Economic factors intro - Performance of fund management companies is highly correlated to the

overall strength of economic conditions and financial market activity. These factors may affect
the financial decisions made by investors, including their level of participation in the financial
markets and in turn affect the performance of fund management companies. Hence, the
profitability of fund management companies is sensitive to various economic factors, such as
economic risks, the volatility of the equity and fixed income, competition, credit ratings, taxes,
and size.
Risk
All fund management companies around the world are affected by risk. Risk reflects the
potential of reward for any investment and at the same does not guarantee the performance of
any fund. Because of risk, investors may lose some or all their money invested or they can even
withdraw their investment from the financial market, consequently affecting the performance of
fund management companies. Fund management companies are affected by the following risks:
Interest Rate Risk
This risk arises due to changes in the interest rates. Fund management companies are likely to be
affected by interest rate risk as they deal with bond funds and bond fund returns are highly
dependent on the changes in general interest rates; that is, when interest rates increase, the value
of bonds decrease, which in turn affects bond fund returns. Indeed, In USA, in the second half of
2013, the yields of long term bonds have jumped by more than 100 basis point as a consequence
of a rise in long term interest rate and a fall in bond prices. However, when interest rate falls
down, investors shift their investment to equity funds and hence companies need to pay more
dividends and tax on profit. Therefore, interest rate risk is likely to affect fund management
companies.
Foreign Investment Risk.
This risk applies to funds which are invested in foreign securities; and arises when the fund's
performance will be influenced by political, social and economic factors affecting investments in
foreign issuers. Special risks associated with investments in foreign issuers include exposure to
currency fluctuations, less liquidity, less developed or less efficient trading markets, lack of
comprehensive company information, political and economic instability and differing auditing
and legal standards. Investments denominated in foreign currencies are subject to the risk that
such currencies will decline in value relative to the U.S. dollar for example and affect the value
of these investments held by the fund. Emerging markets tend to be more volatile and less liquid
than the markets of more mature economies, and generally have less diverse and less mature
economic structures and less stable political systems than those of developed countries. To the
extent the fund's investments are concentrated in one or a limited number of foreign countries,
the fund's performance could be more volatile than that of more geographically diversified funds.

Risks of Stock Investing.

Stocks generally fluctuate more in value than bonds and may decline significantly over short
time periods. There is the chance that stock prices overall will decline because stock markets
tend to move in cycles, with periods of rising prices and falling prices. The market value of a
stock may decline due to general market conditions or because of factors that affect the particular
company or the company's industry.
Growth Stock Risk.
Investors often expect fund management companies that invest in growth funds to increase their
earnings at a certain rate. If these expectations are not met, investors can punish the stocks
inordinately, even if earnings do increase. In addition, growth stocks may lack the dividend yield
that may cushion stock prices in market downturns .
Yield-Curve or Maturity Risk
In fund management companies, portfolio of bonds is hedged with bonds of different maturities,
and it is assumed the interest rates of these bonds changes by a certain amount for a given change
in prevailing rates. Yield-curve risk results when bonds prices of different maturities deviates
from this assumption when prevailing rates change and this unexpected event may affect the
performance of fund management companies