KARVY STOCK BROKING LIMITED
PORTFOLIO MANAGEMENT SERVICES
DISCLOSURE DOCUMENT
[As required under Regulation 14 of SEBI (Portfolio Managers) Regulation, 1993]
1. This document supercedes the Disclosure document dated February 18, 2019 , filed with Securities and Exchange Board of India (SEBI) on February 18, 2019
2. This Disclosure Document has been filed with SEBI along with the certificate from independent chartered accountant in the prescribed format in terms of Regulation 14 of the SEBI (Portfolio Managers) Regulations, 1993 as amended till date.
3. The purpose of this Disclosure Document is to provide essential information about the portfolio management services offered by Karvy Stock Broking Limited in such manner as to assist and enable the investors in making informed and considered decision for engaging Karvy Stock Broking Limited as a Portfolio Manager.
4. This document contains the necessary information about the Portfolio Manager required by an investor.
5. Karvy Stock Broking Limited is permitted to provide Portfolio Management Services pursuant to its registration as a portfolio manager with SEBI vide Registration number INP000001512 dated November 1, 2005 which registration shall be valid unless it is suspended or cancelled by SEBI and is subject to payment of renewal fees to SEBI from time to time.
6. Investors should carefully read this entire document before making a decision to avail portfolio management services from Karvy Stock Broking Limited and retain this document for future reference. Any other relevant information may be provided upon request.
7. No person has been authorized to give any information or to make any representations not confirmed in this Disclosure Document in connection with the services proposed to be provided by the Portfolio Manager, and any information or representations not contained herein must not be relied upon as having been authorized by the Portfolio Manager.
8. The Principal Officer designated by Karvy Stock Broking Limited, the Portfolio Manager is: Name of the Principal Officer VIKAS RAJPAL*
Tel No: 022 61491606
Email : [email protected] Address: 701, Hallmark Business Plaza, Sant Dnyaneshwar Marg, Bandra (E), Mumbai 400 051 Page 1 of 35
*The Principal Officer has changed from Mr. Sagar Jethwani to Mr. Vikas Rajpal with effect from April 16, 2019
9. This disclosure document is dated August 26, 2019
Karvy Stock Broking Limited (CIN : U67120TG1995PLC019877) Corporate Office: 701, Hallmark Business Plaza, Sant Dnyaneshwar Marg, Bandra (E) Mumbai 400 051 Registered Office: Plot No.31/P, Karvy Millennium, Nanakramguda Financial District, Gachibowli Hyderabad Telangana 500032
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Portfolio Management Services KARVY STOCK BROKING LIMITED SEBI Registration No. INP000001512.
INDEX Sr No Contents Page Number
1 Disclaimer 4 2 Definitions 4 – 7 3 Description - The Portfolio Manager I History, Present Business and background of the Portfolio 7-8 Manager. Ii Promoters of the Portfolio Manager, Directors and their 8 – 9 background.
Iii Details of the top 10 group companies of the Portfolio manager 10 -11 based on turnover as on March 31, 2019 [Based on latest audited financial statements for companies where audit is completed]
4 Penalties/Pending Litigations/Proceedings etc 11-12
5 Services offered 12 – 15
6 Risk Factors 16- 19
7 Client Representation
I Category of clients as on July 31, 2019 19 - 20
Ii Complete disclosure in respect of transactions with related 20 -24 parties as per the standards specified by the Institute of Chartered Accountants of India as on March 31,2019 8 Financial Performance of Portfolio Manager, Karvy Stock Broking 24 – 25 Limited 9 Portfolio Management Performance of the Portfolio Manager for 25 – 28 last 3 years 10 Nature of Expenses 28 – 29 11 Taxation 29 12 Accounting Policies 32 – 34 13 Investor Services 34 14 Grievances Redressal 34 - 35 15 Dispute Settlement Mechanism 35 16 General 35
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Section 1: DISCLAIMER
This document has been prepared in accordance with the Securities Exchange Board of India (Portfolio Managers) Regulations, 1993, as amended from time to time and other circulars issued by SEBI from time to time and has been filed with SEBI. This Document has neither been approved nor disapproved by SEBI nor has SEBI certified the accuracy or adequacy of the contents of this Document.
This information is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person.
Section 2: DEFINITIONS
In this Agreement, unless otherwise clearly indicated by or inconsistent with the context, the following expressions shall have the meaning assigned to them hereunder respectively:
“Act” – means the Securities and Exchange Board of India Act, 1992.
“Agreement” means the agreement entered between Karvy Stock Broking Limited, the Portfolio Manager and the client for the management of funds or securities of the client in terms of Regulation 14 of the SEBI (Portfolio Managers) Regulations, 1993 and SEBI (Portfolio Managers) Amendment Regulations, 2002 issued by the Securities and Exchange Board of India and as may be modified from time to time and shall include all schedules and annexures thereto and shall also include all modifications, alterations, additions or deletions made thereto in accordance with the terms thereof.
“Board” means the Securities and Exchange Board of India.
“Bank Account” means one or more bank accounts opened, maintained and operated by the Portfolio Manager in the name of clients or a pool account in the name of the Portfolio Manager in which the funds handed over by the client shall be held by the Portfolio Manager on behalf of the Client.
“Chartered Accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act.
“Client” means any body corporate, partnership firm, Limited Liability Partnership, individual, HUF, association of person, body of individuals, trust, statutory authority, or any other person who enters into agreement with the Portfolio Manager for availing the Portfolio Management Services
“Custodian” means any person who carries on or proposes to carry on the business of providing custodial services in accordance with the regulations issued by SEBI from time to time.
“Depository” means Depository as defined in the Depositories Act, 1996 (22 of 1996) and currently includes National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
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“Depository Account” means any account of the client or for the client with an entity registered as depository participant under sub-section 1A of Section 12 of the Act or any other law for the time being relating to registration of depository participants in which the securities comprising part of the Portfolio of the Client are kept by the Portfolio Manager.
“Discretionary Portfolio Management Services” means the discretionary portfolio management services rendered to a Client by the Portfolio Manager pursuant to the terms and conditions contained in the Portfolio Management Services Agreement, where under the Portfolio Manager exercises absolute and unfettered discretion, with regards to the investments and management of the portfolio of securities or the funds of the client, as the case may be.
“Disclosure Document” means this disclosure document for offering Portfolio Management Services.
“Financial year” means the period of twelve months commencing on 1st April every year and ending on 31st March of the following year.
“Funds” means the monies placed by the Client with the Portfolio Manager and any accretions thereto and also includes any further monies placed by the client with the Portfolio Manager to be managed pursuant to the Agreement, the proceeds of the sale or realization of the portfolio and any other monies so long as the same is being managed by the Portfolio Manager.
“Funds managed” means the market value of the Portfolio of the Client as on date.
“Fund Manager” (FM) means the individual/s appointed by the portfolio manager who manages, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or funds of the client, as the case may be.
“Initial Corpus” means the value of the funds and the market value of securities brought in by the client and accepted by the Portfolio Manager at the time of registering with the Portfolio Manager for the portfolio management services. The Initial corpus brought in by the Client in the form of securities shall be valued at the closing market price of such securities, prevailing on recognised stock exchange [NSE/ BSE (only if security is not listed on NSE)] on the previous working date of activation of client’s portfolio management account by the Portfolio Manager or of the previous working day of the transfer of such securities from client’s account to the Depository account whichever is later. The Portfolio Manager shall not accept from the client/ client(s) , in case of joint holding funds or securities worth less than Twenty five lakh rupees.
“Investment Advisory Services” means the non exclusive, non binding services, where the Portfolio Manager advises Clients on investments in general or gives specific advice required by the Clients as agreed upon in the Agreement. Advice, whether general or specific is non-binding in nature and it is entirely at client’s discretion to follow the advice
“Non-Discretionary Portfolio Management Services” means the non-discretionary portfolio management services to be rendered to a Client by the Portfolio Manager on the terms and conditions pursuant to the Agreement, where under the Portfolio Manager invests and manages the Funds of the Client based on the instructions of the Client. Page 5 of 35
“Net Asset Value” or “NAV” means the market value of the Assets managed by the Portfolio Manager, as calculated by the Portfolio Manager from time to time, depending on the Strategy chosen by the Client.
“Person directly or indirectly connected” means Related Parties as defined under section 2(76) of the Companies Act, 2013 - “Related Party” with reference to a company, means—
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager is a member or director;
(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;
(viii) any company which is—
A. a holding, subsidiary or an associate company of such company; or
B. a subsidiary of a holding company to which it is also a subsidiary;
(ix) such other person as may be prescribed;
“Portfolio” means the total holdings of securities and / or funds belonging to the client.
“Portfolio Manager” (PM) means Karvy Stock Broking Ltd., a company incorporated under the Companies Act, 1956 and registered with SEBI as a Portfolio Manager in terms of SEBI (Portfolio Managers) Regulations 1993 vide registration No.INP000001512 and having its Registered Office at Karvy House, 46, Avenue 4, Road No.10, Banjara Hills, Hyderabad and its PMS dealing office at 701, Hallmark Business Plaza, Sant Dnyaneshwar Marg, Bandra (E), Mumbai 400 051[ but may add more dealing offices in future] and who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary Portfolio Manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be.
“Portfolio Management Services” means the Discretionary Portfolio Management Services, and/or the Non-Discretionary Portfolio Management Services, and/or the Investment Advisory Services, as the case may be.
“Portfolio Value” means the aggregate of the Portfolio Funds and Value of Portfolio Securities.
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“Principal Officer” means a director/an employee of the portfolio manager who is responsible for the activities of portfolio management and has been designated as principal officer by the portfolio manager.
“Regulations” – means the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993, as amended by SEBI from time to time and includes Securities and Exchange Board of India (Portfolio Managers) Amendment Regulations, 2012, and rules, guidelines or circulars issued in relation thereto from time to time.
“Strategy” means any of the Portfolio Investment categories mentioned herein or that may be introduced by the Portfolio Manager from time to time. The Term Strategy may be interchanged with Plans/Products/Options.
“SEBI” means the Securities and Exchange Board of India established under sub-section (1) of Section 3 of the Securities and Exchange Board of India Act, 1992.
“Securities” means and includes shares (whether dematerialized or otherwise), derivatives (futures and options), scrip, stocks, bonds, warrants, convertible debentures, non-convertible debentures, fixed return investments, floating rate instruments linked to MIBOR/call money etc., equity shares and equity linked instruments or other marketable securities of a like nature in or of any incorporated company or other body corporate, negotiable instruments, including usage bills of exchange, trade bills, deposits or other money market instruments, derivatives, commercial paper, certificates of deposits, units issued by Unit Trust of India and units issued by Mutual Funds, mortgage backed or other asset backed securities issued by any institution or corporate, cumulative convertible preference shares issued by any incorporated Company and securities issued by the Central Government or a State Government or any other securities that may be issued from time to time and other rights or interests in securities .
“Securities lending” means the securities lending as per the Securities Lending Scheme, 1997 and related guidelines specified by SEBI.
“Structured Products” means products returns on which may be linked to Equity Index, Debt instruments, Non Convertible Debentures and may also be based on Basket of stock, index or stock futures with pre-defined capital protection. These are normally third party products.
The terms that are used herein and not defined herein, except where the context otherwise so requires, shall have the same meanings as are assigned to them under the Act, the Regulations or the Rules.
Words importing the singular include the plural and vice-versa. Words importing a gender include the other gender.
Section 3 DESCRIPTION
1. HISTORY, PRESENT BUSINESS AND BACKGROUND OF THE PORTFOLIO MANAGER :
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KARVY, is a premier integrated financial services provider, and ranked amongst the leading corporate in the country in all its business segments, servicing over millions of individual investors in various capacities, and provides investor services to many corporates, comprising the who’s who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock Broking, Depository Participants, Distribution of financial products – mutual funds, bonds, fixed deposit, equities, Insurance Repository , Commodities Broking, Personal Finance, Advisory Services, Merchant Banking & Corporate Finance, placement of equity, IPOs, services related to data management and Non Banking Financial company among others. KARVY has a professional management team and ranks among the best in technology and operations.
Karvy Stock Broking Limited (KSBL) was incorporated on 30th March 1995 having Registered Office at Karvy House 46, Avenue 4, Street No.-1, Banjara Hills, Hyderabad – 500 034 and has been registered with SEBI as a Portfolio Manager vide registration number No.INP000001512 , which registration is valid till suspended or cancelled by SEBI. Karvy Stock Broking Limited (KSBL) is a member of – National Stock Exchange of India Limited, BSE Limited and Metropolitan Stock Exchange of India Limited. Karvy Stock Broking Limited has been registered as a Depository Participant with National Securities Depository Ltd (NSDL) since December 1997 and with Central Depository Securities Ltd (CDSL) since October 1999. KSBL has a large number of offices across the length and breadth of the country, thus making financial services accessible to urban, semi-urban and rural investors. KSBL provides financial services to corporate, institutional as well as individuals. We offer broking services across the entire network on a robust platform with sound technological support and risk and surveillance mechanism which are of a high order. The broking services are backed by a strong research desk which is very proactive to market feedback and analyses information that flows into the capital markets which enables us to provide quality advice to our customers. The research team comprises of technical analysts who cover market trends and stock specific movements and fundamental specialists who track various segments of industry and corporate. Besides this, we also provide customized advisory services to help in making the right financial moves that are specifically suited to portfolio requirements of the clients. Offering a wide trading platform with a dual membership both as a stock broker registered with NSE, BSE and MCX as well as a Depository Participant registered with both NSDL and CDSL, we are a powerful medium for trading and settlement of dematerialized shares. We have established Internet access to accounts and an easier transaction process in order to offer more convenience to individual and corporate investors.
2. DETAILS OF PROMOTERS,DIRECTORS AND THEIR BACKGROUND: The directors of KSBL and their background is as follows:
Mr. Comandur Parthasarathy, Promoter, Chairman and Managing Director, aged about 64 years; is a leader in the financial services industry in India and is responsible for building KARVY as one of India’s truly integrated Financial Service provider. He is a Fellow Member of the Institute of Company Secretaries of India, a Fellow Member of the Institute of Chartered Accountants of India and a graduate in Law. As Chairman, he oversees the group’s operations and renders vision and business direction. His passion and vision for achieving leadership in various segments of the business have transformed KARVY into a leading financial intermediary ranking amongst the top in the Registrar, Share Transfer Page 8 of 35
and IPO Distribution businesses. He has about 42 years of experience in the financial services arena. He also holds directorships in various companies of the group and other corporates.
Mr. Meka Yugandhar, Promoter cum Director, aged about 68 years, is one of the founders of Karvy group and has varied experience in the field of financial services spanning about 42 years. He is a Fellow Member of the Institute of Chartered Accountants of India. He has helped position and build a strong brand for the Karvy group in the registry and other financial services businesses. He has played a key role in building strong relationships with public sector banks and other PSUs which has helped Karvy win some important mandates from some of India’s renowned companies. Karvy under his guidance has helped create the equity cult and substantially built retail investor wealth. He is Director on the board of several reputed companies.
Mr. Mulpuri Siva Ramakrishna, Promoter, aged about 66 years, one of the founders of Karvy group is an orchestrator of technology initiatives such as the call center in the service of the customers. He holds directorships in various companies of the Karvy group and various other companies. He has about 39 years of experience in the financial services arena.
Mr. Bhagwan Dass Narang, Non Promoter Director and Independent Director, aged about 74 years is a post graduate in Science, M.Sc. (Agr. Eco). He has about 50 years of experience and has held senior positions in various banks before superannuation and retiring as the Chairman and Managing Director of Oriental Bank of Commerce in the year 2005. During his illustrious career, he has handled several special assignments viz, Alternate Chairman of the Committee on Banking Procedures set up by Indian Banks’ Association for the year 1997-98, Chaired a panel on Serious Financial Frauds appointed by the RBI, Chaired a Panel on Financing Construction Industry appointed by Indian Banks’ Association, Appointed as Chairman of Governing Council of National Institute of Banking Studies & Corporate Management, Elected member of the Management Committee of India Banks’ Association, Member of the Advisory Council of Banker Training College (RBI), Mumbai, etc. Since retirement he has handled several assignments viz, Member- Expert group formed for examining problems of distressed farmers, member- Committee to Oversee the Working of National Education & Investor Fund (Nominated by the Ministry of Co. Affairs GOL), Technical Expert for Co-option in the Audit Board for Performance Audit/Reviews in respect of Housing Finance PSUs & Hudco, Advisor- DSP Merrill Lynch, Mumbai (Dec 2003 to Sept 2007).
Ms. Jyothi Prasad, Non Promoter and Independent Woman Director, aged about 55 years is a law Graduate and has a PGDM from IIM Ahmedabad and a chevening scholar at the London School of Economics, UK. She has about 30 years of wide-ranging investment banking experience covering IPOs, capital markets, Private Equity, M&A, domestic/cross border advisory and disinvestments of state owned enterprises. She has advised state governments and public sector companies on financial and market aspects of disinvestment transactions, from conceptualization to implementation. Ms. Jyothi Prasad has been involved in and led over 40 IPOs, Indian and global and has significant experience in transaction related documentation, due diligence, offer structure, offer marketing, interface with client, investors and regulators.
Mr. Ashish Agarwal, Non Promoter Director ceased to be a Director of Karvy Stock Broking Limited, Portfolio Manager with effect from July 14, 2019. Page 9 of 35
iii DETAILS OF THE TOP 10 GROUP COMPANIES/ FIRMS BASED ON TURNOVER AS ON MARCH 31, 2019:
Name of the Company Nature of Business Status
Karvy Data Management Services Transaction Processing Wholly owned subsidiary Ltd company
Karvy Digikonnect Limited BPO and Call Centre Group company
Karvy Innotech Limited Data processing, data profiling and Group company management activities, supply of computer peripherals, supply and installation of these computer peripherals, supply of manpower under various segments viz e- Governance, Banking, telecom, KRA agency related activities, contact centre operations, E-Commerce support services
Karvy Forde Search Private Placement agencies and HR Group company Limited management services
Karvy Realty (India) Ltd.# Realty Services Wholly owned subsidiary company
Karvy Financial Services Ltd. Financial Services-NBFC Wholly owned subsidiary company
Sciknow Techno Solutions Ltd Manufacture, assembling and Group company dealing in all kinds of computer hardware, computer software, smartphones, tablets and various electronic products.
Karvy Capital Limited Financial Services-NBFC, SEBI Wholly owned subsidiary Registered Portfolio Manager and company Manager to SEBI registered AIF
Karvy Comtrade Ltd.# NCDEX /MCX/NMCE/ NCDEX Spot Wholly owned subsidiary Exchange / registered commodity company
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broker
Karvy Holdings Limited. Core Investment Company Group company
# Provisional since audit of these companies is not completed. All other details above are based on audited figures
Portfolio Manager offers Discretionary, Non discretionary & Advisory services as per the preference and agreement with the individual client (For more details kindly refer Annexure A).
Section 4: PENALTIES, PENDING LITIGATION OR PROCEEDINGS, FINDINGS OF INSPECTION OR INVESTIGATIONS FOR WHICH ACTION MAY HAVE BEEN TAKEN OR INITIATED BY ANY REGULATORY AUTHORITY I All cases of penalties imposed by the Board or the directions issued by Board under the Act or Rules or Regulations made there under II The nature of penalty/direction As contained in Annexure B III Penalties imposed for any economic offence and/or for violation of any securities laws IV Any pending material litigation/legal proceedings against the Portfolio Manager/key personnel with separate disclosure regarding pending criminal cases, if any V Any deficiency in the systems and operations of the Portfolio Manager observed by the Board or any regulatory agency
VI Any enquiry/adjudication proceedings initiated against the Portfolio Manager or its directors, principal officer or employee or any person directly or indirectly connected with the Portfolio Manager or its directors, principal officer or employee, under the Act or Rules or Regulations made
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there under
Section 5: SERVICES OFFERED
5.1 The Portfolio Manager offers the following three types of Services
a. Discretionary Services
The Portfolio account of the client is managed at the full Discretion and liberty of Portfolio Manager.
Under these services, the choice as well as the timings of the investment decisions on an on-going basis rest solely with the Portfolio Manager. The Portfolio Manager may at times and at its own discretion, adhere to the views of the Client pertaining to the investment /disinvestment decisions in the Client’s Portfolio. The Portfolio Manager shall have the sole and absolute discretion to invest in respect of the Client’s account in any type of security as per the Agreement and make such changes in the investments and invest some or all of funds in the Client’s account in such manner and in such markets as it deems fit. The Client may give informal guidance to customize the portfolio strategies; however, the final decision rests with the Portfolio Manager. The securities invested / disinvested by the Portfolio Manager for Clients in the same Strategy may differ from one Client to another Client. The Portfolio Managers’ decision (taken in good faith) in deployment of the Clients’ account is absolute and final and can never be called in question or be open to review at any time during the currency of the agreement or any time thereafter except on the ground of malafide, fraud, conflict of interest or gross negligence. This right of the Portfolio Manager shall be exercised strictly in accordance with the relevant Acts, Rules, and Regulations, guidelines and notifications in force from time to time.
Under these services, the Clients may authorize the Portfolio Manager to invest their Funds in specific financial instruments or a mix of specific financial instruments or restrict the Portfolio Manager from investing in specific financial instruments or securities. Periodical statements in respect of Client’s Portfolio shall be sent to the respective Clients.
Currently, the Portfolio Manager offers the following strategies:
Portfolio Strategy:
1. Alpha Portfolio – this is designed for those investors who seek long-term capital appreciation from their asset allocation to equities. The portfolio manager will invest in stocks across sectors, market capitalization categories and investment themes.
2. Alpha Plus Portfolio – This is a diversified portfolio with investments in stocks across sectors, market capitalizations and investment themes.
3. Gamma Portfolio – Gamma Portfolio aims to generate Capital appreciation in the medium to long term through investments in equities. It would aim to invest in perceived high growth Page 12 of 35
companies with sustainable business models backed by apparent strong management capabilities.
4. PSI Portfolio – This is designed for those investors who seek long-term capital appreciation from their asset allocation to equities and other investment vehicles, and to outperform the market in the long run. The portfolio will invest in equity, equity related instruments, optionally and fully converted debentures of listed and unlisted companies and other alternative asset classes.
5. Delta Portfolio – This is designed for those investors who seek long-term capital appreciation from their asset allocation to equities and debt. The portfolio will invest in mutual funds across sectors, market capitalization categories and investment themes.
6. Omega Portfolio – This is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold and other asset classes which are available through either exchange traded products or through mutual funds.
7. Theta Portfolio – This is designed for those investors who seek income and long-term capital appreciation from their asset allocation to debt.
8. Zeta portfolio - This is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold, index/ stock futures and options and other asset classes which are available through either exchange traded products, Over the counter products or through mutual funds.
b. Non Discretionary
Non-Discretionary Portfolio is the Portfolio which Portfolio Manager manages client’s portfolio in consultation with and as per the directions or consent of the client. Under these services, the Clients decide their own investments with the Portfolio Manager only facilitating the execution of transactions. The Portfolio Manager’s role would include but not limited to providing research, structuring of clients’ portfolios, investment advice and guidance and trade execution at the Client’s request. The Portfolio Manager shall execute orders as per the mandate received or consent obtained from the Client. The deployment of the Client’s Funds by the Portfolio Manager shall be as per the instructions or consent of the Client. The rights and obligations of the Portfolio Manager shall be exercised strictly in accordance with the Act, Rules and/or Regulations, guidelines and notifications in force from time to time. Periodical statements in respect of Client’s Portfolio shall be sent to the respective Clients.
The following are illustrative, but not exhaustive, investment strategies available for client availing Non-Discretionary Portfolio Management Services.
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1. Equity Portfolio: Equity Portfolio (Non discretionary) are designed for those investors who seek long-term capital appreciation from their asset allocation to equities. The portfolio manager will invest in stocks across sectors, market capitalization categories and investment themes, in consultation with and as per directions or consent of the client.
2. Non Convertible Debentures: The Non Convertible Debentures are debentures which do not get converted into equity and normally attract a fixed rate of return. The Non-convertible Debentures may be listed or unlisted. Investments will be made in the Non Convertible Debentures in consultation with and as per directions or the consent of the client.
3. Structured product: The Structured products are designed for those investors who want returns linked to price movement of any Equity index, basket of stocks, commodities, precious metals, etc., with a predefined level of capital protection.Structured Products may be principal or non principal protected or may not have any protection at all. Investments will be made in the structured products in consultation with and as per directions or the consent of the client.
4. Non Convertible Debentures as part of Structured Products: Non convertible Debentures are normally issued with a fixed rate of Interest. In case of Non convertible Debentures issued as part of a structured product, the returns on Non-convertible debentures may be linked to the price movement of an underlying or derivative thereof. Investments will be made in such products in consultation with and as per directions or consent of the client.
5. Omega Portfolio: It is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold and other asset classes which are available through either exchange traded products or through mutual funds.
6. Optima Portfolio: It is designed for those investors who seek capital appreciation from their asset allocation to Equities, debt and gold.
7. Customised Growth Portfolio: It is designed for those investors who seek aggressive capital appreciation from their equity asset allocation. The portfolio will invest in stocks across sectors, market capitalization categories and investment themes.
Note: The Customised Growth Portfolio has been introduced with effect from 1/02/2012. The portfolio was formerly known as Alpha Portfolio until January 31, 2014.
c. Advisory
Portfolio Manager will provide advisory services, as per the Regulations, which shall be in the nature of investment advice and shall include the responsibility of advising on the portfolio strategy, investment, disinvestment of the various securities in the client’s portfolio, for an agreed fee, entirely at the client’s risk. The Portfolio Manger will render the best possible advice to the client having regard to the client’s needs and the requirements, using his own professional skills. This service will be purely of advisory in nature under an agreed fee structure with the client. It is up to the client to accept the recommendations/advice of Portfolio Manager and Portfolio Manager will not be held responsible for any consequence arising out of acceptance of Portfolio Manager’s advice under this service. Page 14 of 35
5.2 Present Investment Objective
The General Objective is to formulate and device the investment philosophy to achieve long term growth of capital by investing in assets, which generate reasonable return and to ensure liquidity. The actual portfolio management style will vary in line with profile of each client with regards to his risk tolerance levels and specific preferences or concerns. (The specific objective will be as mentioned in the agreement with the client).
5.3 Types of securities
The Portfolio Manager/Fund Manager shall invest in all such types of Securities as defined (kindly refer to the definition) and in all such Securities as permissible from time to time.
5.4 Investment in Group / associate companies
The Portfolio Manager/Fund Manager may invest in Securities of the associate/group companies subject to the applicable laws/ regulations/ guidelines. These investments will be carried out to achieve the investment objectives and strategies and in the normal course of investment activity subject to the applicable laws/regulations.
The Portfolio Manager / Fund Manager shall not make any investments in any unlisted securities of associate/group companies of the Portfolio Manager/ promoter. The Portfolio Manager / Fund Manager will also not make investment in privately placed securities issued by Associate/Group companies of the promoter. The Portfolio Manager may invest not more than 25% of the portfolio of an individual client in the listed securities of the Group companies.
5.5 Minimum Investment Amount
The Portfolio Manager shall not accept funds and/or securities from new clients, cumulative value of which is less than Rupees Twenty Five Lakhs or as specified in the agreement with the Portfolio Manager or as amended/specified in the SEBI (Portfolio Managers) Regulations, 1993.
Section 6: RISK FACTORS
1. Investments in securities are subject to market risks including price volatility and liquidity risk and there is no assurance or guarantee that the objectives of the strategy will be achieved. The investment may not be suited for all categories of investors. The past or present performance of these strategies does not indicate the future performance of the same strategy or any other future strategies launched subsequently by Portfolio Manager. With reference to appreciation on the portfolio, the investors are not being offered any guaranteed or indicative returns Page 15 of 35
through any of the strategies. The Portfolio Manager also does not guarantee any capital protection for any strategy. 2. There are inherent risks arising out of investment objectives, investment strategy, asset allocation and non-diversification of portfolio. The investment objective, investment strategy and asset allocation may differ from client to client. However, generally, highly concentrated portfolios with lesser number of stocks will be more volatile than a portfolio with a larger number of stocks. Portfolios with higher allocation to equities will be subject to higher volatility that portfolios with low allocation to equities. Diversified portfolios (allocated across companies and broad sectors) generally tend to be less volatile than non diversified portfolios. The names of the various strategies do not in any manner indicate their prospects or returns. 3. Investment decisions made by the Portfolio Manager may not always be profitable since actual market movement may be at variance with anticipated trends. 4. ETF may trade above or below their NAV. The NAV of ETF will fluctuate with changes in market value of scheme’s holdings of underlying stocks. However, given that ETF can be created and redeemed only in creation units directly with the Mutual Fund, it is expected that large discounts or premiums to the NAVs of ETFs will not sustain due to availability of arbitrage possibility. Any changes in trading regulations by the Exchange (s) or SEBI may affect the ability of market maker to arbitrage resulting into wider premium / discount to NAV for ETFs. 5. The performances of the strategies depend on the performance of the market and the individual companies in which investment have been made under strategies relative to industry specific and macro economic factors. The Portfolio Manager does not assure or guarantee that Performance of Portfolio of the Investor shall better the Performance of any Benchmark Index. 6. The tax benefits described in this Disclosure Document are as available under the present taxation laws and are available subject to conditions. The information given is included for general purpose only and is based on advice received by the Portfolio Manager regarding the law and practice in force in India and the investors should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the current tax position or the proposed tax position prevailing at the time of an investment in the Portfolio will endure indefinitely. In view of the individual nature of tax consequences, each investor is advised to consult his/her own professional tax advisor regarding the taxation aspects of his/ her portfolio investments. 7. Prospective investors should review/ study this Disclosure Document carefully and in its entirety and shall not construe the contents hereof or regard the summaries contained herein as advice relating to legal, taxation, or financial/investment matters. Prospective investors are advised to consult their own professional advisor(s) as to the legal, tax, financial or any other requirements or restrictions relating to the subscription, gifting, acquisition, holding, disposal (sale or conversion into money) of Portfolio and to the treatment of income(if any), capitalization, capital gains, any distribution, and other tax consequences relevant to their portfolio, acquisition, holding, capitalization, disposal (sale, transfer or conversion into money) of portfolio within their jurisdiction of nationality, residence, incorporation, domicile etc. or under the laws of any jurisdiction to which they or any managed funds to be used to purchase/gift portfolio of securities are subject, and also to determine possible legal, tax, financial or other Page 16 of 35
consequences of subscribing/gifting, purchasing or holding portfolio of securities before making an investment. 8. The debt investments and other fixed income securities may be subject to interest rate risk, liquidity risk, credit risk and reinvestment risk. Liquidity in these investments may be affected by trading volume, settlement period and transfer procedures. Issuer of fixed income security may default or may be unable to make timely payments of principal and interest. Net Asset Value of portfolio may be affected due to perceived level of credit risk as well as actual event of default. 9. The corporate debt market is relatively illiquid vis-à-vis the government securities market. There could therefore be difficulties in exiting from corporate bonds in times of uncertainties. Further, liquidity may occur only in specific lot sizes. Liquidity in a security can therefore suffer. Even though the Government securities market is more liquid compared to that of other debt instruments, on occasions, there could be difficulties in transacting in the market due to extreme volatility or unusual constriction in market volumes or on occasions when an unusually large transaction has to be put through. There can be no assurance that the requirements of the securities market necessary to maintain the listing of specified debt security will continue to be met or will remain unchanged. 10. Exposure to select Sector(s) carries the performance risk of the relevant sector, which could outperform or underperform the market and/or various indices. 11. Some of the investments in niche sectors run the risk of volatility, high valuation, obsolescence and low liquidity. 12. Frequent rebalancing of portfolio may result in higher brokerage / transaction cost. Also the allocation to different securities can vary from 0 to 100 %, hence there can be a vast difference between the performance of the products and returns generated by underlying securities. 13. Information available on some companies in which the Portfolio manager has made investments may be limited. 14. The performance of the strategies may be affected by change in Government Policies including taxation, and certain unforeseen developments in political or general areas at the national or international level. Also, the investments are subject to external risks such as war, natural calamities and policy changes of local / international markets which affect stock markets. 15. The performance of the strategies may also be affected and investor could lose money over short periods due to fluctuation in NAV of Portfolio arising out of fluctuations of interest rates, credit risk, political and geopolitical risk, currency risk, foreign exchange risks, foreign investments, risks arising from changing business dynamics, risk associated with investment in securities debt, risk due to movement in Futures and options markets, changes in the general market conditions, forces affecting the capital markets, closure of stock exchange due to circuit filter rules or otherwise and risks associated with trading volumes, settlement periods, transfer procedures, liquidity and settlement systems in equity and debt markets.
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16. There is a possibility that loss may be sustained by the Portfolio as a result of the failure of another party (usually referred as the “Counter party”) to comply with the terms of the derivative contract. 17. Portfolio Manager, subject to authorization in writing by the client, may participate in securities lending. Engaging in securities lending is subject to risks related to fluctuations in collateral value/settlement/liquidity/default from counter party, including corporate benefits accrued thereon. This may lead to the risk of Approved Intermediary unable to deliver back the securities. Portfolio Manager cannot be held liable for any loss arising out of operation of such strategies. 18. The portfolio manager may in the course of its activities, avail the services of persons / bodies who are not employees of the portfolio manager. The portfolio manager would exercise due diligence when employing such persons, however there may be losses incurred on account of any act or omission on part of such persons or bodies. The portfolio manager disclaims liability for any loss in the portfolio on this account. All portfolios under portfolio management are subject to change at anytime at the discretion of the Portfolio Manager. 19. In the case of stock lending, risks relate to the defaults from counterparties with regard to securities lent and the corporate benefits accruing thereon, inadequacy of the collateral and settlement risks. The Portfolio Manager is not responsible or liable for any loss resulting from the operations of the strategies/options. 20. Investments in the Market Linked Debentures (MLDs) are also subject to model risk. The MLDs are created on the basis of complex mathematical models involving multiple derivative exposures which may or may not be hedged and the actual behavior of the securities selected for hedging may significantly differ from the returns predicted by the mathematical models. 21. Strategies may use derivative instrument like futures and options (index as well as individual securities), warrants, convertible securities, swap agreements, etc. for the purpose of hedging and/or portfolio balancing, as permitted under the Regulations/guidelines. Strategies using such derivative products may be affected by risks different from those associated with stock and bonds. Such derivative products are highly leveraged instruments and their use requires a high degree of skill, expertise and diligence. Small price movements in the underlying security may have a large impact on the value of the derivatives and futures and options and may also result in loss. Some of the risks relate to mis-pricing or the improper valuation of the derivatives/futures and option and the inability to correlate the positions with the underlying assets, rates and indices. The risk of loss associated with futures contracts is potentially unlimited due to the low margin deposits required and the extremely high degree of leverage involved in futures pricing. Also, the derivatives/future and options market is nascent in India.
The liquidity of the investments is guided by trading volumes in the securities in which it invests. Although securities may be listed on the Exchange(s), there can be no assurance that an active secondary market will develop or be maintained. This may limit the Portfolio Manager’s ability to freely deal with securities in the Portfolio and may lead to incurring of losses till the security is finally sold. Different segments of the financial markets have different settlement periods and such periods may be extended significantly due to unforeseen circumstances. The inability of a Page 18 of 35
Portfolio to make intended securities purchase due to settlement problems could cause the portfolio to miss certain investment opportunities. Similarly, the inability to sell securities held in the portfolio due to absence of a well developed and liquid secondary market would at times result in potential losses in the Portfolio, in case of a subsequent decline in the value of securities held in the Portfolio.
22. The Portfolio Manager may invest in non-publicly offered debt securities and unlisted securities. This may expose client’s portfolio to liquidity risks. 23. Securities, which are not listed on the Stock Exchanges, are inherently illiquid in nature and carry a larger amount of liquidity risk, in comparison to securities that are listed on the Exchanges or offer other exit options to the investor, including a PUT option. The Portfolio Manager may, considering the overall level of risk of the Portfolio, invest in lower rated/unrated securities that offer attractive yield, which may increase the risk of the Portfolio. Such investments shall be subject to the scope of investments laid down in the executed agreement. 24. The Portfolio Manager may seek to create value by investing in stocks that trade below the estimated fair value of the Company, which shall be judged by various quantitative valuation parameters. But due to various reasons, it may so happen that such stocks continue to languish and are not able to attain the price discovery. Accordingly, this may have material adverse impact on the performance of the portfolio. 25. After accepting the corpus for management, the Portfolio Manager may not get an opportunity to deploy the same or there may be delay in deployment. In such situation the clients may suffer opportunity loss.
Section 7: CLIENT REPRESENTATION
i. Category of clients as on July 31,2019:
Category of Clients No of Clients Funds Managed Discretionary/Non Discretionary
(Rs. In Crs) Associate/Group companies As on 31st July 2019 - - As on 31st March 2019 - - As on 31st March 2018
As on 31st March 2017 - -
Others As on 31st July 2019 192 76.28 Discretionary, 14 8.37 Non-discretionary Total 206 84.65
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As on 31st March 2019 211 93.33 Discretionary, 16 10.48 Non-discretionary
Total 227 103.81 As on 31st March 2018 261 108.87 Discretionary, 25 18.75 Non-discretionary Total 286 127.62
As on 31st March 2017 234 107.32 Discretionary, 55 35.37 Non-discretionary Total 289 142.69
ii.Complete disclosure in respect of transactions with related parties as per the standards specified by the Institute of Chartered Accountants of India (as on 31st March 2019)# Sr. Name of the Nature of Amount No related party Transaction 2018-19 2017-18 (Provisional) (Audited)
Karvy 1 Consultants Brokerage on trading in securities - 62,98,072 Limited Reimbursement of expenses 9,90,80,117 6,29,41,398
(Group Company) Trade payables / (receivables) 89,364.59 29,147
Karvy 2 Computershare Reimbursement of expenses 48,16,626 1,28,32,292 Pvt. Limited (Group Company) Fees and marketing income / (8,97,460) (25,54,083) (expenses)
Trade payables / (receivables) - (26,09,537)
Karvy Investor 39,34,263 38,52,305 3 Reimbursement of expenses Services Limited
(Subsidiary company)
Karvy Comtrade 4 Reimbursement of expenses 2,01,82,041 2,09,47,551 Limited (Subsidiary Corporate guarantees given and 58,25,23,468 42,95,19,556 company) outstanding
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Karvy Investment 16,532 12,74,792 Advisory Services Limited(formerly Reimbursement of expenses 1. 5 known as Karvy Insurance Broking Limited*)
(Subsidiary company)
Brokerage on trading in securities - 583 Karvy Data 6 Management Interest income 9,05,29,151 8,84,80,295 Services Limited Rent (paid) / received 50,53,461 50,53,464
Loans and advances given / (refunded), maximum at any time 1,48,90,00,000 1,77,30,00,000 during the year
(Subsidiary Reimbursement of expenses 30,91,32,277 12,89,94,479 company) Fees and marketing income/ (expenses) (45,38,743) (92,77,737)
Corporate guarantees given and 3,03,81,00,000 3,26,42,00,000 outstanding
7 Karvy Financial Brokerage on trading in securities - 3,67,462 Services Limited (Subsidiary Interest expense 1,483,55,190 9,83,80,247 company) Loans and advances taken/ 1,37,00,00,000 1,27,00,00,000 (repaid), maximum at any time -
during the year
14,42,302 87,99,030 Reimbursement of expenses
Fees and marketing income/ 7,56,441 21,64,000 (expenses)
Balance at year end, Trade 15,709 69,06,979 payables / (receivables)
Corporate guarantees given and 11,20,00,000 1,59,37,00,000 outstanding
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Inter-corporate Deposits from 1,11,85,00,000 50,00,00,000 related parties
Karvy Forex & Reimbursement of expenses 4,71,962 3,64,197 8 Currencies Private Limited
(Subsidiary company)
Karvy Realty 9 Reimbursement of expenses 16,57,17,496 1,73,64,910 (India) Limited (Subsidiary Fees and marketing income / 10,50,00,000 - company) (expenses)
Karvy Capital 10 Brokerage on trading in securities - 710 Limited 1,18,23,261 1,10,16,757 (Subsidiary Reimbursement of expenses company)
Fees and marketing income / 16,95,00,000 17,75,00,000 (expenses) - Trade payables / (receivables) 16,840
Corporate guarantees given and 6,30,40,000 9,06,00,000 outstanding
Karvy Holdings 11 Reimbursement of expenses 1,46,81,477 Limited 1,38,33,555 (Subsidiary company)
Fees and marketing income / (4,53,27,699) (2,98,13,227) (expenses)
Karvy Asia Pacific Fees and marketing income / - (6,19,899) 12 Pte Limited (expenses) (Subsidiary company)
13 Karvy Inc., USA (Subsidiary Fees and marketing income / (4,07,307) (78,98,211) company) (expenses)
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Karvy Middle Fees and marketing income / (9,03,45,719) (10,10,26,020) 14 East LLC, Dubai (expenses) (Subsidiary Company)
Karvy Forde Fees and marketing income / (6,95,36,302) (6,06,17,565) 15 Search Private (expenses) Limited (Step down Trade payables/(receivables) 69,74,325 67,30,842 subsidiary
Company)
Karvy Fees and marketing income / (1,88,54,034) - 16 DigiKonnect (expenses) Limited (Step down subsidiary
Company)
Karvy Broking Investment in equity shares 4,89,75,000 - 17 (IFSC) Limited (Subsidiary Company)
Karvy Private Investment in equity shares 94,34,950 - Wealth 18 Consulting & Financial Analysis LLC, Dubai (Subsidiary Company)
Karvy Fintech 19 Reimbursement of expenses 2,20,06,320 - Private Limited Fees and marketing income / (Group Company) 5,13,267 - (expenses)
*The name of Karvy Insurance Broking Limited has been changed to Karvy Investment Advisory Services Limited with effect from November 18, 2013.
# The above data are provisional since audit of these companies are not completed
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Section 8: FINANCIAL PERFORMANCE OF PORTFOLIO MANAGER (BASED ON AUDITED FINANCIAL STATEMENT except data as on March 31, 2019 which is based on Provisional figures since audit is not complete) As at 31st March, 2019 As at As at Rs in 31st March, 2018 31st March, 2017 Lakhs*[Provisional] Rs in Lakhs Rs in Lakhs
SOURCES OF FUNDS
Shareholders' Funds 42,857 41,348 39,322
Share Application Money _ _ _
Loan Funds 61,304 65,847 63,773
Deferred Tax Liability 21 21 -
Total 1,04,181 1,07,216 1,03,095
APPLICATION OF FUNDS
Net Fixed Assets 11,477 11,970 11,274
Stock Exchange Membership Cards - - -
Investments 21,283 21,926 22,637
Current Assets 85,884 1,01,853 91,360
Less: Current Liabilities and Provisions 14,463 28,533 22,177
Net Current Assets 71,421 73,320 69,183
Deferred Tax Asset - - -
Total 1,04,181 1,07,216 1,03,095
Summarized Financial Statement - Profit and Loss Account
For the year ended For the year 31st March, 2019 ended Rs. Lakhs 31st March, For the year ended (Provisional – based 2018 31st March, 2017 on unaudited data) Rs. Lakhs Rs. Lakhs
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Total Income 53,435 54,038 41,751
Total Expenses 51,549 51,447 40,071
Profit before Depreciation and Tax 3,510 4,168 3,259
Depreciation/Amortisation 1,624 1,577 1,579
Profit before Tax 1,886 2,592 1,680
Provision for Tax 377 565 -
Profit After Tax 1509 2026 1680
Section 9: PORTFOLIO MANAGEMENT PERFORMANCE OF PORTFOLIO MANAGER FOR THE LAST THREE YEARS. IN CASE OF DISCRETIONARY PORTFOLIO MANAGER, DISCLOSURE OF PERFORMANCE INDICATORS CALCULATED USING WEIGHTED AVERAGE METHOD IN TERMS OF REGULATION 14(2)(b)(iv) OF THE SEBI (PORTFOLIO MANAGERS) REGULATIONS, 1993
Find below the Performance of the Portfolio Manager calculated using weighted average Method for the three financial years 2016-17, 2017-18 , 2018-19 and April 2019 to July 2019 Returns%
01.04.20 19- 31.07.20 01.04.2018- 01.04.2017- 01.04.2016 - Period 19 31.03.2019 31.03.2018 31.03.2017 Discretionary PMS- Resident
Portfolio (4.66) 7.23 5.50 19.54 Perform Alpha ance (%) Benchm ark (4.35) 14.93 10.25 18.5 Perform Nifty 50 ance (%)
Portfolio (3.73) 5.59 4.64 22.37 Perform Alpha Plus ance (%) Benchm ark (4.35) 14.93 10.25 18.5 Perform Nifty 50 ance (%)
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Portfolio (13.40) (1.82) 2.27 35.53 Perform Gamma ance (%) Benchm ark Nifty Midcap (12.80) (2.66) 9.07 34.9 Perform 100 ance (%)
Portfolio 17.02 (4.35) 1.85 7.13 Perform Delta ance (%) Benchm 22.5 ark (5.56) 10.71 11.04 BSE 200 Index Perform ance (%)
Portfolio 22.95 (9.78) 1.52 1.39 Perform Omega ance (%) Benchm 22.5 ark (5.56) 10.71 11.04 BSE 200 Index Perform ance (%)
Discretionary PMS - Non Resident
Portfolio
Perform ance (%) Alpha (7.37) 6.40 6.48 23.92 Benchm ark Perform ance (%) Nifty 50 (4.35) 14.93 10.25 18.50
Portfolio Alpha Perform (5.73) 6.63 5.62 20.49 Plus ance (%) Benchm ark Nifty 50 (4.35) 14.93 10.25 18.5 Perform ance (%)
Portfolio Perform Gamma (14.20) (2.52) 2.72 35.61 ance (%)
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Benchm Nifty ark Midcap (12.80) (2.66) 9.07 34.9 Perform 100 ance (%)
Portfolio Perform ance (%) Delta (1.51) 4.68 -7.49 19.99 Benchm ark Perform BSE 200 ance (%) Index (5.56) 10.71 11.04 22.5
Portfolio Perform Omega (11.98) (0.20) 8.32 37.14 ance (%) Benchm ark BSE 200 (5.56) 10.71 11.04 22.5 Perform Index ance (%)
Non Discretionary PMS- Resident
Portfolio Custom Perform ised (3.64) 2.85 9.39 17.59 ance (%) growth
Portfolio Perform Optima 1.21 6.92 8.83 14.66 ance (%)
Non Discretionary PMS - Non Resident
Portfolio Custom Perform ised (4.40) 3.88 8.82 13.34 ance (%) growth
Portfolio Perform Optima (4.50) 2.40 2.00 24.77 ance (%)
Note: Portfolio Management performance of Resident Individual and Non Resident Indian have been shown separately above effective April 1, 2011.
Section 10: NATURE OF EXPENSES
The following are the general costs and expenses to be borne by the Client availing the services by the Portfolio Manager. However, the exact nature of expenses relating to each of the following services is Page 27 of 35
provided in the annexure to this Risk Disclosure Document and in the Schedule of Charges signed by the client in respect of each of the services provided.
(i) Portfolio Management and Advisory Fees
This fee relates to the portfolio management services offered by Portfolio Manager (including advisory services) to the clients. The fee may be a Fixed Charge on the quantum of the funds being managed (or) charges linked to portfolio return (or) combination of both. For details kindly refer the annexure to this Risk Disclosure Document.
(ii) Premature Redemption Charges
If the redemption is done prematurely at the option of the client, the Portfolio Manager shall levy the Premature Redemption Charges. For details kindly refer the annexure to this Risk Disclosure Document.
(iii) Custodian/Depository Participant fee
The charges relating to opening and operation of demat accounts, custody and transfer charges for shares, bonds and units, dematerialization and rematerialization, pledge and removal of pledge, etc. will be as per the actual charged by the Depository Participant/Custodian. For details kindly refer the annexure to this Risk Disclosure Document.
(iv) Registrar and transfer agent fee
Charges payable to the Registrar and Share Transfer Agents in connection with effecting transfer of securities and bonds, units, etc. including stamp charges, cost of affidavits, notary charges, postage/courier charges and other related charges will be recovered on actual. For details kindly refer the annexure to this Risk Disclosure Document.
(v) Placement fee :
A Placement fee will be charged as a percentage of corpus over and above the fixed management fee and performance fee. The placement fee shall also be charged each time corpus is infused/ brought in by the client during the lifetime of the portfolio investment. The placement fee shall be computed as a percentage of the initial corpus brought in by the client and if subsequent to account opening, additional corpus brought in by such client then it shall be computed as a percentage of the additional corpus brought in. The Placement fee shall be deducted upfront from the Client’s portfolio immediately on receiving the corpus from the client. For details kindly refer the annexure to this Risk Disclosure Document.
(vi) Brokerage and transaction cost
The Brokerage and other charges like Goods and Services Tax, Stamp duty, Security Transaction Tax, SEBI Fees, Bank charges, Turnover tax, and other charges (if any), as per the rates existing from time to time, will be charged on actual. For details kindly refer the annexure to this Risk Disclosure Document.
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The investment by Portfolio Manager will be done through Karvy Stock Broking Limited {Stock Broker} or through any SEBI Registered stock broker only and would as per the rates negotiated between Portfolio Manager and such stock broker. The charges relating to brokerage as per the related party transactions charged by Karvy Stock Broking Limited or through any SEBI Registered stock broker will be recovered on actual by the Portfolio Manager
(vii) Securities Lending Charges
If utilized, the charges pertaining to lending of securities, costs associated with transfer of securities connected with lending transfer operations, Depository Participant Charges, Share Transfer Agent Charges, etc. would be recovered on actual. For details kindly refer the annexure to this Risk Disclosure Document.
(viii) Certification Charges or Professional Charges
Any charges payable for outsourced professional services like accounting, taxation, auditing, and any legal services, notarizations, etc., incurred on behalf of the Client by the Portfolio Manager, will be charged from the client on actual. For details kindly refer the annexure to this Risk Disclosure Document.
(ix) Incidental Expenses
Charges in connection with day to day operations like courier charges incurred in providing physical reports relating to client’s portfolio / welcome letter / other communication to clients , stamp duty, Goods and Services Tax, postal, telegraphic expenses, opening and operation of bank and demat accounts or any other out of pocket expenses incurred by the Portfolio Manager, on behalf of the client, would be recovered from the client. For details kindly refer the annexure to this Risk Disclosure Document.
Note: For clients who have opened their PMS account with Karvy Stock Broking Limited prior to August 1, 2012, the performance fee will be computed on a High Watermark Principle over the life of the Investment at the end of every financial year on financial year basis. However, for clients who have opened their PMS accounts on or after August 1, 2012, the performance fees will be charged on completion of 12 months from account opening date (anniversary basis) and not financial year basis. The actual charges levied to client portfolio under these heads can be seen in the client’s Profit and Loss statement which will be shared by Portfolio Manager with the client on annual basis
Section 11: TAXATION
General
It may be noted that the information given hereinafter is only for general information purposes and is based on the advice received by the Portfolio Manager regarding the law and practice currently in force in India and the Investors should be aware that the relevant fiscal rules or their interpretation may change or it may not be acceptable to the tax authorities. As is the case with any interpretation of any Page 29 of 35
law, there can be no assurance that the tax position or the proposed tax position prevailing at the time of an investment in the strategy/plan/option will be accepted by the tax authorities or will continue to be accepted by them indefinitely.
Further statements with regard to tax benefits mentioned herein below are mere expressions of opinion and are not representations of the Portfolio Manager to induce any investor to invest whether directly from the Portfolio Manager or indirectly from any other persons by the secondary market operations. In view of the above, and since the individual nature of tax consequences may differ in each case on its merits and facts, each Investor is advised to consult his / her or its own professional tax advisor with respect to the specific tax implications arising out of its participation in the PMS strategy/plan/option, as an investor.
In view of the above, it is advised that the investors appropriately consult their investment / tax advisors in this regard.
Portfolio Manager cannot be held responsible for assisting or completing the fulfillment of the client’s tax obligations.
Income arising from purchase and sale of securities under Portfolio Management Services can give rise to business income or capital gains in the hands of the Client. The issue of characterization of income is relevant as the tax computation and rates differ in either of the two situations. The said issue is essentially a question of fact and depends on whether the shares are held as business trading assets or on capital account. Based on judicial decisions, the following factors need to be considered while determining the nature of assets as above: a. Motive for the purchase of securities b. Frequency of transactions c. Length of period of holding of the securities d. Treatment of the securities and profit or loss on their sale in the accounts of the assessee and disclosure in notes thereto e. Source of funds out of which the securities were acquired - borrowed or own f. Existence of an objects clause permitting trading in securities – relevant only in the case of corporate. g. Circumstances responsible for the sale of securities h. Acquisition of the securities -from primary market or secondary market Infrastructure and set - up employed for undertaking the securities transactions by the client
Any single factor discussed above in isolation cannot be conclusive to determine the exact nature of the shares. All factors and principles need to be construed harmoniously.
Investors may refer to CBDT instruction no. 1827 dated August 31, 1989 read with CBDT Circular no. 4 dated June 15, 2007 for further guidance on the matter.
Tax implications under the Income Tax Act, 1961 ("IT Act") arise in the hands of the Clients (resident as well as the non-resident) under both the scenarios, viz: Page 30 of 35
a. Securities in the Portfolio held as business asset; and b. Securities in the Portfolio held on capital account.
Additionally, non-residents (including Flls) are entitled to be governed by the applicable Double Tax Avoidance Agreement ("DTAA), which lndia has entered into with the country of residence of the non- resident, if that is more beneficial. The same would have to be considered on a case-to-case basis depending upon the applicable DTAA. Ordinarily, capital gains and interest income are taxable in lndia in the manner and at the rates prescribed under the relevant DTAA or the relevant rates applicable in India, whichever is beneficial to the assessee. Further, business income is normally not taxable in lndia if there is no permanent establishment of the non-resident in India.
Tax Deducted at Source
Presently, tax is withheld at source for non-residents. If any tax is required to be withheld on account of any future legislation, Portfolio Manager shall be obliged to act in accordance with the regulatory requirements in this regard. Interest and dividends would be subject to tax as per the provisions of the Income Tax Act, 1961.
Advance Tax installment obligations
It shall be the client’s responsibility to meet the advance tax obligation installments payable on the due dates under the Income Tax Act, 1961.
Long Term capital Gains
Any investments (equity share in a company or a unit of an equity oriented fund) held for 12 months or more than 12 months would be classified as Long Term Capital Assets. Gains arising out of such assets are called Long Term Capital Gains. These were exempt from capital gains tax, provided the shares are sold on a recognized stock exchanges in India and such transactions are subjected to Securities Transaction Tax (‘STT’) in accordance with Chapter VII of the Finance (No.2) Act, 2004 and/or Income Tax Act, 1961. With effect from 1st April 2017, in the case of equity shares, in terms of proviso to Section 10(38) of the Income Tax Act, 1961 inserted vide Finance Act, 2017, equity shares acquired on or after 1st October’ 2004 (other than the acquisition notified by the Central Government), exemption shall be admissible only if STT was also paid at the time of acquisition of such equity shares. Finance Bill, 2018 has withdrawn the above exemption and thus vide Section 112A of the Income Tax Act, 1961 tax on such long term capital gains exceeding one lakh rupees is leviable at the rate of 10%. Clients are requested to check with their Tax Advisor on the applicable rates of tax, STT, surcharge and health and educational cess at any given point of time.
Short Term Capital Gains
Any investments held for less than 12 months would be classified as Short Term Capital asset and any gains arising out of such investment are called Short Term Capital Gains. Such gains would be added to the total income. With effect from 1st April 2008, as per Section 111A of the Finance (No.2) Act, 2004,
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short term capital gains arising on transfer of short term capital asset (equity shares in a company or a unit of an equity oriented fund) are subject to tax @ 15% plus applicable surcharge and educational cess, provided the shares are sold on a recognized stock exchange in India and such transactions are subjected to Securities Transaction Tax in accordance with Chapter VII of the Finance (No.2) Act, 2004 and/or Income Tax Act, 1961. Clients are requested to check with their Tax Advisor on the applicable rates of tax, STT, surcharge and educational cess at any given point of time.
Securities Transaction Tax
STT is the tax leviable on the taxable securities transactions i.e. transaction of:
(a) Purchase or sale of an equity share of a listed companies (whether delivery based or non-delivery based) or a derivative or a unit of an equity oriented fund, entered into in a recognized stock exchange; or
(b) Sale of a Unit of an equity oriented fund to the Unit Trust of India or Mutual Fund.
The income arising from the securities transactions shall be taxed at applicable rates under the Income Tax Act, 1961 if STT is not applicable in respect of such transactions.
Capital loss
Losses under the head 'capital gains' cannot be set off against income under any other head. Further, within the head 'capital gains', long-term capital losses cannot be adjusted against short-term capital gains. However, short-term capital losses can be adjusted against any capital gains. Unabsorbed long- term capital loss can be carried forward and set off against the long-term capital gains arising in subsequent eight assessment years. Unabsorbed short-term capital loss can be carried forward and set off against the income under the head capital gains in subsequent eight assessment years
Section 12: ACCOUNTING POLICIES
The following is the accounting policy followed by Portfolio Manager while accounting for the portfolio investments of the clients.
Investment in equities will be valued on the closing price of that equity at NSE. In case of any investments done in any equity listed on BSE only, the same will be valued based on the closing price of that equity in BSE. In case the prices are not available from NSE or BSE Stock exchange, then any other stock exchange shall be considered. These shall include the Equity shares including Indian Depository Receipts and other instruments, as the case may be. In case a share is not traded on a valuation date, latest closing price of either principal / secondary or any other stock exchange would be used.
Equity shares which are not listed on stock exchanges are included in portfolio valuation at fair/cost value. In case an Equity share is suspended/non-traded/ awaiting Corporate Actions, then the Page 32 of 35
Valuation of such Equity share shall be done on the basis of good faith relying upon prevailing practices elsewhere.
In case of the warrants been traded separately they would be valued as an equity share and valued accordingly. In case of the non traded warrants, the warrants will be valued at the value of the share which would be obtained on exercise of the warrant less the amount payable on exercise of the warrant. On exercise of warrant, the warrants would be transferred to the normal equity and valued accordingly.
For valuation of the derivatives contract, the open positions, as on the date of valuation, shall be valued as per the last traded prices available from the relevant stock exchange, and will be valued on the mark to market method.
In case of Mutual Fund, Investments in Mutual Funds shall be valued at the latest available NAV of the respective scheme. Investment in Exchange listed (ETF) shall be valued at the closing price on the relevant exchange. If on a valuation date Exchange Traded Funds (ETF) is not traded either on the primary or secondary stock exchange, ETF shall be valued at the latest available NAVs of the ETF Scheme.
Investment in debt instruments will be valued at the market value of the debt instrument as on cut-off date (or) the latest available price on the relevant exchange or the most recent NAV will be reckoned. For illiquid securities, the valuation may be provided by the issuer on a periodic basis and/or as required by the portfolio manager.
Realised gains/losses will be calculated on the basis of First in First out (FIFO) basis.
Transaction date will be the trade date and not the settlement or auction date.
For derivatives transactions (if any), the unrealized gains/losses on open position will be calculated on the mark to market method.
Unrealized gain/losses means the profit/loss not yet booked and the same will be the difference of the current market price or NAV minus the actual purchase price (or) the historical cost of the securities.
All income will be accounted on accrual or receipt basis, whichever is earlier. All expenses will be accounted on due or payment basis, whichever is earlier.
Purchase and sale transactions are accounted for on trade date basis.
Cost of purchase and sale includes consideration for scrip and brokerage but excludes Securities Transaction Tax, Goods and Service Tax & other charges paid on purchase/sale of securities. Other expenses like Custodian charges (Safe keeping charges, Transaction charges, Fund Accounting charges, Out of Pocket expenses) are accounted for as & when debited by the Custodian.
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Any corporate benefits like dividend on shares, Mutual Fund units, interest on debt instruments, stock lending fees etc. shall be accounted on accrual basis except interim dividend which would be accounted on receipt basis.
Bonus shares are recorded on the ex-benefit date (ex-date). Dividend income is recorded on the ex- dividend date (ex-date)
Tax deducted at source [TDS] on interest on instruments like debentures, Fixed Deposits and the like. /Dividend is considered as withdrawal of corpus and debited accordingly. Hence, in case TDS has been deducted, for the purpose of calculation of profit made by the investor, the TDS amount will be added back. This profit arrived at (after adding back the TDS amount) will be used to calculate the applicable performance sharing fee.
Portfolio Manager and the Client, on case to case basis, can mutually agree to any specific norms or methodology for valuation of investment and/or accounting
The Client may contact the Portfolio Manager for the purpose of clarifying or elaborating on any of the above.
Section 13: INVESTOR RELATIONS OFFICER – IRO
The below mentioned employee has been nominated as the Investor Relations Officer by Portfolio Manager who will attend to the investor queries and complaints:
Ms. Nikita Sanghvi Karvy Stock Broking Ltd. 701, Hallmark Business Plaza, Sant Dnyaneshwar Marg, Bandra (E), Mumbai 400 051.
Tel No. (B) 022-33055000 Tel No. (D) 022 61491675
Fax No. 022-33055033 Email ID – [email protected]
Section 14: GRIEVANCE REDRESSAL
The Portfolio Manager has dedicated an email id [email protected] for all the investors to lodge their grievance. Apart from this, the portfolio clients can get in touch with the IRO in person, over phone or through written communication.
Portfolio Manager will ensure that the above IRO attends to all investor grievance/service issues with promptness and Portfolio Manager will ensure that this IRO is vested with necessary authority,
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ANNEXURE A
A. Discretionary Portfolio Management Services
1. Alpha Portfolio
Introduction The Alpha Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities. The portfolio will invest in stocks across sectors, market capitalization categories and investment themes.
Investment Objective The investment objective of the strategy is to generate growth of capital and excess returns over the benchmark index through long term investing. Investments would be made in companies which have a strong and sustainable business model and are growth oriented.
Investment Horizon and Risk Return Profile
This Portfolio is recommended for investors seeking to hold a diversified equity portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Asset Allocation The Portfolio will seek to remain substantially invested in Equities or Equities related instruments at all times. The cash in the portfolio may be invested in Liquid Funds or Liquid Bees.
Securities Investments will be made in Stocks, Mutual Funds and Exchange Traded Funds (ETF). The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
2.Alpha Plus Portfolio
Introduction
The Alpha Plus Portfolio is a focused equity portfolio of fundamentally strong, mainly large cap companies. It is a portfolio of stocks diversified across sectors that seek Alpha through superior stock selection. Investments are diversified in stocks across sectors, market capitalizations and investment themes. The Portfolio is a vehicle to invest in opportunities created by the Indian growth story.
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Investment Objective
The investment objective of the strategy is to achieve growth and returns through broad based participation in equity markets with investments in companies which have sustainable business model, good corporate governance and high growth.
Investment strategy/ Philosophy
The portfolio aims to achieve sustainable growth at a reasonable rate thereby generating steady returns. The portfolio management style is active with close monitoring and review of portfolio positions. Investments are research driven. Fundamental research and analytical rigor are used to arrive at margin of safety. Sound risk management is followed. Risk mitigation is done to minimize portfolio downside and is achieved by regular study of extraneous risks and by diversifying across economic themes, sectors and companies. Discipline is followed – Risks which are not understood are avoided. Price value gap is regularly monitored.
The Alpha Plus Portfolio follows the following investment strategy:
1. Invest in Emerging business led by aspiring leaders/ market leaders in their respective field of operations having a competitive edge i.equality management with good corporate practices and attractive growth prospects. Stocks which the Portfolio Manager considers as having attractive valuations with good upside potential from current levels are considered for investment;
2. Top Down approach in sector selection – weights are assigned by incisive evaluation of stocks within sectors;
3. Focused portfolio with adequate stock diversification across sectors that seek Alpha through superior stock selection. Stocks are selected after rigorous quantitative and qualitative analysis;
4. Long Term Perspective as price discovery might take time with adequate margin of safety. Investment is high conviction driven and long only prospects are considered.
Asset Allocation
The Portfolio will seek to remain substantially invested in Equities or Equities related instruments at all times. The cash in the portfolio may be invested in Liquid Funds or Liquid Bees.
Securities
Investments will be made in stocks, mutual funds and Exchange Traded Funds (ETF). The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts. Page | 2
Investment Horizon and Risk Return Profile
This Portfolio is recommended for investors seeking to hold a diversified equity portfolio with moderate risk appetite expecting a moderate return over medium to long term horizon. Below is the pictorial representation of the Alpha Plus Portfolio risk:
3.Gamma Portfolio
Investment Objective
Gamma Portfolio is a focused portfolio of fundamentally strong midcap companies and aims to generate Capital appreciation in the medium to long term through investments in equities. It would aim to invest in perceived high growth companies with sustainable business models backed by apparent strong management capabilities.
Asset Allocation
The Portfolio will seek to remain substantially invested in Equities or Equities related instruments at all times. The cash in the portfolio may be invested in Liquid Funds or Liquid Bees.
Securities
Investments will be made in Stocks, Mutual Funds and Exchange Traded Funds (ETF). The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
Investment strategy/ Philosophy
The philosophy of the portfolio is to invest in today’s midcap stocks which have the potential to be tomorrow’s large cap stocks thereby creating wealth through investment in value stocks. All investments in Gamma are in high conviction ideas based on intensive research & bottom up stock picking approach. Stocks which the Portfolio Manager considers as having attractive valuations with good upside potential from current levels are considered for investment. Emerging businesses who are market Leaders in their field of operations with quality management and who adhere to good corporate practices are considered for investment. Management style is active with close monitoring and review of portfolio positions. Page | 3
A rigorous stock selection process is followed using quantitative analysis, research and qualitative analysis to identify undervalued stocks with high growth prospects; Industry prospects and competitive edge of the companies selected are considered along with interaction with management. Broadly, Gamma Portfolio considers these parameters when selecting stocks - Strong Management Capability, established product positioning, a healthy balance sheet, strong product pipeline, attractive valuation and competitive edge of the company.
The Gamma Portfolio aims to achieve superior compounding by using the following investment strategy:
1. Long Term Perspective is maintained as price discovery might take time with adequate margin of safety. Investment is high conviction driven and long only prospects are considered;
2. Risk mitigation is achieved by regular study of extraneous risks. Risk is minimized by diversifying across economic themes, sectors and companies;
3. Investments are research driven. Fundamental research and analytical rigor are used to arrive at margin of safety;
4. The objective is to achieve sustainable growth at a reasonable rate;
5. Discipline is followed – Risks which are not understood are avoided. Price value gap is regularly monitored.
Investment Horizon and Risk Return Profile
This Portfolio is recommended for investors seeking to hold a diversified equity portfolio with high risk appetite expecting a high return over medium to long term horizon. Below is the pictorial representation of the Alpha plus strategy risk:
4.PSI Portfolio
Introduction
The PSI Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities and other investment vehicles and attempt to outperform the market in the long run. The portfolio will invest in equity, equity related instruments, optionally and fully converted debentures of listed and unlisted companies and other alternative asset classes.
Investment Objective
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The investment objective of the Strategy is to generate growth of capital and returns through short term investing. Investments will be made in instruments which look attractive on valuation and growth prospects. Additionally investments will be made in alternate asset classes based on attractiveness of the asset class.
Investment Horizon and Risk Return Profile
This Portfolio is recommended for investors with high risk appetite expecting a high return over medium term horizon.
Asset Allocation The Portfolio will seek to remain substantially invested in Equities or Equities related instruments. Part of the portfolio might be invested in Government Bonds, optionally and fully converted debentures of listed and unlisted companies, Exchange Traded Funds (ETF). The cash in the portfolio may be invested in Liquid Funds or Liquid Bees. The portfolio composition will vary from time to time.
Securities
Investments will be made through Stocks, Stock futures, Mutual Funds, optionally and fully converted debentures of listed and unlisted companies, unlisted equity, Equity & non Equity ETFs, Gold ETFs, structures, NCDs, Government Bonds and Corporate bonds. The Portfolio will also use Stock options and Index Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
5. Delta Portfolio
The Delta Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities and debt. The portfolio will invest in mutual funds across sectors, market capitalization categories and investment themes.
Investment Objective The investment objective of the Strategy is to generate long term capital appreciation of wealth through a portfolio of debt and equity related mutual funds which are rebalanced regularly and the allocation between debt and equity is done on the basis of the risk profile of the investor (conservative, moderate or aggressive).
Delta – Aggressive will have an aggressive allocation towards debt and equity. Delta – Moderate will have a moderate allocation towards debt and equity. Delta – Conservative will have a conservative allocation towards debt and equity.
Investment Horizon and Risk Return Profile
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Delta Aggressive portfolio is recommended for investors seeking to hold a diversified equity portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Delta Moderate and conservative portfolios are recommended for investors seeking to hold a diversified equity and debt portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Asset Allocation The amount of Portfolio invested in Equity related Mutual Fund will be between 0% - 100% of the Portfolio. The balance of Portfolio will be invested in debt related Mutual Funds. The idle cash will be invested in Liquid funds or Liquid bees.
Note: The amount of Portfolio invested in Equity related Mutual Fund has been changed from 30% - 100% of the Portfolio to 0% – 100% with effect from February 1, 2013. The said change in asset allocation shall be applicable prospectively only for new clients subscribing to the Strategy. Asset allocation of existing clients of the Strategy shall remain unchanged.
Securities Investments will be made in Mutual Funds and Exchange Traded Funds (ETF). The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in Mutual Funds will be valued on the day end’s NAV. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
6. Omega Portfolio
The Omega Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold and other asset classes which are available through either exchange traded products or through mutual funds.
Investment Objective
The investment objective of the Strategy is to generate long term capital appreciation of wealth through a portfolio of debt, equity, gold ETFs and other asset classes which are available through either exchange traded products or through mutual funds, which is rebalanced regularly and the allocation amongst the asset classes is done on the basis of the risk profile of the investor (moderate or aggressive).
Omega – Systematic Equity will primarily be investing into Equity and Equity related instruments {Omega Systematic Equity has been introduced with effect from February 15, 2013} Omega – Aggressive will have an aggressive allocation towards debt, gold and equity. Omega – Moderate will have a moderate allocation towards debt, gold and equity. Omega – Plus will have a dynamic allocation towards debt, gold and equity and may be fully invested in a particular asset class at a specific time depending on the investor profile. {Omega Plus strategy has replaced the erstwhile Omega Conservative strategy with effect from February 1, 2013} Page | 6
Omega – Systematic Multi asset will have an allocation across multiple asset classes {Omega Systematic Multi Asset has been introduced with effect from February 15, 2013}
Investment Horizon and Risk Return Profile Omega Systematic Equity is recommended for investors seeking to hold a diversified equity portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Omega moderate and Aggressive portfolios are recommended for investors seeking to hold a diversified multi asset portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Omega Plus is recommended for investors seeking to hold a diversified portfolio with moderate risk appetite expecting a moderate return over medium term horizon.
Omega Systematic Multi asset portfolio is recommended for investors seeking to hold a portfolio diversified across multiple asset classes with moderate risk appetite expecting a moderate return over medium term horizon.
Asset Allocation The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Debt will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Gold ETFs will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in other asset classes of Exchange Traded Products or Mutual Funds will be between 0% - 100% of the Portfolio.
Note: The asset allocation for the Omega strategy has been changed with effect from February 1, 2013. The said change in asset allocation shall be applicable prospectively only for new clients subscribing to the Strategy. Asset allocation of existing clients of the Strategy shall remain unchanged.
Securities Investments will be made in various equity and equity related securities including but not limited to stocks, convertible/non-convertible and/or cumulative/non-cumulative preference shares, convertible and/or cumulative/non-cumulative debentures, bonds and warrants carrying the right to obtain equity shares, units of mutual funds, ETFs and other eligible modes of investment as may permitted by the Regulations from time to time. Investments may be made in securities acquired through secondary market purchases, open market sales/auctions, Initial Public Offers (IPOs), other public offers, bilateral offers, placements, rights, offers, negotiated deals, etc. These securities may be listed or unlisted.
Investments would be made in all types of debt securities including but not limited to listed, unlisted, convertible, non-convertible, secured, unsecured, rated or unrated debentures of any maturity, and acquired through secondary market purchases, RBI auctions, open market sales conducted by RBI etc., other public offers, bilateral offers, placements, rights, offers, negotiated deals, etc. They could include Securitised Debt, Pass Through Certificates, Debentures (fixed, floating, Variable Coupon, and equity index /stocks /stocks basket linked, real estate backed), Bonds, Government securities issued or guaranteed by Central or State Government, corporate debt of both public and private sector undertakings, securities issued by banks (both public and private sector) and development financial institutions, bank fixed deposits, commercial papers, certificate of deposit, trade bills, treasury bills and other money market instruments, units of mutual funds, ETFs, units of SEBI registered AIFs, floating rate debt securities and fixed income derivatives like interest rate Page | 7 swaps, forward rate agreements etc. as may be permitted by the Act, Rules and/or Regulations, guidelines and notifications in force from time to time.
Investments will also be made in gold ETFs and other asset classes which are available through either exchange traded products or through mutual funds. The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity at BSE. Investment in Mutual Funds and ETFs will be valued on the day end’s NAV. Investment in NCDs, bonds and other debt Instruments will be valued at closing price, if listed, or as per valuation provided by the issuer. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
7. Theta Portfolio
The Theta Portfolio is designed for those investors who seek income and long-term capital appreciation from their asset allocation to debt.
Investment Objective The investment objective of the Strategy is to generate income and long term capital appreciation through a 100% debt portfolio investing in debt mutual funds, bonds and debentures.
Investment Horizon and Risk Return Profile Theta portfolio is recommended for investors seeking to hold a debt portfolio with moderate risk appetite expecting a moderate return over a long term horizon.
Asset Allocation The amount of Portfolio invested in Debt will be 100% of the Portfolio.
Securities Investments will be made in mutual funds, Exchange Traded Funds (ETF), listed and unlisted bonds and debentures whether listed or unlisted, rated or unrated.
Investment in Mutual Funds and ETFs will be valued on the day end’s NAV. Investment in Non Convertible Debentures, Certificate of Deposits, bonds and other debt instruments will be valued at closing price, if listed, or as per valuation provided by the Issuer.
8. Zeta Portfolio
Introduction Zeta Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold, stock futures and options and other asset classes which are available through either exchange traded products, over the counter products or through mutual funds.
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Investment Objective
The investment objective of the Strategy is to generate long term capital appreciation of wealth through a portfolio of equities, debt, gold, index/ stock futures and options and other asset classes which are available through either exchange traded products, over the counter products or through mutual funds. The allocation to these assets will be made in accordance with the view of the portfolio manager on the specific asset class.
Investment Horizon and Risk Return Profile
The strategy is recommended for clients with a moderate risk profile looking at capital appreciation of their assets over a moderate investment horizon.
Asset Allocation The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Debt will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Gold Exchange Traded Funds {ETFs} will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in other asset classes of Exchange Traded Products or Mutual Funds will be between 0% - 100% of the Portfolio.
Investment in Futures and Options will be to the extent of 100% of the portfolio value at all times. Derivative Instruments shall, however, not be used in case of NRI investors.
Securities Investments will be made through stocks, stock futures, mutual funds, Equity & non Equity ETFs, Gold ETFs, market linked debentures, Non Convertible Debentures (NCDs), Government Bonds and Corporate bonds and Over the counter instruments. The Portfolio will also use stock options and index futures and options – as may be required from time to time. The exposure through futures and options will not exceed 100 percent of the portfolio value at all times. The portfolio will not invest in commodity futures.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment in “Futures and Options” shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
Investment in mutual funds and ETFs will be valued on the day end’s NAV. Investment in NCDs, bonds and other debt instruments will be valued at closing price, if listed or as per valuation provided by the issuer.
B . Non - Discretionary Portfolio Management Services
The following are illustrative, but not exhaustive, investment options or products available for client availing Non-Discretionary Portfolio Management Services.
1. Equity Equity Portfolio (Non discretionary) are designed for those investors who seek long-term Portfolio: capital appreciation from their asset allocation to equities. The portfolio manager will
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invest in stocks across sectors, market capitalization categories and investment themes, in consultation with and as per directions or consent of the client. Minimum investment amount: Rs. 25 lakhs 2. Non The Non Convertible Debentures are debentures which do not get converted into equity Convertible and normally attract a fixed rate of return. The Non-convertible Debentures may be Debentures: listed or unlisted.
Investments will be made in the Non Convertible Debentures in consultation with and as per directions or the consent of the client. Minimum investment amount is Rs. 25 Lakhs. 3. Non Non convertible Debentures are normally issued with a fixed rate of Interest. Convertible The Non Convertible Debentures as part of Structured Products are designed as equity Debentures as linked structures, debentures, derivative instruments, swaps, swaptions, a basket of part of securities, options, indices, commodities linked structures, debt issuances and/or foreign Structured currencies, Secured Premium Notes, money market instruments, etc. for those investors Products who want returns linked to an underlying asset with a predefined level of capital protection. These products may be principal or non principal protected. Investments may be made both in rated and unrated debentures to cater to specific Client requirement. Investments in such products will be made in consultation with and as per directions or consent of the client. Minimum investment amount is Rs. 25 Lakhs. 4. Structured The Structured products are designed for those investors who want returns linked to product price movement of any Equity index, basket of stocks, commodities, precious metals, etc., with a predefined level of capital protection.
Structured Products may be principal or non principal protected or may not have any protection at all. Investments will be made in the structured products in consultation with and as per directions or the consent of the client. Minimum investment amount is Rs. 25 Lakhs. The list of products provided here is not exhaustive and the Portfolio Manager may devise and recommend other products as per specific needs of the client.
Asset Allocation
The Portfolio will be invested in Equities, Mutual Funds, Exchange Traded Funds, Non Convertible Debentures, Bonds, Debt Instruments, Derivatives, Money market Instruments and Structured products in consultations with and as per directions or consent of the client. The cash in the portfolio will be invested in Liquid Funds or Liquid Bees.
Valuation of Assets
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity in BSE. Investment
Page | 10 in NCDs, bonds and other debt Instruments will be valued at closing price, if listed, or as per valuation provided by the issuer. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts.
Structured Products will be valued at the valuation provided by the issuer of the structured products from time to time.
Non - Discretionary Portfolio Management Services
Customised Growth Portfolio
Introduction This portfolio is designed for those investors who seek aggressive capital appreciation from their asset allocation to equity, debt and gold. The portfolio will invest in stocks across sectors, market capitalization categories and investment themes. Customised Growth Strategy caters to different investor mandates with varying objectives and constraints. Each portfolio is unique and addresses the individual circumstances of the client and hence does not follow a model portfolio. Customised Growth strategy follows an active management style with close monitoring and review of portfolio positions. The Customised Growth Portfolio was formerly known as Alpha Portfolio until January 31, 2014.
The Customised Growth Portfolio serves various kinds of investment mandates such as diversification, focused, profit booking, etc and follows an active management style with close monitoring and review of portfolio positions.
Investment Objective The investment objective is to provide returns and capital appreciation through broad based participation in equity markets with investments in companies which have sustainable business model, good corporate governance and high growth.
Asset Allocation Assets will be allocated amongst following asset classes in consultation with and as per directions or consent of the client.
The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. Investment can be made in other asset classes like debt, Gold ETF as per choice, consent or directions of the client.
Securities Investments will be made in Stocks and other investment options like Mutual Funds, Exchange Traded Funds (ETF) as per choice, consent or direction of the client.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity at BSE. Investment in Mutual Funds and ETFs will be valued on the day end’s NAV Investment.
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Optima Portfolio
The Optima Portfolio is designed for those investors who seek capital appreciation from their asset allocation to Equities, debt, preference capital and gold.
Investment Objective The investment objective of the Strategy is to generate capital appreciation of wealth through a portfolio of debt, preference capital, pass through certificates, Equity and Gold securities which is rebalanced regularly and the allocation between Debt, Equity and Gold ETFs is done on the basis of the risk profile of the investor in consultation with and as per directions or consent of the client.
Asset Allocation Assets will be allocated amongst following asset classes in consultation with and as per directions or consent of the client. The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Debt will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Gold ETFs will be between 0% - 100% of the Portfolio. Investment can be made in other asset classes as per choice, consent or directions of the client.
Securities Investments will be made in Stocks, Mutual Funds, Exchange Traded Funds (ETF), Non-Convertible Debentures, and Bonds, preference capital (perpetual, optionally convertible, compulsorily redeemable), pass through certificates and other investment options as per choice, consent or direction of the client. Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity at BSE. Investment in Mutual Funds and ETFs will be valued on the day end’s NAV Investment in NCDs, bonds and other debt Instruments will be valued at closing price, if listed, or as per valuation provided by the issuer.
Omega Portfolio
The Omega Portfolio is designed for those investors who seek long-term capital appreciation from their asset allocation to equities, debt, gold and other asset classes which are available through either exchange traded products or through mutual funds.
Investment Objective The investment objective of the Strategy is to generate long term capital appreciation of wealth through a portfolio of debt, equity, gold ETFs and other asset classes which are available through either exchange traded products or through mutual funds and the allocation amongst the asset classes is done on the basis of the risk profile of the investor in consultation with and as per directions or consent of the client.
Asset Allocation Assets will be allocated amongst following asset classes in consultation with and as per directions or consent of the client.
The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in Debt will be between 0% - 100% of the Portfolio.
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The amount of Portfolio invested in Gold ETFs will be between 0% - 100% of the Portfolio. The amount of Portfolio invested in other asset classes which are available through either exchange traded products or through mutual funds will be between 0% - 100% of the Portfolio. Investment can be made in other asset classes as per choice, consent or directions of the client.
Securities Investments will be made in Stocks, Mutual Funds, Exchange Traded Funds (ETF), Non-Convertible Debentures, and Bonds. The Portfolio will also use derivative instruments – Futures and Options – for hedging and rebalancing of the portfolio and other investment options as per choice, consent or direction of the client. Derivative Instruments shall, however, not be used in case of NRI investors.
Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity at BSE. Investment in Mutual Funds and ETFs will be valued on the day end’s NAV. NAV Investment in NCDs, bonds and other debt Instruments will be valued at closing price, if listed, or as per valuation provided by the issuer. Investment in “Futures and Options”, used for hedging, shall be valued at actual cash margins paid against F&O contracts, summed with Mark to Market profit / loss computed on the basis of closing price of such contracts. Derivative Instruments shall, however, not be used in case of NRI investors.
Advisory Services
Equity Advisory Portfolio
Introduction This portfolio is designed for those investors who seek aggressive capital appreciation from their equity asset allocation. The portfolio will invest in stocks across sectors, market capitalization categories and investment themes.
Investment Objective The investment objective is to provide returns and capital appreciation through broad based participation in equity markets with investments in companies which have sustainable business model and high growth.
Asset Allocation Assets will be allocated amongst following asset classes in consultation with and as per directions or consent of the client.
The amount of Portfolio invested in Equity will be between 0% - 100% of the Portfolio. Investment can be made in other asset classes like debt, Gold ETF as per choice, consent or directions of the client.
Securities Investments will be made in Stocks and other investment options like Mutual Funds, Exchange Traded Funds (ETF) as per choice, consent or direction of the client.
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Investment in equities will be valued on the closing price of that equity at NSE. In case of investments in any stocks listed on BSE only, the same will be valued based on the closing price of that equity at BSE. Investment in Mutual Funds and ETFs will be valued on the day end’s NAV Investment.
The term “Strategy” or “Strategies” referred in this document is not prima facie the strategy(s) devised to organize investment portfolios, rather these are various investment categories/ frameworks on the basis of which investment portfolio of a subscriber can be tailored. Reference to the term “Strategy” or “Strategies” however helps in defining and communicating fee structure to a subscriber in a simple and transparent manner.
The final fee structure and fee charging frequency may vary with every client and would be pre decided between the portfolio manager and the client. This may be changed during the term of the PMS arrangement upon mutual consent by the investor and the portfolio manager.
SECTION II: FEES AND EXPENSES PERTAINING TO THE PORTFOLIO STRATEGIES
The fee portion below is common for all strategies whether Discretionary and Non Discretionary Product
PLACEMENT FEE: A Placement fee will be charged as a percentage of corpus over and above the fixed management fee and performance fee. The placement fee shall also be charged each time corpus is infused/ brought in by the client during the lifetime of the portfolio investment. The placement fee shall be computed as a percentage of the initial corpus brought in by the client and if subsequent to account opening, additional corpus brought in by such client then it shall be computed as a percentage of the additional corpus brought in. The placement fee so computed shall be completely recovered from client’s portfolio within the first year of receiving corpus. The Placement fee shall be deducted from client’s portfolio at end of each calendar quarter till completion of one year of receiving corpus. For clients starting their PMS in between any quarter, the placement fee will be proportionately charged for that quarter and thereafter on quarterly basis till recovery of full placement fee. If client closes his portfolio account prior to recovery of entire placement fee, the Portfolio Manager shall deduct the balance Placement Fee from the proceeds payable to the client upon portfolio closure. For details kindly refer the annexure to this Risk Disclosure Document.
FIXED MANAGEMENT FEE: The Fixed fee Shall be applicable by the Portfolio Manager will not exceed 3.00% p.a. charged up to 0.75% at the end of every quarter / month [as may be agreed with clients] on the daily average Net Asset Value of the Portfolio (inclusive of all securities and cash/bank balance).
PERFORMANCE FEE: The Performance fee shall not exceed 25% of incremental gains beyond annualized hurdle rate not exceeding 12% on the basis of High Water Mark Principle over the life of the investment. For existing clients, the performance fee is being computed on a High Watermark Principle over the life of the Investment at the end of every financial year on financial year basis. From 1st August, 2012, for new clients the performance fees is being charged on completion of 12 months (anniversary basis) and not financial year basis.
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PREMATURE REDEMPTION CHARGES/ EXIT CHARGES: If the redemption is done prematurely at the option of the client, the Portfolio Manager shall levy the Premature Redemption Charges/ exit charges as may be agreed upon between the Portfolio Manager and the clients when signing the Portfolio management Services Agreement.
Further, the below general costs and expenses shall be borne by the clients availing the services of the portfolio manager.
1. Custodian/ Depository Participant Fee: The charges relating to opening and operation of demat accounts, custody and transfer charges for shares, bonds and units, dematerialization and rematerialization, pledge and removal of pledge, etc. will be as per the actual charged by the Depository Participant/Custodian.
2. Registrar and transfer agent fee: Charges payable to the Registrar and Share Transfer Agents in connection with effecting transfer of any or all securities and bonds, units, etc. including stamp charges, cost of affidavits, notary charges, postage/courier charges and other related charges will be recovered on actual
3. Brokerage and transaction cost: The Brokerage and other charges like Goods and Services tax, Stamp duty, Security Transaction Tax, SEBI Fees, Bank charges, Turnover tax, and other charges (if any), as per the rates existing from time to time, will be charged on actual.
4. Securities Lending Charges: If utilized, the charges pertaining to lending of securities, costs associated with transfer of securities connected with lending transfer operations, Depository Participant Charges, Share Transfer Agent Charges, etc. would be recovered on actual.
5. Certification Charges or Professional Charges: Any charges payable for outsourced professional services like accounting, taxation, auditing, and any legal services, notarizations, etc., incurred on behalf of the Client by the Portfolio Manager, will be charged from the client on actual.
6. Fees, entry/exit loads and charges in respect of investment in mutual funds: Mutual funds may be recovering expenses or management fees, entry/exit loads and other incidental expenses along with services tax, if any, on such recoveries and such fees, entry/exit loads and charges including services tax on such recoveries, as per the relevant regulation shall be paid to the asset management company of these Mutual Funds on the clients’ account. Such fees and charges are in addition to the Portfolio Management fees described above.
7. Incidental Expenses: Charges in connection with day to day operations like courier charges incurred in providing physical reports relating to client’s portfolio / welcome letter / account statements/ other communication to clients, stamp duty, Goods and Services tax, postal, telegraphic expenses, opening and operation of bank and demat accounts or any other out of pocket expenses incurred by the Portfolio Manager, on behalf of the client, would be recovered from the client. All incidental and ancillary expenses not
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covered above but incurred by the Portfolio Manager on behalf of the client would be recovered from the client.
SECTION III: COMMON FEATURES OF THE PORTFOLIO STRATEGIES {common features applicable to all strategies}
Minimum investment amount is Rs. 25 Lakhs.
Liability of a client shall not exceed client’s investment with the portfolio manager.
The Portfolio Manager shall charge audit fees, custodial/ AMC charges and other charges/costs, attributable to the Portfolio Management Services on actual. Any charges payable for outsourced professional services like accounting, taxation, auditing, and any legal services, notarizations, etc., incurred on behalf of the Client by the Portfolio Manager, will be charged from the client on actual.
The Client may withdraw whole or part of the funds or securities from the portfolio account by giving advance notice and the Portfolio Manager will endeavor to liquidate the securities held in the strategy and return the funds or securities of the strategy, as the case may be, to the client within reasonable time. In case the Portfolio Manager is for any reason unable to sell the securities, the Client shall be obliged to accept the securities in the portfolio.
The Portfolio Manager will provide periodical reports as required under the regulations at the communication address provided by the client at time of account opening. In case Portfolio Manager is unable to provide the periodic reports in physical copy, the same shall be provided to clients via email at the email id registered by clients at time of account opening.
The portfolio account will be audited by the Independent Chartered Accountant every year and copy of the Certificate issued by the Chartered Accountant will be given to the Client.
GLOSSARY OF TERMS USED IN THE RISK DISCLOSURE DOCUMENT AND ANNEXURE A Discretionary portfolio: A portfolio where the funds of each client are managed individually and independently by the fund manager in accordance with the needs of the client.
Non discretionary Portfolio: A portfolio where the funds are managed by the fund manager in accordance with the directions of the client.
Hurdle rate: The rate over which profit sharing / performance related fees are usually charged by portfolio managers. This is not a fixed number and would be specified in the agreement signed with the client.
High Water Mark Principle: As defined by SEBI, High Water Mark shall be the highest value that the portfolio/account has reached. Value of the portfolio for computation of high watermark shall be taken to be the value on the date when performance fees are charged. The portfolio manager shall charge performance based fee only on increase in portfolio value in excess of the previously achieved high water mark
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KARVY STOCK BROKING LTD.
ANNEXURE B - Details of all settled and pending disputes against Karvy Stock Broking Limited/ its directors/associates as on July 2019
There have been no Enquiry/investigation/disciplinary action/adjudication/prosecution/ any other action initiated/taken or penalty imposed pending against Karvy Stock Broking Limited (KSBL), its associate/s or any of its directors/shareholders/partners by SEBI/exchange(s)/clearing corporation(s)/clearing house or any other regulatory authority except as mentioned below:
A. DETAILS REGARDING ACTIONS INITIATED/TAKEN/ PENDING AGAINST KARVY STOCK BROKING LIMITED
Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any (a) (b) (c) (d) (e) 1. SEBI vide order dated - Subsequent to the enquiry (i) Subsequent to PAN being made Nil 26.05.2006, and hearing with the whole mandatory by regulators, the directed, Karvy Stock time member, SEBI in its final Company has developed a Broking Ltd. (KSBL), order dated June 22, 2007, software application wherein the not to act as a directed that KSBL as a DP is PAN details provided by the depository prohibited from opening applicants are validated online participant, passing new demat accounts till with the Income Tax website. Only of final orders, except December 31, 2007. SEBI such applications where PAN for acting on the also passed an order that the details are valid in all respects are instructions of certificate of KSBL as a processed for opening BO existing beneficial broker be suspended for a accounts. The Company has taken owners ('BOs’). SEBI period of 3 months. permission from the depository for also directed KSBL, as such online validation. KSBL as a broker had filed an a stock broker, not to appeal no 75 of 2007 on June (ii) The concurrent audit has been undertake any 25, 2007. SAT had stayed the strengthened by way of 100% audit proprietary trades in of account opening application Page 1
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any securities, either off- order on July 4, 2007. forms by external agency with market or on market, regard to compliance and KSBL as a DP had filed an passing of final fulfillment of the documents appeal no 111 of 2007 on orders. required as per KYC norms. July 17, 2007. SAT had stayed Extensive training sessions to all the order on August 8, 2007. the DP front office employees has SAT in its final order dated been conducted educating them June 30, 2008 set aside the on the scrutiny required to be impugned order dated June done while accepting account 22, 2007, remanding the opening application form matter back to SEBI with a direction to pass separate (iii) Front office personnel of some orders against KSBL – as a of the branches have also been Broker as well as a DP with nominated for NSDL / CDSL training regard to the violations for the purpose of compliance of emanating from the enquiry NCFM / NCDO certification officer’s report. requirement. Fortnightly review of the Demat accounts opened with the same address is undertaken by The Whole Time Member a senior resource had granted a personal hearing as per the order of (iv) No applications are accepted Hon’ble SAT, wherein and accounts are opened without submissions to SEBI have an “in-person” verification and re- been made by the company. verification of original documents,
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any SEBI issued final order in required as a part of KYC, by an respect of KSBL – Depository employee of the Company. Participant on 28th January, Reporting of off-market 2014 and has in paragraph transactions submitted for 20 such order clearly execution to the DP and concluded that KSBL – Compliance Head on a fortnightly Depository participant has basis. already undergone (v) The above corrective actions prohibition from taking up taken by the Company have been any new assignment for a intimated to SEBI in our various period of 18 months and 26 correspondences during the days and hence there need process. An inspection has also not be any further penalty on been conducted by SEBI during KSBL – Depository October 2009 to review if the Participant. procedures and processes adopted
are in order. There has been no SEBI issued final order in adverse observation by the respect of KCPL – RTI on 3rd inspection team. February, 2014 and in such order stated that since KCPL has already undergone prohibition from acting as RTI for approximately 10 months no further penalty is warranted. Page 3
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any SEBI had passed order dated 14 March 2014 prohibiting KSBL- Broker from taking up any new assignment or contract or launch a new scheme (i.e., not to take new clients/customers) for a period of 6 months in respect of its business as a stock broker.
KSBL had preferred an appeal before Hon’ble Securities Appellate Tribunal (SAT) against the order. Hon’ble SAT, vide order dated 16 April 2014, in the matter of Appeal No 66/2014 granted a stay on SEBI’s order dated 14 March 2014. Further, SAT vide order dated 21 January 2015 has set aside the SEBI’s order dated 14 March 2014 and directed SEBI to pass appropriate order after Page 4
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any hearing by the Whole Time Member., Subsequently hearing was held before the WTM SEBI on 7th April, 2015. SEBI issued final order dated 15th June, 2015 disposing off the proceedings against KSBL by directing it to not undertake only new primary market assignment including acting as syndicate member or providing syndication services (procuring IPO applications and bidding in IPOs), directly or indirectly , in IPOs for a period of one year. SEBI has also clarified that this direction shall not hinder the activities for which KSBL was already engaged for undertaking primary market activities before the date of the order. W.e.f June 16, 2016 KSBL has commenced to undertake Page 5
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any new primary market assignments including acting as a syndicate member or providing syndication services (procuring IPO applications and bidding in IPO’s).
2 In February 2007, ------Pending SEBI had initiated proceedings under section 24 of the SEBI act, against the three directors of the company, viz. Mr. C. Parthasarathy, Mr. M. Yugandhar, Mr. M. S. Ramakrishna, and Karvy Stock Broking Limited which are pending before the additional chief metropolitan magistrate, Mumbai.
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any Arising from the above said investigation, SEBI has filed two separate complaints under section 190 of criminal procedure code r/w 68A & 621 of Companies Act- 1956 against KSBL and three of its Directors, namely Mr C.Parthasarathy, Mr M.Yugandhar and Mr Ramakrishna before the Special Judge at Mumbai vide Case Nos: 66/2016 and 74/2016 before the SPecial Judge and the said complaints are pending before the said court.
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any 3 Two cases - BS & FC ------Pending (RC 3(E)/ 2006 and 4(E)/ 2006) under Sections 120 B r/w 420, 467, 468 & 471 of IPC, under Section 68(A) of the Companies Act 1956 and under Section 13(2) r/w 13 (1) (d) of the PC Act, 1988 were registered by CBI vide charge sheet dated September 29,2007 and October 30, 2007 in the matter of Yes Bank and IDFC Ltd. after arraying Karvy Stock Broking Limited, Karvy Computershare Pvt. Ltd and Karvy Consultants Ltd and other officers of these entities including Mr. C. Parthasarathy, as co- accused. The matter
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any is pending before the Hon’ble Special judge.
4 The Enforcement ------Pending Directorate, after relying on the investigations of CBI and that of SEBI and on the premise that Section 467 of IPC framed against the co-accused represents a predicate offence which is categorized as a scheduled offence under Section 2(u) of the Prevention of Money Laundering Act-2002 (PMLA), has filed a prosecution
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any complaint in April 2013 bearing no.04/2013, in terms of the provisions of PMLA. The matter is pending before The Appellate Authority PMLA New Delhi
5. Inspection Based on the findings of SEBI had vide show cause 1. The PMS Operations team NIL of Portfolio inspection, the company notice dated November 24, actively ensures in Management services has received a show 2014 initiated adjudication coordination with the business of Karvy cause notice as to why proceedings against Karvy operations team at Hyderabad Stock Broking Limited adjudication Stock Broking Ltd (KSBL) that KYC details of clients who (KSBL) conducted in proceedings should not (Portfolio Manager). This opt for PMS are uploaded to 2013-14. be initiated against the adjudication was initiated KRA Company. subsequent to the inspection 2. The PMS Operations team of KSBL as a portfolio routinely scrutinizes account manager in February 2014. opening forms and any KSBL has responded to the difference in ink if observed notice vide its letter dated between signatures of client January 14th, 2015. KSBL has and text written by client is also filed for settlement immediately escalated and the (consent) in the matter vide
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any its letter dated January 23, form rejected for clarification 2015. Hearing in the and confirmation by client adjudication matter was held 3. All teams are being repeatedly before the AO on June 29, sensitized to fact that the word 2015 wherein authorized “scheme” is not to be used representatives of KSBL with respect to PMS appeared before the AO and documents made submissions. Hearing in the consent proceedings 4. The PMS Product team is in the th was held on 5 January, process of introducing a risk 2017. KSBL has remitted an profiling tool. amount of Rs 6.8 lakh towards settlement of the matter and the proceedings have been closed.
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any 6. Inspection of Karvy (i)SEBI advised to take due (i)With reference to the Nil Stock Broking Limited care while billing the clients observations raised by the (KSBL) as a and avoid discrepancies in inspection officials pertaining to Depository billing. discrepancies in billing we submit Participant of NSDL that necessary corrective action (ii) In this regard SEBI advised and CDSL conducted has been taken to prevent to ensure the strict for the period from recurrence of such observations. Compliance of the provisions April 2010 to March of the SEBI Act, 1956, 2013. Securities Contracts (ii)We ensure to follow strict (Regulation) Rules, 1957 and compliance of the provisions of the rules, Regulations, Bye- SEBI Act, 1956, Securities laws, directives/circulars Contracts (Regulation) Rules, 1957 issued by the depositories and the rules, Regulations, Bye- from time to time. laws, directives/circulars issued by the depositories from time to time.
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any 7. Inspection of Karvy Instances of complaints Final observations for the Provided information on measures Nil Stock Broking Limited involving trade disputes inspection have been such as centralized call (KSBL) as a Broker and instances involving received. Administrative confirmation for loss making conducted in March non-settlement of warning has been issued by customers, confirmation call for 2013 by SEBI. funds/securities on SEBI. dormant customers upon their quarterly basis trade, awareness and counseling to observed. dealers etc
Inadequacies in The detailed dispatch records maintenance of records through Indian Post with proper pertaining to delivery / bar code for sample dates have dispatch of contract been provided. notes
8 Inspection of Karvy KSBL not adhered to the SEBI has advised to take Provided information on measures NIL Stock Broking Ltd guidelines prescribed in necessary corrective action such as centralized call (KSBL) as a Broker SEBI Master Circular to ensure non-recurrence of confirmation for loss making conducted in March dated December 31, the observations customers, confirmation call for 2015 by SEBI 2010 with respect to the dormant customers upon their categorization of clients trade, awareness and counseling to based on risk. dealers etc
Few NRI clients were not classified as high risk and income ranges
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any Instances of investor were inadvertently captured lesser complaints of than actual income range for few unauthorized trading by clients stock broker were The errors have been since observed and some of rectified and necessary steps taken such complaints had to prevent non-recurrence of the been redressed with observations. decisions of stock broker to repay/ restore the disputed claims on favor of clients, by IGRP
9 Writ petition filed by SEBI and NSE have made NA NA NIL KSBL w.r.t release of submissions as arbitration award respondents in this amounts to investors matter. in the absence of stay orders. KSBL had The writ petition is challenged the vires pending disposal before of Clause 9.3 (c) of the Bombay High Court SEBI Circular dated August 11, 2010
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Sl.no. Details of the case SEBI/Exchange SEBI Action Corrective steps taken by Pending observation(s) Company towards observations actions, made by SEBI if any 10 Inspection of KSBL Corporate Guarantees Penalty of Rs 25 lakh levied More than 90% of the corporate NIL carried out by NSE in were extended by KSBL guarantees extended to October 2016 to subsidiaries which subsidiaries has been closed. were not engaged in the business of securities Loans given to subsidiaries have been recovered and going forward Loans given to would be reduced from the net subsidiaries not reduced worth from networth
B. Details of action initiated / taken/pending, if any, by SEBI against Karvy Data Management Services Limited., Group Company.
Sl.no Details of the case SEBI Observations SEBI Action Corrective steps taken by Pending . Company towards observations actions, if made by SEBI any (a) (b) (c) (d) (e)
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1 SEBI had conducted Deficiencies in complaint Warning letter dated January Complaints handling mechanism. NIL inspection of KDMSL handling mechanism 23, 2017 issued by SEBI for Help desk team has been set up to KRA activity in the deficiencies observed attend complaints from investors Deficiencies in scanned February 2016 and intermediaries. Separate email documents ID has been created to handle System audit done grievances. calendar year wise Deficiencies in scanned instead of financial year documents. KYC documents are scanned and uploaded by intermediaries against KYC data uploaded to KARVY KRA for registration. Incomplete documents are not rejected while processing and discrepancies in documents are brought to the notice of the concerned intermediary for rectification. System audit was done calendar year wise instead of financial year wise. Periodicity of system audit has been changed from calendar year to financial year.
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C. Details of action initiated / taken/pending, if any, by SEBI against Karvy Comtrade Limited., Group Company.
Sl.no Details of the case MCX/NCDEX/SEBI Audit MCX/NCDEX/SEBI Action Corrective steps taken by Pending . observation(s) Company towards observations actions, if made by MCX/SEBI any (a) (b) (c) (d) (e)
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Sl.no Details of the case MCX/NCDEX/SEBI Audit MCX/NCDEX/SEBI Action Corrective steps taken by Pending . observation(s) Company towards observations actions, if made by MCX/SEBI any (a) (b) (c) (d) (e) 1 On the basis of the Wash Trades/Cross Deals On the basis of the reporting 1. Blocking of contracts which NIL observations in illiquid contracts in the forensic audit report are illiquid in nature. reported in the PwC and the personal hearing 2. Creating awareness Audit report, the given to the Member before amongst clients , branch FMC had directed that a special the Disciplinary Action officials and authorised forensic audit be Committee Meeting held on persons/sub-brokers about conducted for the September 28, 2015, the illiquid contracts and cross trades done by Committee decided that a deals. Indian Bullion total penalty of Rs. 21,73,539 Markets Association + Advice (plus applicable 3. Based on communication (IBMA) through the service tax) be levied upon received from the captioned Member. Accordingly, the the Member. Accordingly, Exchanges w.r.t dealings of special forensic audit the same was levied by the particular client, adequate was conducted by Exchange and recovered explanation is sought from the Exchange the clients and the trading through M/s. Borkar of the client in that & Muzumdar, contract is blocked if felt Chartered necessary. Accountants. Show cause notice dated August 28, 2015 enclosing therewith the audit report was issued by MCX.
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Sl.no Details of the case MCX/NCDEX/SEBI Audit MCX/NCDEX/SEBI Action Corrective steps taken by Pending . observation(s) Company towards observations actions, if made by MCX/SEBI any (a) (b) (c) (d) (e) 2 SEBI had inspected Bank balances in client MCX vide their letter dated Necessary corrective action has NIL KCTL in the month of bank account not 21st September, 2018 levied been taken to ensure that the February 2017 commensurate with the a penalty of Rs 15.85 lakh on balances are in sync. credit balances as per KCTL back office
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Sl.no Details of the case MCX/NCDEX/SEBI Audit MCX/NCDEX/SEBI Action Corrective steps taken by Pending . observation(s) Company towards observations actions, if made by MCX/SEBI any (a) (b) (c) (d) (e) 3 For transactions by The transactions carried NCDEX has proposed to levy The observations in the show PENDING certain clients in the out by the clients and a monetary penalty. cause notice have been challenged contracts of Guar their related entities by KCTL vide their reply dated 5th seed and Guar Gum through other brokers September, 2018 and have asked during the period October 2011 to were violative of open for a personal hearing. March 2012 NCDEX interest limits and has issued show market wide position cause notice to KCTL limits in August 2018
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Sl.no Details of the case MCX/NCDEX/SEBI Audit MCX/NCDEX/SEBI Action Corrective steps taken by Pending . observation(s) Company towards observations actions, if made by MCX/SEBI any (a) (b) (c) (d) (e) 4 On 27-09-2018, KCTL SEBI had alleged that the SEBI have called for Vide letter dated November 6, Pending along with other 300 members had facilitated explanation of KCTL 2018 KCTL has sent a detailed NSEL members had its clients in entering into reply refuting the allegations in the received a Show paired contracts which is show cause notice. Matter is Cause notice (SCN) for the paired a violation of the certain pending contracts traded on guidelines which NSEL platform. impacted the fit and proper criteria of KCTL as a Broker. KCTL has been granted time till 9th November, 2018 for filing its reply
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D. Details of action initiated / taken/pending, if any, by SEBI against Karvy Financial Services Limited., Group Company.
Sl.no. Details of the SEBI observation(s) SEBI Action Corrective steps taken by Pending case Company towards observations actions, made by SEBI if any (a) (b) (c) (d) (e) 1.
Proceedings In February 2012 KFSL Adjudication proceedings an KFSL would seek prior exemption NIL under section through invocation of d proceedings under section going forward. 11B and pledge, got 55% of the 11B initiated. Hearing before adjudication shares of M/s Regaliaa Whole Time Member (WTM) proceedings Realty Ltd transferred in held. WTM has passed order have been its name. SEBI observed dated 27th October, 2016 initiated by SEBI that KFSL had not sought directing KFSL to make open against Karvy exemption prior to offer. KFSL has preferred an Financial Services invoking the pledge. appeal before the Securities Ltd (KFSL) in the Appellate Tribunal.Vide matter of M/s order dated 26th April, 218 Regaliaa Realty SAT has dismissed the appeal Ltd filed by KFSL. KFSL is in the process of complying with the order dated 27th October, 2016 passed by the SEBI WTM.
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