the asset management company
Incorporated in 1999, ING IM India is sponsored by ING Group. ING Group is a prominent player in the European markets and is among the world’s largest provider of diversified financial services, combining banking, insurance and asset management. As on August 31, 2006, ING IM India had 25 schemes under management, with a corpus of Rs.48.98 billion.