Val-Q Investment Advisory Private Limited. Disclosure Document

Transcription

1 Disclosure Document Portfolio Management SEBI registration no. INP Disclosure document for Portfolio Management Services by Val-Q Investment Advisory Private Limited. This Disclosure document has been filed with the Securities and Exchange Board of India along with a certificate in the prescribed format in terms of Regulation 14 of the Securities and Exchange Board of India (Portfolio Managers) Regulations, The purpose of the document is to provide essential information about the portfolio services in a manner to assist and enable the investors in making informed decisions for engaging Val-Q Investment Advisory Private Limited as a Portfolio Manager. The necessary information about the Portfolio Manager required by an investor before investing is disclosed in the Disclosure document. Investors should carefully read the entire document before making a decision and should retain it for future reference. The Principal Officer designated by the Portfolio Manager is Mr. Ashit Kothari (Telephone No. : Id ashit@val-q.co.in) The Disclosure Document is dated November 1, 2017

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3 DISCLOSURE DOCUMENT a) This Disclosure Document has been filed with the Securities and Exchange Board of India (SEBI) along with the certificate in the prescribed format in terms of Regulation 14 of SEBI (Portfolio Managers) Regulations, b) The purpose of this Disclosure Document is to provide essential information about the portfolio services in a manner to assist and enable the investors in making informed decision for engaging VAL-Q INVESTMENT ADVISORY PRIVATE LIMITED as a Portfolio Manager. c) This Disclosure Document sets forth concisely the necessary information about VAL- Q INVESTMENT ADVISORY PRIVATE LIMITED that a prospective investor ought to know before investing. d) The investor should carefully read the Disclosure Document prior to making a decision to avail of portfolio management services and retain this Disclosure Document for future reference. e) The Principal Officer designated by Portfolio Manager is Mr. Ashit Kothari, Managing Director Tel No: ashit@val-q.co.in

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5 II. INDEX Sr. No. Table of Contents Page No. 1. Disclaimer 1 2. Definitions 1 3. History, Present Business and background of the Portfolio Manager 3 4. Promoters and Directors and their background 3 5. Top 10 Group companies/firms of the Portfolio Manager on turnover basis 4 6. Penalties, pending litigation or proceedings, findings of inspection or investigations for which action may have been taken or initiated by any regulatory authority Services Offered by Portfolio Manager 5 8. Risk Factors 9 9. Client Representation Disclosures in respect of transactions with related parties pertaining to Portfolio Management Services Financial Performance Portfolio Management Performance Nature of expenses Agreement Taxation Accounting Policies Outsourcing Investor Services Annexure A Annexure B Annexure C Form C Certificate from Independent Chartered Accountants 29

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7 III. CONTENTS: 1. Disclaimer The particulars of this document have been prepared in accordance with the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 as amended till date and 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 the document. 2. Definitions 2.1. Act means the Securities and Exchange Board of India Act, Agreement means the Discretionary Portfolio Management Services Agreement or Non Discretionary Portfolio Management Services Agreement or Agreement for Investment Advisory Services or Agreement for Structured Products, as the context may require, between the Client and the Portfolio Manager and includes any recitals, schedules, annexure or exhibits to the Agreement and any amendments made to the Agreement by all Parties in writing SEBI means the Securities and Exchange Board of India, established under Securities and Exchange Board of India Act, 1992 as amended from time to time Business Day means a day other than: (i) a Saturday and Sunday; (ii) a day on which banks in Mumbai and the Reserve Bank of India (RBI) are closed for business / clearing; (iii) a day which is a public holiday and / or a bank holiday in Mumbai; (iv) a day on which The Stock Exchange, Mumbai (BSE) and / or the National Stock Exchange are closed for trading; (v) a day on which business cannot be transacted because of bandhs, floods, strikes, etc. or for any other reason as the Portfolio Manager may prescribe Client/Investor means any person who enters into an agreement with the Portfolio Manager for availing of Portfolio Management Services offered by the Portfolio Manager Custodian means the Portfolio Manager or any other custodian appointed by the Portfolio Manager, providing custodial services Depository Account means any account of the Client or for the Client with an entity registered as a depository participant as per the relevant regulations Discretionary Portfolio Management Services means the services provided by the Portfolio Manager exercising its sole and absolute discretion to invest in respect of the Client s account in any type of security as per the agreement relating to portfolio management and to ensure that all benefits accrue to the Client s Portfolio, for an agreed fee, entirely at the Client s risk Non-discretionary Portfolio Management Services means Portfolio Management Services under which the Portfolio Manager, subject to express prior instructions issued by the Client from time to time, for an agreed fee structure, invests in respect of the Client s account in any type of security entirely at the Client s risk Financial Year means the year starting from 1 st April of a year and ending on 31st March the following year Funds means the Cash managed by the Portfolio Manager on behalf of the Client pursuant to the Agreement and includes the Cash mentioned in the Application, any further Cash placed by the Client with the Portfolio Manager, the proceeds of sales or other realization of the Portfolio, interest, dividend or other monies arising from the Portfolio, so long as the same is managed by the Portfolio Manager and as reduced by any disbursements and / or withdrawals of funds. 1

8 2.12. High Watermark means the highest value that the Portfolio has reached. Value of the Portfolio for the purpose of computation of high watermark shall be considered to be the value on the date when performance fee is charged. The frequency of charging performance fee shall not be less than quarterly or at the time of exit, whichever is earlier. The Portfolio Manager shall charge performance fee only on the increase in Portfolio value in excess of the previously achieved high watermark Initial Corpus means the value of the Cash and the market value of readily realizable Securities, as set out in the Application cum Profiling Form submitted by the Client to the Portfolio Manager and brought in by the Client as described in the Agreement. The Securities brought in by the Client as Initial Corpus will be considered / valued as per the Clause Valuation of Securities of the Agreement Portfolio means the total holdings of all investments, securities and funds belonging to the Client Portfolio Investment Scheme or PIS - In order to invest in the secondary markets in India, Non-Resident Indians (NRIs) / Persons of Indian Origin (PIOs) need to obtain RBI s permission. For this, a Bank account with a designated bank has to be opened under the Portfolio Investment Scheme (PIS) and all transactions related to investments in secondary markets need to be routed through this account Portfolio Manager means VAL-Q INVESTMENT ADVISORY PRIVATE LIMITED a company incorporated under the Companies Act, 1956 and having its registered office at 705, Keshava, Bandra Kurla Complex, Bandra (East), Mumbai Principal Officer means Mr. Ashit Kothari, Managing Director of the Company, who has been designated as Principal Officer by the Portfolio Manager as required under the SEBI (Portfolio Managers) Regulations, 1993 and he will be responsible for the activities of Portfolio Manager Services means a Portfolio Management Service (discretionary or non-discretionary) or, as the context may require / as may be launched by the Portfolio Manager from time to time Regulations means Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 as amended from time to time including any circulars, directions or clarifications issued by SEBI or any Government authority and as applicable to the Portfolio Manager Rules means the Securities and Exchange Board of India (Portfolio Managers) Rule, Term shall have the meaning assigned to such term in the Clause Term and Termination of the Agreement Securities means any instrument(s) included within the definition of security under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 and includes (i) shares, scrips, stocks, bonds, warrants, convertible and non-convertible debentures, fixed return investments, equity linked instruments, negotiable instruments, structured products, deposits, American / Global or other depository receipts representing underlying Securities, money market instruments, commercial paper, certificates of deposit, units issued by the Unit Trust of India and / or by any mutual funds, mortgage backed or other asset backed securities, derivatives, derivative instruments, options, futures, foreign currency commitments, hedges, swaps or netting off and any other securities issued by any company or other body corporate, any trust, any entity, the Central Government, any State Government or any local or statutory authority and all money rights or property that may at any time be offered or accrue (whether by rights, bonus, redemption, preference, option or otherwise) and whether in physical or 2

9 dematerialized form in respect of any of the foregoing or evidencing or representing rights or interest therein; and any other instruments or investments (including borrowing or lending of securities) as may be permitted by applicable law from time to time; (ii) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Words and expressions used in this Disclosure Document have been included only for the purpose of clarity and shall in addition be interpreted according to their general meaning and usage and shall also carry meanings assigned to them in the regulations governing Portfolio Management Services. 3. History, Present Business and Background of the Portfolio Manager Val-Q Investment Advisory Private Limited was incorporated on 28 th August 2014 as a Private Limited Company under the Companies Act. The Company has well furnished/equipped offices in Mumbai. Based on the principles of team work and collective knowledge Val-Q Investment Advisory Private Limited has its own research department run by highly experienced and qualified professionals. The Portfolio Manager has an experience of more than 20 years in the field of equity research and portfolio management. For experience of Portfolio Manager and his team kindly refer Annexure A, Annexure B and Annexure C attached. We understand the increasing needs of the market and the demands of our clients and we are committed and disciplined to give our best to satisfy these needs. 4. Promoters of the Portfolio Manager, its Directors and their background List of Promoters and their profile is mentioned below: Sr. Name of the Educational Experience No. Promoter Qualification 1. Ashit Kothari B. Chem. Engg., MMS (Finance) Annexure A 2. Reema Kothari M.Com, DBF 3 years ( ) Chief Accountant at Technomatic India Pvt Ltd Particulars of Directors The directors of Portfolio manager are: Name Educational Experience Directorship in other Qualifications Companies Ashit Kothari B. Chem. Annexure A NA Engg., MMS (Finance) Reema Kothari M.Com, DBF 3 years ( ) Chief Accountant at NA Technomatic India Pvt Ltd 3

10 Robert George Lloyd Honours degree: English language and literature, 1973 from Oxford University, London Annexure B Executive Director Lloyd George Management (HK) Limited, Hong Kong Lloyd George Advisory (Cayman) Limited, Cayman Islands Lloyd George Advisory LLC, USA Lloyd George Advisory USA, Inc William Kerr Chartered Accountant Annexure B Non-Executive Director LG Asian Plus Ltd, Cayman Island WF Asia Fund Ltd, Cayman Island Ward Ferry Management (BVI) Ltd, British Virgin Island WF Asian Smaller Companies Fund Ltd, Cayman Island China Hertiage Fund, Cayman Island WF Reconnaissance Fund Ltd, Cayman Island Lloyd George Advisory (Cayman) Limited, Cayman Island 5. Top 10 Group companies/firms of the Portfolio Manager on turnover basis Based on latest audited Financial Statement as on 31 March 2017, the Company do not have any subsidiary/parent. 6. 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 the Board under the Act or Rules or Regulations made there under Nil (ii) The nature of the penalty / direction Not Applicable (iii) Penalties imposed for any economic offence and / or for violation of any securities laws Nil 4

11 (iv) Any pending material litigation / legal proceedings against the Portfolio Manager / key personnel with separate disclosure regarding pending criminal cases, if any Nil (v) Any deficiency in the systems and operations of the Portfolio Manager observed by the Board or any regulatory agency Nil (vi) Any enquiry / adjudication proceedings initiated by the Board 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 thereunder. Nil 7. Services Offered : The company shall offer the following services: 7.1. Discretionary Under the Discretionary Portfolio Management Services, the Portfolio Manager will have the sole and absolute discretion with regard to selection of the type of securities traded on behalf of, and held in the portfolio of the Client based on the executed agreement. The Portfolio Manager has the discretion as regard the choice and timing of the investment decisions, to make changes in the investment and to invest some or all of the funds of the Client in such manner and in such industries/sectors/securities as the Portfolio Manager deems fit. The Client may give informal guidance to customize the portfolio Services, however, the final decision will rest with the Portfolio Manager. The Portfolio Manager may at times, but without any obligation, act at the Client s specific instruction with regard to the investment/disinvestment decisions of the Client s portfolio. The securities traded or held by the Portfolio Manager for different Client s portfolios, even if invested in the same Product, may differ from Client to Client. The Portfolio Manager s decision in deployment of the Client s funds is absolute and final and can never be questioned and will not be open for review at any time during the course of the Agreement or any time thereafter. This right of the Portfolio Manager will be exercised strictly in accordance with the relevant acts, rules, regulations, guidelines and notifications in force from time to time. Under this category Portfolio Manager has the following portfolios: Portfolio Name: Val-Q Large-cap Blue Chip Portfolio Objective The investment objective of this Portfolio is to generate long-term capital appreciation that is largely constituted of equity and equity related securities of Large Market-Cap companies listed on the stock exchanges. Portfolio Description Large-cap stocks are often the leaders in their respective businesses with a scale and size that makes them less prone to external shocks. These companies are widely 5

12 tracked and often the first choices for investors looking to participate in India s growth potential with lower volatility. The focus of the portfolio will be on the company fundamentals and not on the market momentum. The Portfolio is intend to invest in high quality management with strong balance sheet and excellent market positioning. The portfolio will be well diversified with a bias towards Large Cap stocks. In this portfolio, atleast 70% of funds shall be invested in equity or equity related instruments of companies domiciled in India or having it principal place of business in India and having market capitalization of atleast USD 5 bn (approx. INR 32,000 Crore). The portfolio will endeavour to adhere to the market capitalization limits as per the allocation, however, the limits may be breached temporarily due to market volatility. This portfolio shall contain scrips. The portfolio is suitable for investors averse to high risk/volatility with an investment horizon of at least 3 years. Type of Securities Equity & Equity Related Instruments, Fixed Income Instruments, Cash & Cash Equivalent. The surplus fund, if any, could be invested in debt securities or fixed deposits of bank/corporate. Indicative Asset Allocation Pattern Under normal circumstances, the asset allocation of the portfolio shall be 80% to 100% in Equity & Equity Related Instruments. Cash & Cash Equivalent should be 0% to 20%. The asset allocation pattern indicated above may change from time to time, keeping in view market conditions. It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of market conditions of the Portfolio Manager, the intention being at all times to seek to protect the interests of the Client. Benchmark: Nifty 50 Index Portfolio Name: Val-Q Mid-cap High Quality Portfolio Objective The investment objective of this Portfolio is to generate long-term capital appreciation that is largely constituted of equity and equity related securities of Small and Mid-Cap companies listed on the stock exchange. Portfolio Description Small and Mid-Cap companies offer higher return potential than large cap companies on one hand but also carry higher risk than large cap companies, particularly over the short and medium term. The objective of the portfolio manager is to identify the stocks which are relatively less known by the market participants, better growth prospects, ability to gain market share due to better product/services or technology and room for PE expansion when the company transit from a small/mid cap to large cap. Above all these, the portfolio manager will take all the care to invest in the quality company which is the most important for Val-Q mid-cap high quality Portfolio. 6

13 Since, this Portfolio carry higher risk than large cap portfolio, to reduce the risk, the Portfolio will maintain a well-diversified portfolio with large number of stocks. The Portfolio is intend to invest with long-term horizon but it will balance the same with a rational approach to selling when the valuations become too demanding even in the face of reasonable growth prospects in the long run. In this portfolio, atleast 70% of funds shall be invested in equity & equity related instruments of companies domiciled in India or having principal place of business in India and having market capitalization of upto USD 5 bn (approx. INR 32,000 Crores). Fund manager may, at his sole discretion, continue to hold equity or equity related instrument of a company, which crosses threshold of USD 5 bn market capitalization, after the portfolio has made investment into it. The portfolio will endeavour to adhere to the market capitalization limits as per the allocation, however, the limits may be breached temporarily due to market volatility. This portfolio shall contain scrips. Type of Securities Equity & Equity Related Instruments, Equity Derivative, Cash & Cash Equivalent. The surplus fund, if any, could be invested in debt securities or fixed deposits of bank/corporate. Indicative Asset Allocation Pattern Under normal circumstances, the asset allocation of the portfolio shall be 80% to 100% in Equity & Equity Related Instruments. Cash & Cash Equivalent should be 0% to 20%. The asset allocation pattern indicated above may change from time to time, keeping in view market conditions. It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of market conditions of the Portfolio Manager, the intention being at all times to seek to protect the interests of the Client. The portfolio will be well diversified with a bias towards Mid-Cap stocks. The Portfolio may have exposure to derivatives upto 30% of portfolio value in accordance with guidelines issued by SEBI. The asset allocation pattern indicated above may change from time to time, keeping in view market conditions. It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of market conditions of the Portfolio Manager, the intention being at all times to seek to protect the interests of the Client. Such changes in the asset allocation pattern will be for defensive considerations. Benchmark: Nifty Free Float Midcap 100 Index 7.2 Non Discretionary Services Under these services, the Portfolio Manager executes transactions in securities as per directions of the Client and in terms of the PMS Agreement. The Portfolio Manager s role is limited to providing research, investment advice and trade execution facility to 7

14 the Client. The Portfolio Manager shall execute orders as per the mandate received from Client. 7.3 Advisory Services The Portfolio Manager will provide advisory services which shall be in the nature of investment advisory and shall include the responsibility of advising on the portfolio strategy and investment / divestment of individual securities in the Client s Portfolio in terms of the Agreement and within overall risk profile. In such case, the Portfolio Manager does not make any investment on behalf of the Client. The Portfolio Manager shall be solely acting as an advisor in respect of Portfolio of the Client and shall not be responsible for the investment / divestment of securities and / or administrative activities of the Client s Portfolio. Minimum Investment Amount The Client shall deposit with the Portfolio Manager, an aggregate of INR 50 Lacs as an initial corpus consisting of Securities and/or funds as prescribed by Portfolio Manager for a Portfolio, subject to minimum amount as specified under SEBI Regulations, as amended from time to time. The Client may on one or more occasion(s) or on a continual basis, make further placement of Securities and / or funds under the service. PMS Objective The main objective of the service is to generate capital appreciation through investments in equities or equity related instruments with a medium to long term perspective. The focus will be on companies (across all market caps) which are perceived to be undervalued or growth oriented businesses on account of various parameters like a. Business which can be scaled up, b. Companies that have re-structuring plans, c. Companies that have undervalued asset, d. Value unlocking arising from strategic role, deregulations, economic legislation, reform thrust and industry stake outs. The investment may pertain to any sector either in the private or public/state domain. The Portfolio Manager may invest in futures and options to hedge or balance the Portfolio. This portfolio is suitable for medium to high risk taking investors with a medium to long term view. The Portfolio of each client may differ from that of the other client in the same Product, as per the discretion of the Portfolio Manager. The funds remaining to be invested at any given point of time may be deployed by the Portfolio Manager in various liquid and debt oriented portfolios of Mutual Funds / ETF s and other short term investments. The policy for investment in associate / group companies of the Portfolio manager will be subject to the applicable laws/regulations/guidelines for the time being in force. Risk Management 8

15 The portfolio shall be structured so as to keep risk at acceptable levels. This shall be done through various measures including: a. Broad diversification of portfolio b. Ongoing review of relevant market, industry, sector and economic parameters c. Investing in companies which have been researched and meeting minimum Quality criteria Besides, the asset allocation by the Portfolio Manager would be done keeping in view the investment objective, risk profile and investment horizon of the client. For investments in debt, the fund manager will try to achieve an optimal risk return balance for management of the fixed income portfolios. As per the above philosophy, the Portfolio Manager shall invest in respect of the Client s Portfolio in such capital and money market instruments or in fixed income securities or variable securities of any description, by whatever name called including: a. Equity and Equity related securities, Convertible Stock and Preference Shares of Indian Companies b. Debentures, Bonds and Secured Premium Notes, Swaps, Options Futures, Tax-exempt Bonds of Indian Companies and Corporations c. Government and Trustee Securities d. Units, Magnums and other instruments of Mutual Funds e. Bank Deposits / Post Office Saving Schemes. f. Treasury Bills g. Commercial Papers, Certificates of Deposit and other similar Money Market instruments h. Derivatives, both equity and fixed income as permitted under the Regulations i. Units of Venture Funds j. Securitisation Instruments k. Foreign Securities l. Other eligible modes of investment and / or forms of deployment within the meaning of the Regulation issued by SEBI as amended from time to time. 8. Risk factors : The following are the inherent risks associated with the management of the Portfolio. The Portfolio Manager is not responsible for the loss if any, incurred or suffered by the client. 8.1 Securities investments are subject to market risks including price, volatility and liquidity risks and there is no assurance or guarantee that the objectives of the Portfolios will be achieved. The investment in the above Portfolio may not be suited to all categories of investors. 8.2 Past performance is not an indication that returns in the future, with regard either to the same Portfolio or any other future Portfolio that may be launched by the Portfolio Manager, will be achieved. Investors are not being offered any guarantee or indicative returns through these Portfolio Management Services. 8.3 The investments in equities, equity-related instruments or mutual funds are subject to interest rate risk, credit risk, political and geopolitical risk, currency risk, country risk and risks arising from changing business dynamics. This may adversely affect returns. 8.4 Portfolios of Individual Clients may be concentrated in certain companies/industries. The performance of the portfolio would depend on the performance of such companies/sectors of the economy. 9

16 8.5 The value of the Portfolios may be affected by changes in general market conditions and factors and forces affecting the capital markets, in particular, the level of interest rates, various market related factors, trading volumes, settlement periods, transfer procedures, currency exchange rates, foreign investments, changes in government policies, taxation, political, economic and other developments, closure of stock exchanges, etc. 8.6 The Portfolio Manager may invest in the shares, mutual funds, debt instruments, deposits and other financial instruments of affiliates/companies, subject to the relevant regulatory requirements. 8.7 Services using derivatives/futures and options products are affected by risks different from those associated with stocks and bonds. Such products are highly leveraged instruments and their use requires a high degree of skill, diligence and expertise. Small price movements in the underlying securities may have a large impact on the value of derivatives/futures and options. Some of the risks relate to mis-pricing or the improper valuation of derivatives/futures and options and the inability to correlate the positions with underlying assets, rates and indices. 8.8 The liquidity of the investments is guided by trading volumes in the securities in which it invests. This may limit the Portfolio Manager s ability to freely deal with securities in the Portfolio. 8.9 The Portfolio Manager may, considering the overall level of risk of the Portfolio, invest in lower rated/unrated securities that offer higher yield, which may increase the risk to the Portfolio. Such investments shall be subject to the scope of investments laid down in the executed Agreement The Portfolio Manager may, subject to authorization by the Client in writing, participate in securities lending. The Portfolio Manager may not be able to sell/lend out securities, which will result into creation of a situation of illiquidity of the securities. There are inherent risks in securities lending, including the risk of failure of the other party, in this case the approved intermediary, to comply with the terms of the agreement. Such failure can result in a possible loss of right to the collateral, the inability of the approved intermediary to return the securities deposited by the lender and the possible loss of corporate benefits accruing thereon. The Portfolio Manager shall not be responsible or liable for any loss resulting from the operation of the Portfolios There are inherent risks arising out of investment objectives, investment strategy, asset allocation Specific Risk factors pertaining to Diversified Portfolio. The Portfolio Manager seeks to make investment in unlisted securities/ instruments (private equity). The investment in private equity may also be made in the units issued by SEBI registered Venture Capital Fund or any other instrument available in the market. Investors are advised to read carefully the Portfolio specific risk factors mentioned in detail, in the Agreement to be executed with Portfolio Manager, before making investment Risks arising out of Non Diversification Diversification of portfolio across asset classes, investment themes, sectors and securities is normally construed to be less risky for investors. It is to be noted that the portfolio is likely to be more focused on a single asset class, i.e. equities which inherently is very volatile. Further the portfolio could be subject to more risk on account of its concentration of investments into a few sectors or a limited number of securities. In addition to limited/inadequate diversification across asset classes, themes and sectors, the portfolio could be prone to higher risk on account of non- 10

17 diversification across capitalizations, particularly if the portfolio has a bias towards mid-cap and small-cap companies 9. Client Representation: Category of Clients No. of Clients Funds Managed (in Discretionary / crores) Non-Discretionary Associate / Group Companies Nil Nil N.A Nil Nil N.A Nil Nil N.A. 1 Apr17 to 30 Sep17 Nil Nil N.A. Others Discretionary Discretionary Discretionary 1 Apr17 to 30 Sep Discretionary Advisory Nil Nil Advisory Services Advisory Services Advisory Services 1 Apr17 to 30 Sep Advisory Services Total Apr17 to 30 Sep Disclosure in respect of Related Parties Complete disclosure in respect of transactions with related parties as per the standards specified by the Institute of Chartered Accountants of India are as follows: Based on the audited accounts for the year ended 31 st March 2017 and 31 st March Names of related parties by whom control is exercised 1. Ashit Kothari Key Management Personnel 1. Ashit Kothari - Managing Director Names of the related parties exercising significant influence 1. Lloyd George Advisory (HK) Limited The transactions with related parties as per AS-18 specified by the Institute of Chartered Accountants of India for the year ended 31 st March 2016 and 31 st March 2017 are as follows: 11

18 Particulars Key Management Personnel Related Parties exercising significant influence 31-Mar Mar Mar Mar 16 Expenses Salaries 4,100,000 2,100, Reimbursement of Expenses 298, , Income Portfolio Management Fees charged 755, , Investment Advisory Fees - - 5,069, ,593 Assets Portfolio Management Fees receivable 85,554 59, Salaries and Bonus Payable 1,921, , Investment Advisory Fees - - 3,607, ,790 receivable 11. The Financial Performance of the Portfolio Manager : Given below is the financial performance of the Portfolio Manager of the last 3 financial years based on the audited accounts: (Rupees in Crores) Particulars Sources of Funds Share Capital Reserves & Surplus Current Liabilities Application of Funds Non Current Assets Current Assets Networth (as per method of calculation defined in the Regulations) Total Income Net Profit (after tax) (0.19) 12. Performance of the Portfolio Manager during the last three years, and in case of Discretionary Portfolio Management, disclosure of performance indicators calculated using weighted average method in terms of Regulation 14 of the SEBI (Portfolio Managers) Regulations, 1993 Given below is the performance of portfolio manager during the last 3 financial years. Structure (Discretionary PMS) 1 Apr 17 to 30 Sept 17 1 Apr 16 to 31 Mar 17 1 Apr 15 to 31 Mar Dec 14 to 31 Mar 15 Val-Q Large-cap Blue Chip Portfolio Benchmark (Nifty 50 Index) 12

19 Val-Q Mid-cap High Quality Portfolio Benchmark (Nifty Free Float Mid-Cap 100 Index) The above mentioned returns of the portfolios and the benchmark are as per the XIRR method and time-weighted rate of return method. The performance mentioned above is after Management Fees and all other expenses. 13. Nature of expenses The following are the general costs and expenses to be borne by the Client availing the services of the Portfolio Manager Portfolio management fees : The Portfolio Management Fees relate to the portfolio management services offered to the Clients. The fees may be a fixed charge or a percentage of the quantum of the funds being managed or linked to portfolio returns achieved or a combination of any of these. As per the circular CIR/IMD/DF/13/2010 dated October 5, 2010 of the SEBI, charging of performance linked fees shall be on the basis of High Water Mark principle over the life of investment. Accordingly the portfolio manager will charge performance based fee only on increase in portfolio value in excess of previously achieved high water mark Services related to regular communication, account statements, etc : These include charges relating to custody and transfer of shares, bonds and units, and/or any other charges in respect of the investment Depository/Custodian fee: Charges relating to opening and operation of demat account, dematerialization and rematerialisation, etc Registrars and transfer agents fees: Fees payable to the Registrars and Transfer Agents in connection with effecting transfer of any or all of the securities and bonds including stamp duty, costs of affidavits, notary charges, postage stamps and courier charges Brokerage, transaction costs and other services: The brokerage and other charges like stamp duty, transaction cost and statutory levies such as service tax, securities transaction tax, turnover fees and such other levies as may be imposed upon from time to time Fees and charges in respect of investment in mutual funds : Mutual funds shall be recovering expenses or management fees and other incidental expenses and such fees and charges shall be paid to the Asset Management Company of these Mutual Funds on behalf of the Client. Such fees and charges are in addition to the Portfolio Management fees described above. 13

20 13.7 Certification charges or professional charges : These include charges payable for outsourced professional services like auditing, accounting, taxation and any legal services, notarization, etc Securities lending and borrowing charges : The charges pertaining to the lending of securities, costs of borrowing and costs associated with transfer of securities connected with the lending and borrowing transfer operations Any other incidental or ancillary expenses : All incidental and ancillary expenses not covered above but incurred by the Portfolio Manager on behalf of the Client shall be charged to the Client. 14. Agreement The Portfolio Manager, before taking up an assignment of managing or advising on funds or portfolio of securities on behalf of a Client, enters into an Agreement in writing with such Client clearly defining the inter se relationship and setting out their mutual rights, liabilities and obligations, containing such details as per the Regulations. The Funds or Securities accepted / advised on by the Portfolio Manager is not invested or managed / advised on by the Portfolio Manager except in terms of the Agreement between the Portfolio Manager and the Client. The Portfolio Manager shall not change any terms of the Agreement without prior consent of the Client 15. Taxation : Tax Implications for Clients The information set out below outlines the tax implications based on relevant provisions of the Indian Income-tax Act, 1961 ( the Act ) General Investment in securities is subject to the provisions of the Indian Income- tax Act, Special reference needs to be made in respect of provisions related to capital gains, business income and all other provisions of the Income Tax Act. Interest and dividends would be subject to tax as per the provisions of the Income Tax Act, 1961 (the Act). Client owns the liability for his Taxation. In view of the individual nature of tax consequence on the income, capital gains or otherwise, arising from investments, each Client is advised to consult his / her / its tax advisor with respect to the specific tax consequences to him / her / it of participation in the portfolio management services. The Portfolio Manager shall not be responsible for assisting in or completing the fulfillment of the client's tax obligations. All the Tax Rates contained in this clause are applicable for the financial year , in accordance with Finance Act,

21 15.2 Tax deduction at source In the case of Non-residents, Tax is required to be deducted at source by the authorized dealer and if required, tax will be withheld. Also, if any tax is required to be withheld on account of any future legislation, the Portfolio Manager shall be obliged to act in accordance with the regulatory requirements in this regard. Non-residents without PAN are currently subjected to a higher rate of TDS Advance tax installment obligations It shall be the Client's responsibility to meet the obligation on account of advance tax installments payable on the due dates under the Income tax Act Securities Transaction Tax Securities Transaction Tax ("STT") is applicable on transactions of purchase or sale of equity shares in a company or Exchange Traded fund (ETF) or a derivative or units of Equity Oriented Fund entered into on a recognized stock exchange and sale of units of Equity Oriented Fund to the Mutual Fund. The STT rates as applicable are given in the following table: Transaction Rates Payable by Purchase/ Sale of equity shares (delivery based) or a unit of business trust 0.10% Purchaser / Seller Purchase of units of equity oriented mutual fund (delivery based) Nil NA Sale of units of equity oriented mutual fund (delivery based) 0.001% Seller Sale of equity shares, units of business trusts, units of equity oriented mutual fund (non delivery based) 0.025% Seller Sale of an option in securities 0.05% Seller Sale of an option in securities, where option is exercised 0.125% Purchaser Sale of a futures in securities 0.01% Seller Sale of unit of an equity oriented fund to the Mutual Fund 0.001% Seller Sale of unlisted equity shares and units of business trust under an initial offer 0.2% Seller 15.5 Characterization of Income on transfer of securities of companies Income arising from purchase and sale of securities can give rise to capital gains or business income in the hands of the investor. In some circumstances enumerated below, the income arising may be characterized as business income. The CBDT has recently issued a Circular, providing that, gains on transfer of shares / securities of listed companies held for more than 12 months would be considered as long term capital gain, unless the assessee treats such shares as stock in trade. Further the CBDT has also issued a clarification for unlisted shares stating that the income arising from transfer of unlisted shares would be considered under the head 15

22 capital gain, irrespective of period of holding. It is, however, clarified that the above would not be necessarily applied in the situations where: (i) the genuineness of transactions in unlisted shares itself is questionable; or (ii) the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or (iii)the transfer of unlisted shares is made along with the control and management of underlying business and the Assessing Officer would take appropriate view in such situations. Further, in cases not following within the purview of the above circulars, the nature of the transaction (i.e. whether the same is in the nature of capital gains or business income) shall continue to be decided keeping in view the certain points and principles laid down by the judicial precedents and earlier CBDT circulars. Based on the earlier CBDT circulars and judicial decisions, following are the key factors and principles which need to be considered while determining the nature of assets as above Motive for the purchase of shares. Frequency of transactions and the length of period of holding of the shares Treatment of the shares and profit or loss on their sale in the accounts of the assessees. Source of funds out of which the shares were acquired borrowed or own. Existence of an object clause permitting trading in shares relevant only in the case of corporate bodies. Acquisition of the shares from primary market or secondary market. Infrastructure employed for the share transactions by the client including the appointment of managers, etc. The issue of income characterization as above is essentially a question of fact and dependent on whether the shares are held as Business / Trading assets or on Capital Account. 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. Further, the background of the investor (Professional vs. a trader in shares) would also be a relevant factor in determining the nature of the shares. CBDT has clarified that, it is possible for a tax payer to have two portfolios, i.e., an investment portfolio comprising of securities which are to be treated as capital assets and a trading portfolio comprising of stock-in-trade which are to be treated as trading assets. Where an assessee has two portfolios, the assessee may have income under both heads i.e., capital gains as well as business income. In view of the above, the profits or gains arising from transaction in securities could be taxed either as Profits or Gains of Business or Profession under section 28 of the Income Tax Act, 1961 or as Capital Gains under section 45 of the Income Tax Act, As per CBDT Circular No.6/2016 dated 29 th February, 2016 regarding taxability of surplus on sale of listed shares and securities, it states that: 16

23 a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years. It should also be noted that in the context of portfolio management portfolios there has been litigation in the past on the characterization of income and judicial precedents have taken positions based on facts of each case Tax Implications where Transactions in Securities are in the nature of Investments Where investment under Portfolio Management Services is treated as investment, the gain or loss from transfer of securities shall be taxed as Capital Gains under section 45 of the Act. Under the existing provisions of clause (34) of section 10 of the Act, dividend which suffer dividend distribution tax (DDT) under section 115-O is exempt in the hands of the shareholder. Under section 115-O dividends are taxed only at the rate of fifteen percent at the time of distribution in the hands of company declaring dividends. The Finance Act, 2016 provided that any income by way of dividend in excess of Rs. 10 lakh shall be chargeable to tax in the case of an individual, Hindu undivided family (HUF) or a firm who is resident in India, at the rate of ten percent. The taxation of dividend income in excess of ten lakh rupees shall be on gross basis. Under the Finance Act, 2017, section 115BBDA extended the additional tax of 10% (plus applicable surcharge and education cess) to all resident tax payers, excluding domestic companies and other specified entities on dividend income of more than Rs.10,00,000 p.a. received from a domestic company or companies. Income from units of Mutual Funds specified under clause 10(23D) is exempt from tax under section 10(35) of the Income Tax Act, Further, it has been clarified that income arising from transfer of units of Mutual Fund shall not be exempt under section 10(35). Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains. The Finance Act, 2016 provided for tax exemption to unit holders vis-à-vis transfer of units upon consolidation of the plans within a scheme of mutual fund in accordance with SEBI (Mutual Funds) Regulations, Long Term Capital Gains Exemption Applies Under Section 10(38), Long Term Capital Gains on sale of Equity Shares in a company 17

24 or units of Equity Oriented Fund are exempt from income tax provided such transactions are entered on a recognized stock exchange or such units are sold to the Mutual Fund and such transactions are chargeable to STT. Exemption does not Apply In respect of capital gains not exempted under section 10(38), the provisions for taxation of long-term capital gains for different categories of assessees are explained hereunder: As per Finance Act, 2017, income arising on transfer of equity share (subject to certain exceptions) acquired on or after 1st October 2004 will be exempt, only if the acquisition of such shares is chargeable to STT For individuals and HUF s Long-term Capital Gains in respect of listed securities and units of Mutual Fund held for a period of more than 12 months will be chargeable under section 112 of the Income Tax Act, 1961 at the rate of 20% plus education cess, as applicable. Capital gains would be computed after taking into account cost of acquisition as adjusted by Cost Inflation Index notified by the Central Government and expenditure incurred wholly & exclusively in connection with such transfer. In case where taxable income as reduced by long term capital gains is below the exemption limit, the long term capital gains will be reduced to the extent of the shortfall and only the balance long term capital gains will be charged at the flat rate of 20% plus education cess, as may be applicable. In the case of listed securities and units of Mutual Fund, an assessee will have an option to apply concessional rate of 10% plus education cess, as applicable, provided the long term capital gains are computed without substituting indexed cost in place of cost of acquisition. Long-term Capital Gains in respect of shares of an unlisted company held for a period of more than 24 will be chargeable under section 112 of the Income Tax Act, 1961 at the rate of 20% plus education cess, as applicable. As per Finance Act, 2017, the base year for indexation purpose has been shifted from 1981 to 2001 to calculate the cost of acquisition or to take fair market value of the asset as on that date. Further, it provides that cost of acquisition of an asset acquired before 1 April 2001 shall be allowed to be taken as fair market value as on 1 April For Indian Companies Long-term Capital Gains in respect of listed securities and units of Mutual Fund held for a period of more than 12 months will be chargeable under section 112 of the Income Tax Act, 1961 at the rate of 20% plus surcharge and cess, as applicable. Capital Gains would be computed after taking into account cost of acquisition as adjusted by Cost Inflation Index notified by the Central Government and expenditure incurred wholly & exclusively in connection with such transfer. In the case of listed securities and zero coupon bonds, an assessee will have an option 18