BENCHMARK ASSET MANAGEMENT COMPANY PVT. LTD. DISCLOSURE ...

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  • 1. BENCHMARK ASSET MANAGEMENT COMPANY PVT. LTD. DISCLOSURE DOCUMENT FOR PORTFOLIO MANAGEMENT SERVICES
  • 2. BENCHMARK ASSET MANAGEMENT COMPANY PVT. LTD. 405, Raheja Chambers, Free Press Journal Marg, 213, Nariman Point, Mumbai - 400 021 This 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, 1993. The purpose of this document is to provide essential information about the portfolio management services in a manner to assist and enable the investors in making informed decision for engaging Benchmark Asset Management Company Pvt. Ltd. as a Portfolio Manager. This Disclosure Document sets forth concisely the necessary information about Benchmark Asset Management Company Pvt. Ltd. that a prospective investor ought to know before investing. 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. All the intermediaries, if any, referred in this Disclosure Document are registered with SEBI as on the date of the document. PRINCIPAL OFFICER Mr. Hemen Bhatia Tel. No. 91 22 6651 2727 E-mail: gautam@benchmarkfunds.com 2
  • 3. PORTFOLIO MANAGER Benchmark Asset Management Company Pvt. Ltd. 405, Raheja Chambers Free Press Journal Marg 213, Nariman Point Mumbai 400 021 Tel : (91 22) 6651 2727 Fax : (91 22) 2200 3412 Visit us at http://www.benchmarkfunds.com E-Mail: gautam@benchmarkfunds.com PRINCIPAL OFFICER Mr. Hemen Bhatia 405, Raheja Chambers Free Press Journal Marg 213, Nariman Point Mumbai 400 021 Tel : (91 22) 6651 2727 Fax : (91 22) 2200 3412 E-Mail: gautam@benchmarkfunds.com AUDITORS Contractor, Nayak and Kishnadwala 3rd Floor, Jash Chambers 7, Sir P. M. Road, Fort Mumbai - 400 001 Tel : (91 22) 66359681/82 Fax : (91 22) 22615814 3
  • 4. TABLE OF CONTENTS PAGE NO. I. Definitions 5 II. About the Portfolio Manager 6 Board of Directors 6 Financial Performance 8 III. About the Promoters 9 IV. Services Offered (a) Non Discretionary 10 (b) Discretionary 10 (i) Systematically Trading Portfolios (STraP) 10 (ii) Equity Arbitrage Product (EAP) 11 (iii) Capital Preservation Portfolio System (CaPPS) 14 (iv) Portfolio of Funds (PoF) 15 (v) Debt Portfolio - Structured Products 16 (vi) All Assets Portfolio (AAP) 17 V. Risk Factors 17 VI. Fees and Expenses 20 VII. Taxation 22 VIII. Accounting Policies and Standards 24 IX. Penalties, Pending Litigations 24 X. Investor Services and Grievance Redressal Mechanism 25 4
  • 5. DISCLAIMER CLAUSE 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. DEFINITIONS In this Disclosure Document, unless the context otherwise requires: 1. ‘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. 2. ‘Custodian’ means Custodian/Depository Participant as may be appointed by the Portfolio Manager, from time to time, for custody of securities of the Client and to perform such other functions like keeping track of corporate benefits associated with the securities etc. 3. ‘Depository’ means a body corporate as defined in the Depositories Act, 1996 (22 of 1996) and includes National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL). 4. ‘Discretionary Portfolio Management Services’ means Portfolio Management Services where a Portfolio Manager exercises or may, under a contract relating to Portfolio Management, exercise any degree of discretion as to the investment or management of the portfolio of securities or the funds of the Client, as the case may be. 5. ‘Discretionary Portfolio Manager’ means a portfolio manager who exercises or may, under a contract relating to portfolio management, exercise any degree of discretion as to the investments or management of the portfolio of securities or funds of the client, as the case may be. 6. ‘Mutual Fund Schemes’ means schemes, including Exchange Traded Funds (ETFs) of various mutual funds regulated by SEBI. 7. ‘Non-Discretionary Portfolio Management Services’ means Portfolio Management Services where a Portfolio Manager acts on the instructions received from the Client with regard to investment of the funds of the Client under a contract relating to Portfolio Management and will exercise no discretion as to the investment or management of the portfolio of securities or the funds of the client, as the case may be. 8. ‘Portfolio’ means the total holdings of securities belonging to the any person. 9. ‘Portfolio Manager/Investment Manager’ means Benchmark Asset Management Company Pvt. Ltd., a Company incorporated under the Companies Act, 1956 and authorized by SEBI to act as a Portfolio Manager and who pursuant to a contract or arrangement with the 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 Clients, as the case may be. 10. ‘Principal Officer’ means a person 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 11. ‘Product’ means any current Portfolio Management Product (discretionary or non-discretionary) or any other Product launched by the Portfolio Manager from time to time in future. 12. ‘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. 13. ‘SEBI Regulations’ means Securities & 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. 5
  • 6. ABOUT THE PORTFOLIO MANAGER Benchmark Asset Management Company Pvt. Ltd. Benchmark Asset Management Company Pvt. Ltd. was incorporated as a Public Limited Company on October 16, 2000 and was subsequently converted to Private Limited Company vide Certificate dated February 27, 2002 issued by the Registrar of Companies, Maharashtra, Mumbai. The Company has obtained registration from SEBI to act as a Portfolio Manager under SEBI (Portfolio Managers) Regulations, 1993 vide Registration No. PM/INP000000647 with effect from June 1, 2002. The Certificate of Registration is renewed every three years as required under SEBI (Portfolio Managers) Regulations, 1993. The Company has also been appointed to act as an Asset Management Company (AMC) to Benchmark Mutual Fund under the provisions of Investment Management Agreement entered into with Trustees to Benchmark Mutual Fund on February 14, 2001. Presently, the AMC is managing 10 Schemes on behalf of Benchmark Mutual Fund viz. (i) Nifty Benchmark Exchange Traded Scheme (Nifty BeES) (ii) Nifty Junior Benchmark Exchange Traded Scheme (Junior BeES) (iii) Liquid Benchmark Exchange Traded Scheme (Liquid BeES) (iv) Banking Index Benchmark Exchange Traded Scheme (Bank BeES) (v) Benchmark Derivative Fund (BDF) (vi) Gold Benchmark Exchange Traded Scheme (Gold BeES) (vii) PSU Bank Benchmark Exchange Traded Scheme (PSU Bank BeES) (viii) Benchmark Equity & Derivatives Opportunities Fund (BEDOF) (ix) Benchmark S&P CNX 500 Fund (x) Shariah Benchmark Exchange Traded Scheme (Shariah BeES) Investment Philosophy The objective of the Company is to provide low cost, innovative products based on Passive and Quantitative Techniques. Quantitative Techniques which aim to capture the massive amounts of financial information flowing through our systems on a daily basis, analyzing and transforming it to develop disciplined, rigorous approach to portfolio investing. Quantitative Techniques apply the latest tools and techniques in investment management and information technology to identify and exploit under valued securities. With the rapidly increasing availability of online information, growing computational power, etc., Quantitative Techniques to investing is already a significant phenomenon globally and is growing rapidly. Board of Directors The Board of Directors of the Portfolio Manager consists of eminent persons from the fields of finance, investments and corporate law. 1. Mr. Dhirajlal S. Mehta Mr. Mehta, the Chairman of the Board, is associated with the promoters in his capacity as its Chairman. He is a member of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. He has been working with Bajaj Auto Ltd. since 1968 to 1995. Since 1996 till date, he has been associated with Bajaj Auto Ltd. in his capacity as Advisor till 1997 and then Whole Time Director. He has over 35 years experience in the field of Corporate Law, Taxation and Finance. His other Directorship includes Mukand Ltd., Maharashtra Scooters Ltd., Bajaj Auto Finance Ltd., Bajaj Hindusthan Ltd., Sikkim Janseva Pratishtan Pvt. Ltd., Bajaj Auto Ltd. and Niche Financial Services Pvt. Ltd. 6
  • 7. 2. Mr. S. J. Parekh He is an independent Director on the Board. He is the Chairman of United Shippers Ltd. and USL Shinarai Automobiles Ltd. His other directorships include Oricon Enterprises Ltd., Shree Nirmal Commercial Ltd., G. Claridge & Company Ltd., Dukes Retreat Ltd., Claridge Moulded Fibres India Ltd., Shyam Estates Pvt. Ltd., Fisalcon Pvt. Ltd., Ahmedabad Ice & Cold Storage Pvt. Ltd., Shyam Chemicals Pvt. Ltd., Fair Freeze Industries Pvt. Ltd., UNI Recyclers Pvt. Ltd., Venture Recyclers & Holding Pvt. Ltd., The Modern Salt Works Pvt. Ltd., Super Marketing Services Pvt. Ltd., Blue Nile Finvest Pvt. Ltd., Mascot Construction Pvt. Ltd., Akin Chemicals Pvt. Ltd., USL Auto Services Ltd., Dharamtar Infrastructure Ltd., USL NMM Logistics Ltd., The United Mercantile Co. Pvt. Ltd., Elian Agricultural Holdings & Services Pvt. Ltd., Practical Financial Services Pvt. Ltd., USL Packaging Ltd., Morganite Trading Company Ltd. and Kusters Calico Machinery Ltd. 3. Mr. Shripad R. Halbe He is an independent Director on the Board. He is M. Com. (Hons.) Grad., ICWA, FCS, LL.M. and Dip. in Systems Management. Presently, he is practicing as a Company Secretary. His other directorships include Jasraj Investments & Trading Pvt. Ltd., Shramik Investment & Trading Pvt. Ltd., Serai Exports Pvt. Ltd., Divyug Agricultural & Stud Farm Pvt. Ltd., Halbe Realty Pvt. Ltd., Halbe Property Pvt. Ltd. and Padhye Realty Pvt. Ltd. 4. Mr. T. N. V. Ayyar He is an associate Director on the Board. He is a fellow member of the Institute of Chartered Accountants of India and presently practicing as a Financial Consultant. His other directorships include Tata Ceramics Ltd., GTL Ltd., Crest Animation Studios Ltd., Emco Ltd., Apcotex Industries Ltd., R. T. Exports Ltd., Prime Global Advisory Services Pvt. Ltd. and Helium Estates Pvt. Ltd. 5. Ms. Susan Thomas She is an independent Director on the Board. She is B. Tech in Civil Engineering from Indian Institute of Technology, Mumbai and Ph. D. in Econometrics from University of Southern California, Los Angeles. She is Assistant Professor at Indira Gandhi Institute of Development Research. She is also Director of Shringar Films Ltd., India Value Fund Associates and SBI Pension Management Company Ltd. The current shareholding pattern of Portfolio Manager is as follows: Particulars No. of Shares fully paid No. of Shares % of holding up (Rs. 10/-) partly paid up (Re. 1/-) # Sponsor 74,83,030 4,40,000 48.03 Affiliates of the Sponsor 10,20,030 - 6.18 Employees 5,33,010 40,48,000 27.77 Individual Shareholders 29,73,000 - 18.02 Total… 1,20,09,070 44,88,000 100.00 # The above percentage of holding is calculated on the assumption that all partly paid up shares will be eventually fully paid. Performance of the Portfolio Management Products 1. STraP is the first Portfolio Management Product launched by the Portfolio Manager. The Product started its operations in February 2003. The performance of the Product since inception is as follows: Portfolio Performance Benchmark Returns Till March 31, 2003 (4.42%) (6.68%) 7
  • 8. Till March 31, 2004 8.22% 73.81% Till March 31, 2005 21.12% 103.88% Till March 31, 2006 34.75% 246.62% Till March 31, 2007 50.37% 293.84% Till March 31, 2008 66.06% 395.81% Till March 31, 2009 55.84% 220.09% Till October 31, 2009 87.03% 402.96% Past performance may or may not be sustained. Benchmark Returns: Total Returns Index of S&P CNX Nifty. 2. CaPPS is the second Portfolio Management Product launched by the Portfolio Manager. The Product started its operations in October 2004. The performance of the Product since inception is as follows: Portfolio Performance Benchmark Returns Till March 31, 2005 0.73% 12.94% Till March 31, 2006 29.15% 92.02% Till March 31, 2007 25.35% 118.18% Till March 31, 2008 32.20% 174.67% Till March 31, 2009 12.78% 77.33% Till October 31, 2009 16.04% 178.63% Past performance may or may not be sustained. Benchmark Returns: Total Returns Index of S&P CNX Nifty. 3. Equis is a Portfolio Management Product launched by the Portfolio Manager under a Product called as Portfolio of Funds. The Product started its operations in February 2006. The performance of the Product e since inception is as follows : Portfolio Performance Benchmark Returns Till March 31, 2006 5.92% 13.48% Till March 31, 2007 5.28% 28.94% Till March 31, 2008 16.67% 62.32% Till March 31, 2009 15.52% 4.80% Till October 31, 2009 25.37% 64.66% Past performance may or may not be sustained. Benchmark Returns: Total Returns Index of S&P CNX Nifty. 4. Dynamic CaPPS is a Portfolio Management Product launched by the Portfolio Manager. The Product started its operations in April 2008. The performance of the Product since inception is as follows : Portfolio Performance Benchmark Returns Till March 31, 2009 (17.79%) (39.95%) Till October 31, 2009 (16.30%) (5.64%) Past performance may or may not be sustained. Benchmark Returns: Total Returns Index of S&P CNX Nifty. 5. Flexiguard is a Portfolio Management Product launched by the Portfolio Manager. The Product started its operations in September 2009. The performance of the Product since inception is as follows : Portfolio Performance Benchmark Returns Till October 31, 2009 (13.28%) (5.02%) Past performance may or may not be sustained. Benchmark Returns: Total Returns Index of S&P CNX Nifty. 8
  • 9. Following is the Financial Performance of the Portfolio Manager: (All figures in Rs. Lacs) Particulars 2006-07 2007-08 2008-09 (Audited) (Audited) (Audited) Total Income 1,732.54 3,207.19 2,169.39 Profit/(Loss) Before Tax 446.67 964.94 242.76 Profit/(Loss) after Tax 294.65 618.83 152.69 Equity Capital 1,245.79 1,245.79 1,245.79 Reserves/(Loss c/f) 162.29 786.57 939.26 Net Worth 1,408.08 2,032.36 2,185.05 Earnings per Share (Rs.) 2.45 4.97 1.23 Book Value per share - Fully Paid (Rs.) 10.98 16.31 17.54 Book Value per share - Partly Paid (Rs.) 1.10 1.63 1.75 % Dividend Paid 15% Nil Nil Other Matters As per the Accounting Standard 18 - “Related Party Disclosure” specified by the Institute of Chartered Accountants of India, Portfolio Manager has not done any business for its Portfolio Management Services with any of its related parties from April 1, 2006 till date. ABOUT THE PROMOTERS Niche Financial Services Pvt. Ltd. Benchmark Asset Management Company Pvt. Ltd. has been promoted by Niche Financial Services Pvt. Ltd. The Company was incorporated on 13 th October 1989 vide Registration No.11-53884 under the Companies Act, 1956 and is a RBI registered Non Banking Financial Services Company (NBFC) vide Registration No. 13.00311 dated 9th March 1998. The Chairman of Niche Financial Services Pvt. Ltd. is Mr. Dhirajlal S. Mehta who is a whole time director of Bajaj Auto Ltd. He is also a director of several well-known companies. Niche Financial Services Pvt. Ltd. provides a host of services, which include Corporate Advisory Services, Corporate Finance, International Advisory Services & Capital Market and Stock Broking. Top 10 Group Companies / Firms of the Portfolio Manager Based on the audited financial statements for the year ended March 31, 2009, the top ten group companies/ firms of the Portfolio Manager according to their turnover as on March 31, 2009 are as follows: Sr. No. Name 1 Impetus Real Estate Enhancement Pvt. Ltd. 2 India Capital Markets Pvt. Ltd. 3 India Broking Ltd. 4 Benchmark AMC Pvt Ltd. 5 Niche Financial Services Pvt. Ltd. 6 Ashmahavir Finance Pvt. Ltd. 7 Puja Agencies Pvt. Ltd. 8 Laissez Faire Limited 9 ICM Commodities Pvt. Ltd. 10 Friendly Financial Services Pvt. Ltd. 9
  • 10. SERVICES OFFERED At present, the Portfolio Manager is offering following services: I. Non-Discretionary Portfolio Management Services The Portfolio Manager offers Non-Discretionary Portfolio Management Services whereby investment decisions are solely taken by the Client. For Non-Discretionary services, the Portfolio Manager inter-alia manages securities transaction execution, accounting, recording of corporate benefits, valuation and reporting aspects on behalf of the Client. The securities of client under Non-Discretionary Portfolio Management are held by the Client in their own name. II. Discretionary Portfolio Management Services 1) Systematically Trading Portfolios (STraP) 2) Equity Arbitrage Product (EAP) 3) Capital Preservation Portfolio System (CaPPS) 4) Portfolio of Funds (PoF) 5) Debt Portfolios - Structured Products 6) All Asset Portfolio 1. Systematically Trading Portfolios (STraP) Introduction Often the objective of equity investor is absolute returns while the fund manager seeks mandate in terms of out performance. It is mainly because of this, that it is really tough to make right call on market on consistent basis. STraP, instead of making market call, reacts to market movement and implements age old principal of sell high and buy low with rigorous discipline and without any subjectivity. By doing so it adds value to buy and hold approach by improving returns and reducing risk. Investment Objective The investment objective of STraP is to provide superior risk-adjusted returns through a dynamically balanced portfolio of Nifty BeES, Liquid BeES and other liquid/money market/equity and debt securities/mutual funds/derivatives. Asset Allocation Equity allocation, which also includes equity oriented mutual fund schemes, will be between 0% - 100% of the Portfolio. The balance idle cash will be invested either in Liquid BeES, other Liquid/Money Market/Debt Securities or Derivatives. The investment in such securities can be between 0% - 100% of the Portfolio. Investment in derivatives shall include transactions for the purpose of hedging and portfolio balancing through recognized Stock Exchange. STraP will use Nifty Index Futures/Options to the extent of equity exposure in STraP. Index Futures/Options will be used only in circumstances where STraP cannot gain the required equity exposure through Nifty BeES or taking exposure through futures/options is advantageous to the client. The valuation of such derivative instrument will be as per the closing price disseminated by NSE at the end of the day or such other method as may be specified by SEBI from time to time. In the event of liquidation of STraP /redemption of the Portfolio, the contracts will be closed out on the Exchange. Investment Style STraP follows Quantitative (Formula driven) approach for trading. The model provides both buy and sell discipline rather than only investment or only disinvestments. The signals for buying and selling are generated on relative market levels and buying and selling is done gradually to avoid any sharp changes in asset allocation. 10
  • 11. Why Nifty BeES The equity portion will be invested in Nifty BeES. Nifty BeES is a safer product vis-à-vis individual stock as it represents a broad based market index and allows one-shot diversification into 50 blue chip companies. Since, Nifty BeES is an index fund in form of an Exchange Traded Fund (ETF) based on S&P CNX Nifty Index, one can use the historical data to back test the model and optimize the model. Working of STraP  STraP invests in Nifty BeES, Money Market Mutual Funds, Liquid Funds including Liquid BeES, short dated debt securities, Money Market Instruments, derivatives, etc.  Trades are done only once a month in order to prevent excessive trading cost.  Initial investment is done as per the asset allocation of continuous portfolio.  After initial investment, on a specific date, trading signal is generated for the portfolio. The signal specifies whether to buy/sell and how much. Various inputs used for these decisions are current level of market relative to its moving average, current asset allocation, velocity of market movement, trading history of past few months. The basic philosophy is to buy more when market is lower and sell more when market is higher. As STraP will ordinarily invest in Nifty BeES and Liquid BeES, Mutual Fund Schemes of Benchmark Mutual Fund or constituents of S&P CNX Nifty Index, Liquid Funds, Money Market Mutual Fund Schemes or S&P CNX Nifty Index Futures/Options, the Portfolio Manager does not envisage investment in associate/group companies of the Portfolio Manager other than as required under the quantitative model/formula. Other Features  Minimum investment amount in STraP is Rs. 5 Lakhs. Additional investment is Re.1/- and in multiples thereof.  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 endeavour to liquidate the securities held by the Portfolio and return the funds or securities held by the Portfolio, as the case may be, to the Client within reasonable time.  The Portfolio Manager will provide periodical reports as required under the Regulations.  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. 2. Equity Arbitrage Product (EAP) Investment Objective The investment objective of EAP is to provide absolute returns over and above money market instruments by taking advantages in the underlying cash and derivative markets. Various strategies would be used as return enhancers. At present, two Products i.e. (i) Equity Arbitrage Product and (ii) Equity Arbitrage Product - PT have been launched under Equity Arbitrage Product by the Portfolio Manager. Methods of Enhancement The equity derivative markets have experienced enormous growth in India in recent times. The market provides ability to the investor to derive returns from the implied cost of carry between the underlying and the derivatives market. Also, the market is not always efficient to the extent of mis-pricing between the derivative market and the underlying cash market. This provides an opportunity to provide returns, possibly higher than the short-term interest rate without taking the market risk. 11
  • 12. Multiple products with the same underlying asset are now available for trading. Implied cost of carry and mis-pricings across the spot, futures and options markets can lead to profitable arbitrage opportunities. EAS would carry out simple strategies, which would be to take offsetting positions on various markets simultaneously. The overall risk EAS carries is that of being market neutral i.e. no specific equity risk. EAS would not attempt to leverage or have short positions. Many methods of enhancement can be used. These techniques are different from each other such that each method attempts to exploit a different form of capital, debt and derivatives market pricing and imperfection and in doing so, expose the investor to different form of risk. EAS may adopt strategies as mentioned below. The list is not exhaustive and EAS could use similar strategies as available in the markets. Convergence Trades The underlying philosophy is that the securities on each side of the transaction have a proven interrelationship. A profit is made when a trade is put on when there is a gap and the gap closes, i.e. prices converge to fair value. It is trading price discrepancies ahead of this eventual convergence that offers the investment opportunity, independent of what the market may be doing. Nifty spot - Nifty futures The pricing of Nifty futures is derived from S&P CNX Nifty. It is the cost of carry that binds the value of the Nifty futures to the underlying S&P CNX Nifty Index. When the two go out of sync, there are opportunities. The cost of carry binds the futures price to the price of the underlying asset. The price of Nifty futures at any given instance should typically be more than the level of S&P CNX Nifty at that point. Theoretically, the fair value of Nifty futures is equal to the level of S&P CNX Nifty plus the cost of carry i.e. the interest rate prevailing for an equivalent credit risk, in this case is the Clearing Corporation of the NSE. Cash and carry trades at times provide higher than the prevailing interest rates. There is an opportunity to exploit by buying the under priced index futures and selling the index portfolio comprising 50 index stocks. The cash received upon the sale is reinvested at the risk-free rate of return till the expiration of the futures contract. In the market parlance, this is called reverse cash and carry. The arbitrage profit comes in at the expiration of the futures contract when the position is unwound by buying back the 50 index stocks or until expiry if the rates converge. Stock Spot - Stock Futures Reverse cash and carry can also be implemented across stock futures and the underlying stock when the futures move away from their fair values. Dividend Arbitrage Around dividend declaration time, the stock futures/options market can provide a profitable opportunity. Generally the stock price decline by the dividend amount when the stock goes ex-dividend. Pair Trading Pair Trading is a non-directional, relative value investment strategy that identifies stocks with similar characteristics and where the stocks are trading at a price relationship that is currently outside their historical trading range. The investment strategy here is to sell the security that is overpriced, and buy the security that is underpriced, in the expectation of a reversal back to the normal range. Equal amounts of each stock will be brought and sold to remain market-neutral. Concept of Market Neutrality Normally the returns of Equity Fund and Growth Fund vary with the movement in equity markets while the returns of Debt Fund and Income Funds vary with movement in interest rate or yields. 12
  • 13. Market Neutral Fund endeavours to provide returns to investors which are not co-related with movements in the specific markets. Following example will elaborate the concept: Say for stock X spot price is Rs. 100 and month end futures are trading at Rs. 101 and fifteen days are left for the expiry. The EAP will enter in the following trade. Purchase 1000 shares of X @ Rs. 100 at the total Cost of Rs. 1,00,000 Sell 1000 Futures @ Rs. 101 at the sale proceeds of Rs. 1,01,000 This trade is done to lock in profit of Rs. 1000 irrespective of price of stock X. Consider the following two scenarios: 1. At the month end, price of stock X is Rs. 50 Profit/ (Loss) on Stock X will be = 1000 X (50-100) = (50,000) Profit/ (Loss) on Futures will be = 100 X (101-50) = 51,000 Net Profit = Rs. 1,000 2. At the month end, price of stock X is Rs. 200 Profit/ (Loss) on stock X will be = 1000 X (200-100) = 1,00,000 Profit/ (Loss) on futures position = 1000 X (101-200) = (99,000) Net Profit = Rs. 1,000 Thus under any market scenario, the trade would result in profit of Rs. 1,000. This investment can be termed as Market Neutral. Asset Allocation Under normal market circumstances, the asset allocation under EASP would be as follows: Instruments % Securities, Derivatives and Convertible Debentures Upto 100% Money Market, Debt instruments & other securities including cash at call Upto 100% Investment in derivatives shall include transactions for the purpose of hedging, portfolio balancing and also for arbitrage. EAS will use various derivative instruments available from time to time on the recognized stock exchange. The total exposure to the derivative shall not exceed portfolio funds of the Clients. The valuation of such derivative instrument will be as per the closing price disseminated by NSE at the end of the day or such other method as may be specified by SEBI from time to time. In the event of liquidation of the EAP/redemption of the Portfolio, the contracts will be closed out on the Exchange. Other Features  Minimum investment amount in EAP is Rs. 25 Lacs. Additional investment is Re. 1/- and in multiples thereof.  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 endeavour to liquidate the securities held by the Portfolio and return the funds or securities held by the Portfolio, as the case may be, to the Client within reasonable time.  The Portfolio Manager will provide periodical reports as required under the Regulations. 13
  • 14.  The portfolio account will be audited by an Independent Chartered Accountant every year and copy of the certificate issued by the Chartered Accountant will be given to the Client. EAS may invest in associate/group companies of the Portfolio Manager if arbitrage opportunities are available in the securities of Associate/Group Companies. Investment in associate/group, if any, shall be fully hedged. The investment in such companies may be 100% of the Portfolio. 3. Capital Preservation Portfolio System (CaPPS) Introduction CaPPS aims to reduce uncertainties of downside through a dynamic and quantitative approach. An asset allocation strategy is used in the form of a quantitative system that focuses rigorously on asset price movements. The risk is defined at the outset by choosing a specific portion of the invested capital, which is to be protected by an appropriate adjustment process irrespective of the market environment. Investment Objective The investment objective of CaPPS is to preserve capital and provide participation on the upside through a dynamically balanced portfolio. Asset Allocation Equity allocation will be between 0% - 100% of the Portfolio and it can be in index/individual stock/ portfolio of stocks. The balance idle cash will be invested either in Liquid BeES, other Liquid/Money Market/Debt Securities/Mutual Fund schemes or Derivatives. The investment in such securities can be between 0% - 100% of the Portfolio. Investment in derivatives shall include transactions for the purpose of equitising cash, hedging and portfolio balancing through recognized Stock Exchange. The valuation of such derivative instruments will be as per the closing price disseminated by NSE at the end of the day or such other method as may be specified by SEBI from time to time. In the event of liquidation of the CaPPs/redemption of the Portfolio, the contracts will be closed out on the Exchange. Investment Style CaPPS follows Quantitative (Formula/Model driven) approach for trading. The model provides buy and sell signals, which are generated on relative market levels on a real-time basis. Working of CaPPS  CaPPS invests in equities as well as Fixed income instruments/Money Market instruments/Derivatives.  A part of the investment is defined as the portion of the capital to be protected i.e. the floor. The objective pursued by the dynamic asset allocation is to safeguard the floor.  Depending upon the particular mandate type, the floor can be between 60% to 100% of the investment amount.  Once the floor is decided, appropriate initial asset allocation between equity and debt is worked out by the model.  Once the initial asset allocation is decided, the model is monitored on a real-time basis. If the index / equity prices move by a pre-defined amount, the model triggers a trade.  The model works in such a way that when equity prices are rising strongly, it results in the equity quota thereby increasing the equity allocation in the portfolio by reducing the debt portion of the Portfolio. Similarly, when equity prices are decreasing, the model reduces the equity portion and increasing the debt portion thereby protecting the portfolio from further losses. As CaPPS will ordinarily invest either in an index/individual stock/portfolio of stocks and other liquid/ money market/debt securities/mutual funds/derivatives/equity shares which are defined upfront, the Portfolio Manager does not envisage investment in associate/group companies of the Portfolio Manager other than as required under the quantitative model/formula. 14
  • 15. Other Features  Minimum investment amount in CaPPS is Rs. 5 Lacs. Additional investment is Re. 1/- and in multiples thereof.  The Client may withdraw the entire investment amount or securities from the Portfolio Account by giving advance notice and the Portfolio Manager will endeavor to liquidate the securities held by the Portfolio and return the funds or securities held by the Portfolio, as the case may be, to the Client within reasonable time. The Portfolio Manager will provide periodical reports as required under the Regulations.  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.  At periodic intervals, the targeted level of floor to be protected can be increased as per agreed formula. 3.1. Benchmark Dynamic CaPPs Investment Objective The Benchmark Dynamic CaPPs aims to allow investors to take an optimal exposure to a basket of Indian diversified equity mutual fund schemes while targeting to preserve Initial Corpus at Maturity Date. Additionally, the Benchmark Dynamic CaPPs attempts to lock in 85% of the Maximum PVPI (Portfolio Value Per Investor) reached during the tenure of the Benchmark Dynamic CaPPs. The Benchmark Dynamic CaPPs has two Options i.e. Growth and Cash Out. Investment Style Benchmark Dynamic CaPPs would undertake investment in various Mutual Fund Schemes. Allocation to various securities will be made between Risky (equity related) and Non-Risky assets (liquid related) using DPI methodology. Working of the Benchmark Dynamic CaPPs The Benchmark Dynamic CaPPs will be managed by the Portfolio Manager with the Dynamic Portfolio Insurance (DPI) methodology used by the Consultant (Societe General). The exposure of the Portfolio to the risky assets is variable from 0% to a maximum of 100%. 4. Portfolio of Funds (PoF) Introduction There are a large number of mutual fund schemes. Each scheme follows a different investment philosophy and style. These schemes can be distinguished with respect to their level of diversification, theme that they espouse, market capitalization of stocks where they invest, investment style of fund manager, etc. Extensive classification of schemes forces an investor to undertake enormous amount of research not only at the moment of initial portfolio allocation but also on a continuous basis so as to take care of rebalancing. A Portfolio of Funds saves an investor from all these trouble. Portfolio of Funds is a portfolio management product investing in securities including but not restricted to mutual fund schemes with different style, size, philosophy, stocks, derivatives, debt securities, short dated instruments, etc. thus enabling an investor to reap benefit of diversification and professional selection. Equis is the Product under Portfolio Management Services launched by the Portfolio Manager under Portfolio of Funds. Investment Objective The objective of PoF is to invest in securities including but not restricted to basket of mutual fund schemes, stocks, derivatives, debt securities, short dated instruments, etc. and generate capital appreciation and /or income for the client. 15
  • 16. Asset Allocation Equity allocation will be between 0% - 100% of the Portfolio. The balance idle cash will be invested either in debt, liquid mutual funds or short term instruments. Investment in such securities can be between 0% - 100% of the portfolio. Investment Style PoF would undertake investment in various securities including but not restricted to mutual fund schemes, stocks, derivatives, debt securities, short dated instruments, etc. These investments will be reviewed on a periodic basis. Allocation to equities will be in the range of 0% - 100% and in liquid/debt will be 0% - 100%. Working of Portfolio of Funds  PoF invests in securities including but not restricted to schemes of various mutual funds, short dated debt securities, debt instruments, stocks, derivatives, etc.  Funds will be invested in liquid schemes or short dated paper, till deployment is pending in various equity schemes/equity securities.  After initial investment, reallocation decisions will be undertaken on a periodic basis. Other Features  Minimum investment amount in portfolio of Funds is Rs. 5 Lakhs. Additional investment is Re. 1/- and in multiples thereof.  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 by the Portfolio and return the funds or securities held by the Portfolio, as the case may be, to the Client within reasonable time.  The Portfolio Manager will provide periodical reports as required under the Regulations.  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. 5. Debt Portfolios - Structured Products Investment Objective The objective of this Product is to deploy funds in various debt securities i.e. Debentures, Bonds, Government Securities, Mutual Funds, etc. The Portfolio Manager may launch different Products under this Product. At present, forty two different Products have been launched under debt portfolio - structured product by the Portfolio Manager. Asset Allocation Debt allocation will be between 0% - 100% of the Portfolio. The Products launched may have a combination of various kinds of Debt securities i.e. Debentures, Bonds, Government Securities, Mutual Funds, etc. The balance idle cash will be invested either in debt, liquid mutual funds or short term instruments. Investment in such securities can be between 0% - 100% of the portfolio. Investment Style Product would undertake investment in various debt securities. These investments will be reviewed on a periodic basis. Allocation to various debt securities including liquid will be upto 100%. Working of Debt Portfolios - Structured Products  The Product will invest in various debt and liquid securities, i.e. call money instruments, MIBOR linked securities, government securities, corporate debentures, bonds, etc.  Funds may be invested in liquid schemes or short dated paper, till deployment is pending in various debt securities. 16
  • 17. Other Features  Minimum investment amount in the Product is Rs. 5 Lakhs. Additional investment is Re. 1/- and in multiples thereof.  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 and return the funds to the Client within reasonable time. In case the Portfolio Manager is not able to sell the securities, the Portfolio Manager has the discretion to return the securities to the Client.  The Portfolio Manager will provide periodical reports as required under the Regulations.  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. 6. All Asset Portfolio (AAP) Investment Objective The investment objective of AAP is to achieve desired risk return characteristic for the portfolio through investment in Stocks, Fixed Income Securities, Mutual Fund Schemes and Derivatives. At present, one Products i.e. Flexiguard has been launched under AAP. The Portfolio Manager may launch various products under AAP. The Portfolio Manage would launch different Products under AAP. Asset Allocation The asset allocation of AAP would be customized as per client’s objective. Investment Style The investment style of AAP will be in the nature of buy and hold with periodic rebalancing. Working of AAP AAP will invest in different kind of securities mentioned above and the percentage of investment in each security will vary. It will include strategic asset allocation and tactical asset allocation (based on quantitative model), with periodic rebalancing. The balance, if any, would be held in cash. Other Features  Minimum investment amount in the AAP is Rs. 5 Lakhs. Additional investment is Re. 1/- and in multiples thereof.  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 and return the funds held by the Portfolio to the Client within reasonable time. In case the Portfolio Manager is not able to sell the securities, the Portfolio Manager has the discretion to return the securities to the Client.  The Portfolio Manager will provide periodical reports as required under the Regulations.  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. RISK FACTORS General  Securities investments are subject to market risks and there can be no assurance or guarantee that the objective of any of the PMS Product will be achieved.  As with any investment in securities, the Net Asset Value (NAV) of the Portfolio of the Products issued under the Portfolio Management Services can go up or down depending on the factors and forces affecting the capital market.  Past performance of the Portfolio Manager or the Product does not indicate the future performance of the Products of the Portfolio Manager.  The name of the Products issued under the Portfolio Management Services does not in any manner indicate either the quality of the Product or its future prospects and returns. Investors are therefore 17
  • 18. urged to study the Disclosure Document carefully and consult their Investment Advisor, if any, before they enter into Portfolio Management Agreement.  The Portfolio Manager is not responsible or liable for any loss or shortfall resulting from the operation of the Products issued under the Portfolio Management Services.  Investors in the Products issued under the Portfolio Management Services are not being offered any guaranteed or assured returns. Specific Risk Factors The Products, presently offered by the Portfolio Manager are subject to following risk factors:  Market Risk The NAV of the Portfolio will react to the stock market movements. The investor could lose money over short periods due to fluctuation in the NAV of Portfolio in response to factors such as economic and political developments, changes in interest rates and perceived trends in stock market movements and over longer periods during market downturns.  Market Trading Risks 1. Absence of Prior Active Market: Although securities are listed on the Exchange(s), there can be no assurance that an active secondary market will develop or be maintained. 2. Lack of Market Liquidity: Trading in securities on the Exchange(s) may be halted because of market conditions or for reasons that in the view of the Exchange Authorities or SEBI, trading in particular security is not advisable. In addition, trading in securities is subject to trading halts caused by extraordinary market volatility and pursuant to Exchange and SEBI ‘circuit filter’ rules. There can be no assurance that the requirements of the Market necessary to maintain the listing of securities will continue to be met or will remain unchanged. 3. ETF May Trade at Prices Other than NAV: ETF may trade above or below their NAV. The NAV of ETF will fluctuate with changes in the market value of Scheme’s holdings of the underlying stocks. The trading prices of ETF will fluctuate in accordance with changes in their NAVs as well as market supply and demand of ETF. 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. 4. Regulatory Risk: Any changes in trading regulations by the Exchange(s) or SEBI may affect the ability of marker maker to arbitrage resulting into wider premium/discount to NAV for ETFs. Because of halt of trading in market the Portfolio may not be able to achieve the stated objective.  Asset Class Risk The returns from the types of securities in which a Portfolio Manager invest may under perform returns from the various general securities markets or different asset classes. Different types of securities tend to go through cycles of out-performance and under performance in comparison of the general securities markets.  Performance Risk Frequent rebalancing of Portfolio will result in higher brokerage/transaction cost. Also as the allocation to other securities can vary from 0% to 100%, there can be vast difference between the performance of the Products and returns generated by underlying securities.  Lending of Securities The securities lending activity, if any, by the Portfolio Manager on behalf of the Client will have the inherent probability of collateral value drastically falling in time of strong downward market trends or due to it being comprised of tainted/forged securities, resulting in inadequate value of collateral until such time as that diminution in value is replenished by additional security. It is also possible that the borrowing party and/or the approved intermediary may suddenly suffer severe business setback and become unable to honor its commitments. This along with a simultaneous fall in value of collateral would render potential loss to the respective Products. Also the risk could be in the form of non-availability of ready stock for sale during the period stock is lent. 18
  • 19.  Interest Rate Risk Changes in interest rates may affect the returns/NAV of the units of the liquid/debt scheme of Mutual Fund in which the Portfolio Manager may invest from time to time. Normally the NAV of the liquid scheme increases with the fall in the interest rate and vice versa. Interest rate movement in the debt market can be volatile leading to the possibility of movements up or down in the NAV of the units of the liquid/debt funds.  Credit Risk Credit Risk refers to the risk that an issuer of fixed income security may default or may be unable to make timely payments of principal and interest. NAV of Units of the liquid scheme is also affected because of the perceived level of credit risk as well as actual event of default.  Investments in Derivative Instruments As and when the Products trades in derivative market, there are risk factors and issues concerning the use of derivatives that the investors should understand. Derivative products are specialized instrument that require investment technique and risk analysis different from those associated with stocks. The use of derivative requires an understanding not only of the underlying instrument but also of the derivative itself. Derivative requires the maintenance of adequate controls to monitor the transactions entered into, the ability to assess the risk that a derivative adds to the portfolio and the ability to forecast price. 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. Other risks in using derivatives include but are not limited to: (a) Credit Risk - this occurs when a counterparty defaults on a transaction before settlement and therefore, the Product is compelled to negotiate with another counter party, at the then prevailing (possibly unfavourable) market price, in order to maintain the validity of the hedge. For exchange traded derivatives, the risk is mitigated as the exchange provides the guaranteed settlement but one takes the performance risk on the exchange. (b) Market Liquidity risk where the derivatives cannot be sold (unwound) at prices that reflect the underlying assets, rates and indices. (c) Model Risk is the risk of mis-pricing or improper valuation of derivatives. (d) Basis Risk arises when the instrument used as a hedge does not match the movement in the instrument/underlying asset being hedged. The risks may be inter-related also; for e.g. interest rate movements can affect equity prices, which could influence specific issuer/industry assets. 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. As a result, a relatively small price movement in a derivative contract may result in an immediate and substantial loss or gain. However, the Portfolio Manager will not use derivative instruments, options or swap agreements for speculative purposes or to leverage its net assets and will comply with applicable SEBI Regulations. There may be a cost attached to buying derivative instrument. Further there could be an element of settlement risk, which could be different from the risk in settling physical shares. The possible lack of a liquid secondary market for a derivatives contract may result in inability to close the derivatives positions prior to their maturity date.  Risk of Arbitrage Strategies The success of Products’ investment activities depends on the Portfolio Manager’s ability to identify investment opportunities and to exploit price discrepancies in the capital and derivative markets. Identification and exploitation of the strategies to be pursued by the Portfolio Manager involve uncertainty. No assurance can be given that Portfolio Manager will be able to locate investment opportunities or to correctly exploit price discrepancies in the capital markets. A reduction in the pricing inefficiency of the markets in which the Portfolio Manager will seek to invest, will reduce the scope for the Portfolio Manager’s investment strategies. Also in the event that the perceived mis-pricing underlying the Products’ position were to fail to converge toward or diverge further from relationships expected by the Portfolio Manager, the Products may incur a loss. The Portfolio Manager’s investment strategies may result in high portfolio turnover and, consequently, high transaction cost. 19
  • 20. The Portfolio Manager’s investment strategies will be designed to be relatively non-correlated with respect to the movements in equity markets in general. However, depending upon the investment strategies employed and market conditions, the Products may be adversely affected by unforeseen events involving such matters as political crisis, changes in currency exchange rates or interest rates, forced redemptions of securities or acquisition proposals. Certain strategies employed by the Products are based on historical trends and relationships between asset prices. There can be no assurance that such historical trends or relationships will continue. No representations is made by the Portfolio Manager as to what results the Products will or is likely to achieve based on such trends and relationships. If such historical trends or relationships change, the Products may incur substantial losses.  Illiquidity Risk The corporate debt market is relatively illiquid vis-a-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. Trading in specified debt securities on the Exchange may be halted because of market conditions or for reasons that in the view of the Exchange Authorities or SEBI, trading in the specified debt security is not advisable. 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. In such a situation, the portfolio manager at his sole discretion, will return the securities to the Client.  Zero Return Risk Returns on investments undertaken in structured securities would depend on occurrence/non- occurrence of the specified event. Thus, returns may or may not accrue to an investor depending on the occurrence/non-occurrence of the specified event.  Redemption Risk The payoffs as envisaged in structured securities are such that the Client may lose a part/entire amount invested. Client Representation Category of Clients No. of Clients Funds Managed Discretionary/ (Rs. Crores) Non- Discretionary Associate/Group Companies Nil Nil N.A. Others  As on March 31, 2007 700 245.91  As on March 31, 2008 2078 519.52 Discretionary  As on March 31, 2009 3561 750.88  As on October 31, 2009 3171 643.65  As on October 31, 2009 1 0.51 Non-discretionary FEES AND EXPENSES A. DISSRETIONARY 1. Systematically Trading Portfolio Management Product (STraP) The fees for the STraP charged by the Portfolio Manager will not exceed 4% p.a. of daily average net assets of the Portfolio (inclusive of all securities and cash/bank balance). In addition, for STraP, the Portfolio 20
  • 21. Manager shall charge upfront fees of 4% to be paid by the investor at the time of first investment and every subsequent additional investment. The Portfolio Manager may charge custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. The Client will also bear brokerage and incidental charges/fees/duties for transactions in securities not exceeding 1%. 2. Equity Arbitrage Product (EAS) The fees for EAS charged by the Portfolio Manager will not exceed 3% p.a. of daily average net assets of the Portfolio (inclusive of all securities and cash/bank balance). In addition, for EAS, the Portfolio Manager may also charge performance based fees upto maximum of 30% of the profit. The Portfolio Manager will charge custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. The Client will also bear brokerage and incidental charges/fees/duties for transactions in securities not exceeding 1%. 3. Capital Preservation Portfolio System (CaPPS) The fees for CaPPS, charged by the Portfolio Manager will not exceed @ 5% p.a. of the daily average net assets of the Portfolio (inclusive of all securities and cash/bank balance). In addition, for CaPPS, the Portfolio Manager may also charge performance based fees upto maximum of 30% of the profit. The Portfolio Manager will charge custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. The Client will also bear brokerage and incidental charges/fees/duties for transactions in securities not exceeding 1%. 4. Portfolio of Funds (PoF) The fees for PoF charged by the Portfolio Manager will not exceed 3% of the daily average net assets of the Portfolio (inclusive of securities and cash/bank balances). In addition the Portfolio Manager may also charge performance based fees upto maximum of 30% of the profit. The Portfolio Manager will charge custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. The Client will also bear (i) brokerage and incidental charges/fees/duties for transactions in securities not exceeding 1% and (ii) entry and exit load charged by the Mutual Funds for investments in their schemes. 5. Debt Portfolios - Structured Portfolio The fees pertaining to Products under Debt Portfolios - Structured Portfolio will be as under: Annual Fees Not more than 3% Performance Fee Payable As Mutually agreed The fees may be charged upfront or in arrears. In case the fees are not charged upfront, then fees will be charged based on daily average net assets of the Portfolio (inclusive of all securities and cash/bank balances). In addition, the Portfolio Manager can also charge performance based fees upto maximum of 30% of the profit. Further, the loads / brokerage for purchase and sale of securities upto 1% would also be charged to the Client. Also, the transaction and all other charges/costs directly attributable to the Portfolio Management Services will be charged to the Client at actual. 6. All Asset Portfolio (AAP) The fees for the AAP charged by the Portfolio Manager will not exceed 4% p.a. of daily average net assets of the Portfolio (inclusive of all securities and cash/bank balance). In addition, for AAP, the Portfolio 21
  • 22. Manager shall charge upfront fees of 4% to be paid by the investor at the time of first investment and every subsequent additional investment. The Portfolio Manager may charge custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. In addition, for AAP, the Portfolio Manager may also charge performance based fees upto maximum of 30% of the profit. The Client will also bear brokerage and incidental charges/fees/duties for transactions in securities not exceeding 1%. B. Non - Discretionary Portfolio Management Services In case of Non-discretionary Portfolio Management Services, the Fees payable by the Client would not exceed @ 3% p.a. Such fees would be calculated @ the daily average net asset of the Portfolio (inclusive of all securities and cash/bank balances). The Portfolio Manager will charge brokerage not exceeding 1% and custodial charges and other charges/costs, attributable to the Portfolio Management Services at actuals. Methodology of charging Fees under various Products and Non-Discretionary Portfolio Management Services The methodology for charging of fees may vary from Client to Client based on the underlying securities mandate and the parameters agreed and as specified in the agreement. In case of additional funds brought in by the Client, the fees will be charged from the date of introduction of the funds itself till the end of that relevant quarter. In case, the Agreement is terminated before the end of a quarter, the Client will pay fees for the period ending on the date of refund of the Portfolio. In certain Products there won’t be a refund of fees collected in advance in case Agreement is terminated before the tenure of the Product or the Agreement. TAXATION The following information is based on the law in force in India at the date hereof. The information set forth below is based on the Portfolio Manager’s understanding of the Tax Laws as of this date of Disclosure Document. The client should seek advice from his/her/its own professional advisor if he/she/it is in any doubt regarding the taxation consequences of investing in the Products offered under Portfolio Management Services. Income Tax The maximum tax rates applicable to different categories of assessees are as follows: Resident individual & HUF 30% + surcharge Partnership Firms & Indian Companies 30% + surcharge Non-resident Indians 30% + surcharge Foreign companies 40% + surcharge Assessee Rate of surcharge applicable Individuals (including NRIs/PIOs), HUFs, Non- A surcharge by way of education cess of 3 percent Corporate FIIs where the taxable income is up to is payable on the total amount of tax. Rs. 1,000,000 per annum Individuals (including NRIs/ PIOs), HUFs and Non- A surcharge by way of education cess of 3 percent corporate FIIs where the taxable income is in excess is payable on the total amount of tax. of Rs. 1,000,000 per annum Companies where the taxable income is less than or A surcharge by way of education cess of 3 percent equal to Rs. 10,000,000/- is payable on the total amount of tax. Companies where the taxable income is in excess of 10 percent basic surcharge (2.50% in case of foreign Rs. 10,000,000/- companies). An additional surcharge by way of education cess of 3 percent is payable on the total 22
  • 23. Assessee Rate of surcharge applicable amount of tax plus surcharge. The Dividend received in respect of the shares and income received in respect of units of Mutual Fund held in the Products offered under the Portfolio Management Services is exempt from tax in the hands of investor. However, the dividend/income distribution on securities and units received by Products offered under the Portfolio Management Services will be after distribution tax on the amount of dividend/income distribution declared. The rates of tax on the dividend/ income distribution on units would be as under: Type of Distribution Rate of Tax (%) (Including Surcharge of 10% and Education Cess of 3%) Dividends from Companies 16.995 Income Distribution on Units Money Market Other than Money Equity Oriented Funds Market Funds Funds - Individuals and H.U.F. 28.325 14.1625 Nil - Others 28.325 22.66 Nil Capital Gains Tax (a) Long Term For Individuals, HUF, Partnerships Firm and Indian Companies From October 1, 2004 in case of shares and securities and units of equity oriented schemes sold on a recognized stock exchange, which are subject to Securities Transaction Tax (currently 0.125%), the tax on Long Term Capital Gain would be Nil. Long term capital gains in respect of other listed securities or units would be subject to tax at the lower of 20% (plus surcharge and education cess) of the gains computed after cost indexation, or 10% (plus surcharge and education cess) of the gains computed without cost indexation. (b) Short Term For Individuals, HUF, Partnerships Firm and Indian Companies Short-term Capital Gains is added to the total income. Total income including short-term capital gain is chargeable to tax as per the relevant slab rates. However, tax on short term capital gains on sale of shares and units of equity oriented funds on a recognized stock exchange, which are subject to Securities Transaction Tax, would be @ 15% (plus applicable surcharge and an education cess). Provisions regarding Dividend income and Bonus According to the provisions of Section 94(7) of the Act, losses arising from the sale/redemption of units purchased within 3 months prior to the record date (for entitlement of dividends) and sold within 9 months after such date, is disallowed to the extent of income on such units (other than on sale/redemption) claimed as tax exempt. According to the provisions of Section 94(8) of the Act, if an investor purchases units within 3 months before the record date (for entitlement of bonus) and sells/redeems the units within 9 months after that date, and by virtue of holding the original units, he becomes entitled to bonus units, then the loss arising on transfer of original units shall be ignored for the purpose of computing his income chargeable to tax. In fact, the loss so ignored will be treated as cost of acquisition of such bonus units. 23
  • 24. Tax Deduction at Source Dividend As Dividend/income distribution on securities and units is not taxable in the hands of receiver, no tax will be deducted at source, irrespective of amount of dividend/income distribution on units. ACCOUNTING POLICIES The Portfolio Manager shall follow the following accounting policies in respect of the portfolio investment of the Clients: 1. The Portfolio Manager shall keep and maintain proper books of accounts, records and documents for each Client so as to explain transactions for each Client and to disclose at any point of the Portfolio Holding of each Client and in particular give a true and fair view of the performance of Portfolio for each Client. 2. In the event of aggregation of purchases or sales for economy of scale inter se, the Portfolio Manager shall do allocation on pro rata basis at weighted average price of the day’s transaction. The Portfolio Manager will not keep open position in respect of allocation of sales or purchases in a day. 3. Transactions for purchase or sale of investments shall be recognised as of the trade date and not as of the settlement date, so that the effect of all investments traded during a financial year are recorded and reflected in the financial statements for that year. Where investment transactions take place outside the stock exchange, for example, acquisitions through private placement or purchases or sales through private treaty, the transactions shall be recorded, in the event of a purchase, as of the date on which the Product obtains an enforceable obligation to pay the price or, in the event of a sale, when the Product obtains an enforceable right to collect the proceeds of sale or an enforceable obligation to deliver the instruments sold. 4. The cost of investments acquired or purchased shall include brokerage, stamp charges and any charge customarily included in the broker’s contract note. In respect of privately placed debt instruments any front-end discount offered shall be reduced from the cost of the investment. 5. In determining the holding cost of investments and the gains or loss on sale of investments, the “average cost” method will be followed. 6. Dividend income shall be recognized, not on the date dividend is declared, but on the date the share/scrip is quoted on an ex-dividend basis. For the investments, which are not quoted on the stock exchange, dividend income will be recognized on the date of declaration. 7. Bonus shares/units to which the security/scrip in the portfolio becomes entitled will be recognized only when the original share/scrip on which bonus entitlement accrues are traded on the stock exchange on an ex-bonus basis. Similarly, right entitlements will be recognized only when the original shares/security on which the right entitlement accrues is traded on the stock exchange on the ex-right basis. 8. In respect of interest bearing investments, income would be accrued on a day-to-day basis as it is earned. When such investments are purchased, interest paid for the period from last interest due date upto the date of purchase would be treated as cost of purchase but would be debited to Interest Recoverable Account. Similarly interest received at the time of the sale for the period from the last interest due date upto the date of sale would not be treated as an addition to sale value but would be credited to Interest Recoverable Account. Penalties, pending litigation or proceedings, findings of inspection or investigations for which action may have been taken or initiated by any regulatory authority:  There have been no penalties imposed by the Board and no directions have been issued by the Board under the Act or Rules or Regulations made thereunder.  There have been no penalties imposed for any economic offence and/or for violation of any securities laws.  There is no pending material litigation/legal proceedings against the portfolio manager/key personnel. 24
  • 25.  No deficiency in the systems and operations of the Portfolio Manager have been observed by the Board or any regulatory agency.  No enquiry/adjudication proceedings has been 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. INVESTOR SERVICES Information Dissemination The Portfolio Manager will furnish to the Client reports at least once in six months and as and when required by the Client. Such reports shall contain the following details namely:- (a) the composition and value of the portfolio, description of securities, number of securities, value of each security held in the portfolio, cash balance and aggregate value of the portfolio on the date of report; (b) the transactions undertaken during the period of report including date of transaction and details of purchase/sales; (c) beneficial interest received during that period in respect of interest, dividend, income on units, bonus and rights shares, units and debentures. (d) expenses incurred in managing the portfolio. (e) details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the portfolio manager for investment or disinvestments. The Accounts of the Portfolio Management Services provided by Portfolio Manager will be audited annually by an Independent Chartered Accountant. The Copy of Certificate given by the Chartered Accountant will be given to the Client. Grievance Redressal and Dispute Handling Mechanism The Client can approach the office of Portfolio Manager for redressal of their Grievances/Complaints. The Portfolio Manager has appointed Mr. Gautam H. Rathor as Investor Relation Officer. He can be contacted at : Benchmark Asset Management Company Pvt. Ltd. 405, Raheja Chambers Free Press Journal Marg 213, Nariman Point Mumbai - 400 021. Tel No. (91 22) 6651 2741 Fax No. (91 22) 2200 3412 Email: gautam@benchmarkfunds.com The Investor Relation Officer shall give monthly report of the Client’s complaint to the Principal Officer with the details as Name of the Client, nature of the Complaint, date of receipt of the Complaint and date of resolving the same. For complaints remaining unresolved for a period of more than 15 days from the date of receipt, the Investor Relation Officer shall provide the justification to the Principal Officer. For disputes or differences arising between the Client and Portfolio Manager which could not be resolved amicably, be settled by Arbitration referred to a panel of three Arbitrators one to be appointed by the Investor/Client, one to be appointed by the Portfolio Manager and the third to be appointed by such two selected Arbitrators appointed by the parties. The decision taken by majority at the panel will be the decision of the panel and would be final and binding on the parties. All proceedings under such Arbitration shall be held in Mumbai and would be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and any statutory modifications or re-enactment’s thereof. It is agreed and understood that the High Court of Mumbai shall have exclusive jurisdiction to entertain any Applications or Petition pertaining to the arbitration arising hereunder and/or any other proceedings arising pursuant to this clause. 25
  • 26. Date: November 13, 2009 Signature of the Directors Place: Mumbai Sd/- Sd/- D. S. Mehta S. J. Parekh Sd/- Sd/- S. R. Halbe T. N. V. Ayyar Sd/- Susan Thomas 26
  • 27. November 13, 2009 To Benchmark Asset Management Co. Pvt. Ltd. Mumbai. Dear Sirs, Re : Certification of Disclosure Document for Portfolio Management Services At your request, we have reviewed the enclosed Disclosure Document for Portfolio Management Services intended to be filed by you with details updated as on October 31, 2009 with Securities and Exchange Board of India. We hereby certify that in our opinion, and to the best of our knowledge and belief, on the basis of our verification of the particulars given in the disclosure document, the disclosures made in the document are true, fair and adequate to enable the investors to make a well informed decision. Yours faithfully, FOR CONTRACTOR, NAYAK & KISHNADWALA CHARTERED ACCOUNTANTS Sd/- (G. S. NAYAK) PARTNER M.NO. 38127 27
  • 28. FORM C SECURITIES AND EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS) REGULATIONS, 1993 (Regulation 14) Name of the Portfolio Manger: Benchmark Asset management Company Pvt. Ltd. Address: 405, Raheja Chambers, Free Press Journal Marg, 213, Nariman Point, Mumbai 400 021 Tel. No. (91 22) 6651 2727, Fax No. (91 22) 2200 3412 Email: gautam@benchmarkfunds.com We Confirm that: 1. The Disclosure Document forwarded to the Board is in accordance with the SEBI (Portfolio Managers) Regulations, 1993 and the guidelines and directives issued by the Board from time to time; 2. The disclosures made in the document are true, fair and adequate to enable the investor to make a well informed decision regarding entrusting the management of the portfolio to us/investment in the Product of Portfolio Management Services; 3. The Disclosure Document has been duly certified by Mr. Gautam S. Nayak, (Membership Number 38127), Partner, Contractor, Nayak & Kishnadwala, Chartered Accountants, 3rd Floor, Jash Chambers, 7, Sir P. M. Road, Fort, Mumbai - 400 001, Telephone No. 66359681-82, Fax No. 66359684. (Copy of Certificate issued by the Contractor, Nayak and Kishnawala, Chartered Accountants is enclosed). For Benchmark Asset Management Company Pvt. Ltd. Sd/- Hemen Bhatia Principal Officer 405, Raheja Chambers Free Press Journal Marg 213, Nariman Point Mumbai - 400 021 Date: November 13, 2009 Place: Mumbai 28