Sit back, while your debt portfolio navigates the market cycles.

Invest in a fund that leverages changing interest rates, for your portfolio.

Presenting AXIS FLOATER FUND

(An open-ended debt scheme predominantly investing in floating rate instruments)

NFO Period: 12th July 2021 to 26th July 2021

What are floating rate instruments? Variable rate debt instruments linked to market yields To illustrate, consider a 3 Year AAA A floating-rate bond (FRB) offers The coupon resets periodically floating rate bond priced at 3M T-Bill +1.2% a coupon tied to a benchmark to factor changes rate like the repo or the 3 month to the interest rate based on the 3M T-Bill Effective Coupon T-Bill. movement in interest rates. Year 1 4.50% 5.70% Year 2 3.50% 4.70% Year 3 5.50% 6.70% Since floater coupons adjust Prices of typical fixed rate bonds periodically, the prices of these have an inverse relationship with bonds do not follow the same changes in interest rates - as Hence an FRB provides a market linked return price/ yield relationship. interest rates rise, prices of and works well for those looking to hedge bonds fall and vice versa. interest rate risks in a rising rate environment.

For illustrative purposes only. Floating rate bonds may experience varying degrees of correlation depending on their construct and market factors. The illustration should not be construed as investment advice.

Swaps How do they work? A Swap is a derivative contract whereby the holder of a fixed rate bond can convert a fixed rate exposure into a market linked floating rate exposure thereby reducing any interest rate risk associated with the fixed rate instrument. Let's illustrate Fund buys a fixed rate Fund also contracts an The counterparty agrees to provide a MIBOR bond with investment bank to swap the +3% payout structure for the swap in a coupon of 5.25%. bond for a floating structure. exchange for the fixed coupon of the bond.

Fixed Rate Bond Counterparty Floating Structure

Thus, the fund can convert its fixed rate exposure by swapping it for a floating rate structure where the counterparty will pay the fund a periodic market linked payout in exchange the fixed coupon from the fixed rate bond held by the fund.

The above is only to illustrate working of bond swaps in funds. The illustration does not take into account various aspects such as accruals, expenses, market factors, etc. MIBOR – Mumbai Interbank offered rate. Why now? Likely bottom of the interest rate cycle — While the RBI makes a concerted effort to keep rates level, markets have begun pricing in rate hikes over the medium to long term. — Higher inflation and commodity prices minimize headroom for the RBI to keep policy rates at current levels even as system liquidity remains at all time highs. — Global inflationary cycle is likely to have a bearing on interest rates in India.

Inflation Trending Higher 105 Bloomberg Commodity Index 12.0 10.0 95 8.0 93.83 6.0 4.0 85 2.0 0.0 75 May-19 Nov-19 May-20 Nov-20 May-21 -2.0

-4.0 65 -6.0

55 CPI Inflation WPI Inflation RBI Lower Band RBI Higher Band Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21

Source: Bloomberg, Axis MF Research. Data as of 30th June 2021.

Looking back at history Short end yields have moved rapidly when the rate cycle turns

2008-2011 Cycle 2012-2014 Cycle 7.5 Rates see a sharp fall as central banks 11.00 including RBI cut rates to support growth 10.75 Weak economic metrics in the aftermath of the global financial crises 7 10.50 and currency pressures RBI had to recalibrate drove rates sharply upwards policy and tighten liquidity 10.25 to stabilize forex market 6.5 Rates rise 10.00 300bps in 18 months 9.75 Rates rise 250+ 6 9.50 in 3 months 9.25

5.5 Rates Spike sharply as CPI 9.00 inflation touches 13% and RBI raises rates to cool inflation 8.75 5 8.50 8.25 4.5 8.00 Nov-08 May-09 Nov-09 May-10 Nov-10 Nov-12 May-13 Nov-13 May-14 2 Year G-Sec 1 Year T-Bill Source: Bloomberg, Axis MF Research. Past performance may or may not be sustained in the future. 2 year G-Sec & 1 Year T-Bill are used as indicators for short term rates. Generic securities are used for illustrative purposes only. Likely impact of sharp interest rate moves

— The current market environment could see larger impacts on 3-5 year segments as these segments have seen the largest compression in the previous cycle. — While we do not expect sharp spikes, given the current economic environment & RBI commentary we expect a gradual rate hike cycle over the medium term. — The current highlights kinks across the AAA yield curve which will likely normalize by way of yields normalizing upwards.

A simulation to illustrate the likely impact of tenor segments reflects the opportunity potential in floating rate strategies.

Change in yields Instrument tenor

(in bps) 1 year AAA 3 year AAA 5 year AAA 3 Year FRB Current YTMs 4.14% 5.20% 5.95% 4.60% +50bps 4.14% 4.10% 3.99% 4.79% +100bps 4.14% 2.99% 2.13% 4.98% +150bps 4.14% 1.89% -0.38% 5.16% +200bps 4.14% 0.78% -2.24% 5.35%

Source: Bloomberg, Axis MF Research. Data as of 30th June 2021. Simulations are illustrative and actual performance may vary based on market parameters. Simulation is indicative and should not be considered as a guarantee of returns or actionable investment advice. Simulation assumes change in Yields over a 1 year period and the resulting return for a AAA tenor bond. Modified duration used in the computation of this scenario analysis is 1 year, 2.21 years and 3.72 years. Current 3 Year AAA spread for floating rate bond over T-Bill assumed at 120 bps with 3 month resets. Portfolio positioning

Quality Investment Horizon Average Maturity Portfolio Mix

Target 80% AAA/A1+ along with Minimum investment Targets a net portfolio Floating Rate Bonds, 20% allocation to AA issuers. horizon of 12-18 months. average maturity of Fixed Rate bonds tagged 6-18 months. with OIS/ swaps. No allocation to A rated instruments or below.

Above mentioned positioning aspects of the portfolio are based on the prevailing market conditions and are subject to changes depending on the fund manager’s view of the markets. Please refer to the Scheme Information Document for detailed asset allocation and investment strategy.

Summary Why should you consider Axis Floater Fund?

Rates are Market rates Managing Portfolio Investment likely to adjust interest rate structure suitability rise quickly risks We are at the cusp Markets tend to Floating rate strategies 80% AAA/SOV + 20% Ideal for investors of a new growth price changing aim to manage interest AA mix to capture looking to park short cycle as well as at economic rate risks by investing opportunities across term surplus funds or the bottom of the conditions and in bonds where the the debt market. those looking to limit interest rate cycle. policy actions coupon is linked to the interest rate risks swiftly. market movements. in their debt portfolio.

Please refer to the Scheme Information Document for detailed asset allocation and investment strategy.

Fund facts An open-ended debt scheme predominantly investing in floating rate instruments

Category Fund Manager NFO Opens Floating Rate Fund Aditya Pagaria 12th July 2021

Exit Load Min. Application amount Nil ` 5,000/- and in multiples of ` 1/- thereafter

Please refer to the Scheme Information Document for detailed asset allocation and investment strategy.

Axis Floater Fund Distributed by: Moderately Moderate (An open-ended debt scheme predominantly investing in floating rate instruments) High Low to This product is suitable for investors who are seeking*: Moderate High — Regular income over short term investment horizon. — To invest predominantly in floating rate instruments (including fixed rate Low Very High

instruments converted to floating rate exposures using swaps/derivatives) RISKOMETER

*Investors should consult their financial advisers if in doubt about whether the Investors understand that their principal product is suitable for them. will be at moderate risk

The product labelling assigned during the New Fund Offer is based on internal assessment of the Scheme Characteristics or model portfolio and the same may vary post NFO when actual investments are made.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Ltd. (liability restricted to ` 1 lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Ltd. is not liable or responsible for any loss or shortfall resulting from the operation of the schemes.

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