1 DISCLOSURE DOCUMENT (As required under Regulation 14 of SEBI (Portfolio Managers) Regulations, 1993) (i) The Disclosure Document (hereinafter referred to as ‘the 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 the SEBI (Portfolio Managers) Regulations, 1993. (ii) The purpose of the Document is to provide essential information about the Portfolio Management Services (PMS) in a manner to assist and enable the investors in making informed decision for engaging a Portfolio Manager. (iii) The Document gives the necessary information about the Portfolio Manager required by an investor before investing, and the investor may also be advised to retain the document for future reference. (iv) Details of the acting Principal Officer Name : Ravi Menon Address : HSBC Asset Management (India) Private Limited 3rd Floor, Mercantile Bank Chamber, 16, V. N. Road, Fort, Mumbai 400 001 Phone : +91 22 6614 5000 E-mail : [email protected](v) This Disclosure Document is dated May 15, 2017 Portfolio Management Services HSBC Asset Management (India) Private Limited SEBI Registration No. INP000001322
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1
DISCLOSURE DOCUMENT
(As required under Regulation 14 of SEBI (Portfolio Managers) Regulations, 1993)
(i) The Disclosure Document (hereinafter referred to as ‘the 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 the SEBI (Portfolio Managers) Regulations, 1993.
(ii) The purpose of the Document is to provide essential information about the Portfolio
Management Services (PMS) in a manner to assist and enable the investors in making
informed decision for engaging a Portfolio Manager.
(iii) The Document gives the necessary information about the Portfolio Manager required by an
investor before investing, and the investor may also be advised to retain the document for
further that in case of the sub-categories (b) and (d) the
ratings shall relate to the rating of the sponsor entity
floating the trust. Provided further that if the securities /
entities have been rated by more than two rating
agencies, the two lowest of the ratings shall be
considered.
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2. Fresh accretions to the fund will be invested in the permissible categories specified in this
investment pattern in a manner consistent with the above specified maximum permissible
percentage amounts to be invested in each such investment category, while also
complying with such other restrictions as made applicable for various sub-categories of
the permissible investments.
3. Fresh accretions to the funds shall be the sum of un-invested funds from the past and
receipts like contributions to the funds, dividend / interest / commission, maturity
amounts of earlier investments etc., as reduced by obligatory outgo during the financial
year.
4. Proceeds arising out of exercise of put option, tenure or asset switch or trade of any asset
before maturity can be invested in any of the permissible categories described above in
the manner that at any given point of time the percentage of the assets under the category
should not exceed the maximum limit prescribed for that category and also should not
exceed the maximum limit prescribed for the sub-categories, if any. However, asset
switch because of any RBI mandated Government debt switch would not be covered
under this restriction.
5. Turnover ratio (the value of securities traded in the year/average value of the portfolio at
the beginning of the year and at the end of the year) should not exceed two.
6. If for any of the instruments mentioned above the rating falls below the minimum
permissible investment grade prescribed for investment in that instrument when it was
purchased, as confirmed by one credit rating agency, the option of exit shall be
considered and exercised, as appropriate, in a manner that is in the best interest of the
subscribers.
7. Once these guidelines coming into effect, the above prescribed investment pattern shall be
achieved separately for each successive financial year through timely and appropriate
planning.
8. The investment of funds should be at arm’s length, keeping solely the benefit of the
beneficiaries in mind. For instance, investment (aggregated across such
companies/organizations described herein) beyond 5% of the fresh accretions in a
financial year will not be made in the securities of a company / organization or in the
securities of a company/organization in which such a company / organization holds over
10% of the securities issued, by a fund created for the benefit of the employees of the first
company / organization, and the total volume of such investments will not exceed 5% of
the total portfolio of the fund at any time. The prescribed process of due diligence must be
strictly followed in such cases and the securities in question must be permissible
investments under these guidelines.
9. i) The prudent investment of the Funds of a trust / fund within the prescribed pattern is the
fiduciary responsibility of the Trustees and needs to be exercised with appropriate due
diligence. The Trustees would accordingly be responsible for investment decisions taken-
to invest the funds.
ii) The trustees will take suitable steps to control and optimize the cost of management
of the fund.
iii) The trust will ensure that the process of investment is accountable and transparent.
iv) It will be ensured that due diligence is carried out to assess risks associated with any
particular asset before investment is made by the fund in that particular asset and also
during the period over which it is held by the fund. The requirement of ratings as
mandated in this notification merely intends to limit the risk associated with
investments at a broad and general level. Accordingly, it should not be construed in
any manner as an endorsement for investment in any asset satisfying the minimum
prescribed rating or a substitute for the due diligence prescribed for being carried out
by the fund/trust.
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v) The trust/fund should adopt and implement prudent guidelines to prevent concentration
of investment in any one company, corporate group or sector.
10. If the fund has engaged services of professional fund/asset managers for management of
its assets, payment to whom is being made on the basis of the value of each transaction,
the value of funds invested by them in any mutual funds mentioned in any of the
categories or ETFs or Index Funds shall be reduced before computing the payment due to
them in order to avoid double incidence of costs. Due caution will be exercised to ensure
that the same investments are not churned with a view to enhancing the fee payable. In
this regard, commissions for investments in Category III instruments will be carefully
regulated, in particular.
Disclaimer – The above new Investment Pattern issued by Ministry of Labour and Employment,
Investments of Funds shall be made as per the new pattern of Investment from 01st July 2015 onwards
as per the notification issued by EPFO on 1st July 2015 as amended from time to time. It is further
informed by EPFO that investments in the following asset classes under the said pattern have been
restricted as of now: -
Category Sub
Category
Asset Class
i (a) Units of mutual funds set up as dedicated funds for investment in
govt securities and regulated by SEBI
ii (b) Basel III Tier-I bonds issued by scheduled commercial banks
under RBI Guidelines:
ii ( e ) Units of Debt mutual funds as regulated by SEBI
ii f (iii) * Listed (or proposed to be listed in case of fresh issue) securities
issued by Infrastructure debt funds operating as a Non-Banking
Financial Company and regulated by Reserve Bank of India.
ii f (iv) * Listed (or proposed to be listed in case of fresh issue) units issued
by Infrastructure Debt Funds operating as a Mutual Fund and
regulated by Securities and Exchange Board of India.
iii ( b ) Units of Liquid mutual funds regulated by SEBI
(iv) (a to e) Equity and related Investment
v (a) * Commercial mortgage based Securities or Residential mortgage
based securities
v (b) Units issued by Real Estate Investment Trusts regulated by the
SEBI
v ( c ) Asset backed Securities regulated by SEBI
v (d) Units of Infrastructure Investment Trusts regulated by SEBI
* Investments to be done only after guidelines are communicated by EPFO
The following limits/restrictions within the categories as approved by Board will be applicable for
investments under the said pattern
1. Investment in Central Government Securities (CTG) – Minimum 5%
2. Investment in State Development Loan (SDL) – Minimum 10%
3. Investment in State Guarantee Securities (STG) – No Investment
4. Investment in Private Sector – upto 10%
All other guidelines for investments continue to remain applicable as provided in Investment Manual
which was part of Investment Management Service Agreement with the Portfolio Managers.
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5.2. Non-Discretionary – the portfolio, which the Portfolio Manager manages in accordance
with the directions and permission of the client.
5.3. Advisory – the client is advised on buy/ sell decision within the overall risk profile without
any back-office responsibility for trade execution, custody or accounting functions.
5.4 Types of Securities in which the Portfolio Manager generally invests
(a) Units, Magnums and other instruments of Mutual Funds;
(b) Bank Deposits;
However in addition to the above and subject to SEBI Regulations, the Funds can
also be invested in such securities, capital and money market instruments or in fixed
income securities or variable securities of any description, by whatever name called
including:
(a) Convertible Stock and Preference Shares of Indian Companies;
(b) Debentures (Convertible and Non-convertible), Bonds and Secured Premium Notes,
Swaps, Futures and Options, Securitised Debt, Structured Products, Pass Through
Certificates and Instruments which are quasi-debt instruments, Tax-exempt Bonds of
Indian Companies and Corporations;
(c) Government and Trustee Securities;
(d) Treasury Bills;
(e) Commercial Papers, Certificates of Deposit and other similar Money Market
instruments
(f) Tradable or any other warrants;
(g) Such other instrument(s) offered in private placements, arrangements, treaties,
contracts or agreements for facilitating acquisition and/or disposing of investments as
the case may be;
(h) Any other eligible mode of investment within the meaning of the Regulations issued
by SEBI and amended thereto from time to time.
5.5 The policies for investments in associates/ group companies of the Portfolio Manager and
the maximum percentage of such investments therein would be subject to the applicable
laws / regulations/ guidelines.
AMIN currently does not intend to invest in any of its associate or group companies.
6. Risk factors
General Risk Factors
6.1. Securities investments are subject to market risk and there is no assurance or guarantee
that the objectives of the Portfolio will be achieved.
6.2. Past performance of the Portfolio Manager does not indicate its future performance.
6.3. Investments made by the Portfolio Manager are subject to risks arising from the
investment objective, investment strategy, asset allocation and non- diversification.
6.4. Investments in Securities are subject to market and other risks and there can be no
guarantee in any of the Portfolios mentioned in this Disclosure Document against loss
resulting from investing in the Portfolio(s) of the Portfolio Manager. The various factors
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which may impact the value of the Portfolios' investments include, but are not limited to,
fluctuations in the equity and bond markets, fluctuations in interest rates, prevailing
political and economic environment, changes in government policy, factors specific to the
issuer of the securities, tax laws, liquidity of the underlying instruments, settlement
periods, trading volumes etc.
6.5. Investment decisions made by the Portfolio Manager may not always be profitable.
6.6. The tax benefits described in this Disclosure Document are as available under the present
taxation laws and are available subject to conditions. The information given is included
for general purpose only. The investors should be aware that the relevant fiscal rules or
their interpretation may change. As is the case with any investment, there can be no
guarantee that the tax position or the proposed tax position prevailing at the time of an
investment in the Portfolio will endure indefinitely. In view of the individual nature of tax
consequences, each investor is advised to consult his/ her own professional tax advisor.
6.7. Prospective investors should review / study this Disclosure Document carefully and in its
entirety and shall not construe the contents hereof or regard the summaries contained
herein as advice relating to legal, taxation, or financial / investment matters and are
advised to consult their own professional advisor(s) as to the legal, tax, financial or any
other requirements or restrictions relating to the subscription, gifting, acquisition, holding,
disposal (sale or conversion into money) of Portfolio and to the treatment of income (if
any), capitalisation, capital gains, any distribution, and other tax consequences relevant to
their portfolio, acquisition, holding, capitalisation, disposal (sale, transfer or conversion
into money) of portfolio within their jurisdiction of nationality, residence, incorporation,
domicile etc. or under the laws of any jurisdiction to which they or any managed funds to
be used to purchase/gift portfolio of securities are subject, and also to determine possible
legal, tax, financial or other consequences of subscribing / gifting, purchasing or holding
portfolio of securities before making an investment.
6.8. Investments are subject to certain risks viz. limited liquidity in the market, settlement risk,
impeding readjustment of portfolio composition, highly volatile stock markets in India
etc. Such loss could arise due to factors which by way of illustration, include, default or
non-performance of a third party, company’s refusal to register a security due to legal stay
or otherwise, disputes raised by third parties. Mis-judgment by the Portfolio Manager or
his incapacitation due to any reason however remote is also a risk. Thus the investment in
Indian capital markets involves above average risk for investors compared with other
types of investment opportunities. Investments will be of a longer duration compared to
trading in securities. There is a possibility of the value of investment and the income there
from falling as well as rising depending upon the market situation. There is also a risk of
total loss of value of an asset and possibilities of recovery of loss in investments only
through a legal process.
6.9. The investments made are subject to external risks such as war, natural calamities, policy
changes of local / international markets which affects stock markets.
6.10. Any policy change / technology change / obsolescence of technology would affect the
investments made in a particular industry.
6.11. The Client has perused and understood the disclosures made by the Portfolio Manager in
the Disclosure Document before entering into this Agreement.
6.12. Clients are not being offered any guarantee / assured returns.
6.13. Performance of the Portfolios may be impacted as a result of specific investment
restrictions provided by the client.
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6.14. Credit Risk: Credit risk or default risk refers to the risk that an issuer of a fixed income
security may default (i.e., will be unable to make timely principal and interest payments
on the security). Consequently, corporate debentures are sold at a yield above those
offered on Government Securities, which are sovereign obligations. Normally, the value
of a fixed income security will fluctuate depending upon the changes in the perceived
level of credit risk as well as any actual event of default. The greater the credit risk, the
greater the yield required for someone to be compensated for the increased risk. The least
risk perception is in case of government securities.
6.15. Reinvestment Risk: This risk refers to the interest rate levels at which cash flows received
from the securities in the portfolio are reinvested. The additional income from
reinvestment is the "interest on interest" component. The risk is that the rate at which
interim cash flows can be reinvested may be lower than that originally assumed.
6.16. Portfolios using derivative products (such as futures and options) are affected by risks
different from those associated with stocks and bonds. Such products are highly leveraged
instruments. Small price movements in the underlying securities may have a large impact
on the value of the derivative instrument. Some of the other risks relate to mis-pricing or
improper valuation of derivatives and the inability to correlate the positions with
underlying assets, rates and indices.
7. Client Representation
7.1.
** Includes EPFO and Advisory Clients
7.2. Complete disclosure in respect of transactions with related parties as per the standards
specified by the Institute of Chartered Accountants of India.
Please refer Annexure I.
8. The Financial Performance of the Portfolio Manager (based on audited financial statements)
(INR ‘000)
Balance Sheet 31 March 2016 31 March 2015 31 March 2014
Shareholders' Funds
Share Capital 615,909 615,909 542,000
Reserves and Surplus 370,940
109,985 (10,885)
Total 986,849 725,894 531,115
Category of clients
No. of
clients
Funds managed
(Rs. cr)
Discretionary/ Non-
Discretionary (if
available)
Associates / Group companies
As at 31 March 2015 NIL
NA NA
As at 31 March 2016 NIL NA NA
As at 31 March 2017 NIL NA NA
Others
As at 31 March 2015 2** 102,019.34 ** Discretionary & Advisory
As at 31 March 2016 2** 106,311.33** Discretionary & Advisory
As at 31 March 2017 2** 124,995.52** Discretionary & Advisory
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Balance Sheet 31 March 2016 31 March 2015 31 March 2014
Non-current Liabilities
Long-term borrowings 3,564 5484 3,824
Deferred tax liabilities - - -
Long-term provisions 20,497 19,079 14,175
Total 24,061 24,563 17,999
Current liabilities
Trade payables 64,286
110,837 149,329
Other current liabilities 91,640 93,214 79,743
Short-term provisions 10,686 10,260 8,009
Total 166,612 214,311 237,081
TOTAL 1,177,522 964,768 786,195
ASSETS
Non-current assets
Fixed assets - - -
Tangible assets 31,672 22,375 25,274
Intangible Assets 4,344 1,309
Long-term loans and advances 375,577 2,437 393,775
Non-current investment 103,152 388,528 --
Total 514,745 414,649 419,049
Current Assets
Current investments 456,834 304,130 149,780
Trade receivables 135,880 140,864 170,869
Cash and cash equivalents 20,202 55,694 1,111
Short-term loans and advances 49,861 49,431 45,386
Other current assets - - -
Total 662,777 550,119 367,146
TOTAL 1,177,522 964,768 786,195
Profit & Loss Statement Year ended
31-Mar-16
Year ended
31-Mar-15
Year ended
31-Mar-14
Total Income 935,024 868,894 720,696
Total Expenses 673,762 735,619 680,642
Profit/(loss) before depreciation
& tax
261,262 133,275 40,054
Depreciation 16,839 19,240 13,758
Profit/(loss) before exceptional
items and tax
244,423 114,035 26,297
Exceptional items 45,000 - (101,715)
Profit Before Tax 289,423 - (75,419)
Provision for tax (net of deferred
tax)
9,037 8,907 -
Short Provision For Earlier Year 19,431
Fringe benefit tax - - -
Net Profit/(loss) after tax 260,955 105,128 (75,419)
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9. Portfolio Management Performance Portfolio Management performance of the Portfolio Manager for the last three years, and in
case of discretionary Portfolio Manager, disclosure of performance indicators calculated using
weighted average method in terms of Regulation 14 of the SEBI (Portfolio Managers)
Regulations, 1993.
Portfolio
Benchmark
01/04/2016 -
31/03/2017
01/04/2015 -
31/03/2016
01/04/2014 -
31/03/2015
Portfolios HSBC Alpha Account Signature
Portfolio Guard (#Since 01/04/2014
till date of exit of last client from
portfolio - 02/02/2015)
NA NA #51.38%
Benchmarks BSE500 NA NA #36.87%
Portfolios HSBC Alpha Account Strategic
Portfolio (~Since 01/04/2014 till date
of exit of last client from portfolio -
18/12/2014)
NA NA ~70.98%
Benchmarks BSE Midcap NA NA ~40.69%
Portfolios HSBC Large Cap Oriented Portfolio
(^Since 01/04/2014 till date of exit of
last client from portfolio -
23/03/2015)
NA NA ^36.67%
Benchmarks Nifty NA NA ^27.55%
Portfolios HSBC Select 1 Portfolio (*Since
01/04/2014 till date of exit of last
client from portfolio -23/12/2014)
NA NA *72.84%
Benchmarks BSE500 NA NA *27.92%
Notes: a. The returns shown above are post expenses.
b. The performance of the Portfolio Manager is calculated using weighted average method
taking each individual category of investments. c. The portfolio performance for the period April 1, 2015 to March 31, 2016 and April 1, 2016 to
March 31, 2017 is not provided as there were Nil clients in the equity portfolios.
10. Nature of expenses
The following are the general costs and expenses to be borne by the client availing the services of
the Portfolio Manager. However, the exact quantum and nature of expenses relating to each of the
following services is annexed to the Portfolio Management Agreement in respect of each of the
services provided.
10.1.1 Portfolio Management Fees
The Portfolio Management Fees relate to the Portfolio Management Services offered
to the Clients under discretionary management in equity strategies. The fee may be a
fixed fee or performance based fee or a combination of both, as agreed by the client
in the PMS Agreement. It also consists of Subscription Fees and Exit Load, as agreed
by the client in the PMS agreement. The nature/quantum of fees charged to clients
(approx.) is provided below.
Sr.
No.
Nature of Fee
% Range
1 Portfolio Management Fees
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Sr.
No.
Nature of Fee
% Range
Annual recurring fee 1.25% to 2.25% of Daily Average AUM
Variable Fee 15% of annualized performance above a pre-
determined hurdle rate can be charged by the
portfolio manager as performance fee
depending on the fees structure opted by the
client.
Upfront Fee 0% to 2.5%
Exit Fee Nil w.e.f. 5th September 05, 2013
2 Depository / Custodian Fee At actual
3 Registration and transfer agents' fees At actual
4 Brokerage, transaction costs and other
services At actual
5 Fees and charges in respect of investment
in mutual funds At actual
6 Certification charges or professional
charges At actual
7 Securities lending and borrowing charges At actual
8 Any other incidental and ancillary
charges At actual
* The above fees structure is based on the latest fees structure offered by portfolio manager
and excludes service tax which will be charged at the prevailing rates.
10.1.2 Depository / Custodian fee comprise of
charges relating to custody and transfer of shares, bonds and units, opening and
operation of demat account, dematerialization and rematerialization, and / or any
other charges in respect of the investment etc.
10.1.3 Registration and transfer agents' fees comprise of
fees payable for the Registrars and Transfer Agents in connection with effecting
transfer of any or all of the securities and bonds including stamp duty, cost of
affidavits, notary charges, postage stamps and courier charges
10.1.4 Brokerage, transaction costs and other services comprise of
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.
10.1.5 Fees and charges in respect of investment in mutual funds
HSBC Mutual Fund 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 the Mutual Funds on behalf of the Client. Such fees and charges are in
addition to the portfolio Management fees described above.
10.1.6 Certification charges or professional charges comprise of
the charges payable to outsourced professional services like accounting, taxation and
any legal services, etc.
10.1.7 Securities lending and borrowing charges comprise of
the charges pertaining to the lending of securities, costs of borrowings and costs
associated with transfer of securities connected with the lending and borrowing
transfer operations.
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10.1.8 Any other incidental and ancillary charges comprise of
all incidental and ancillary expenses not recovered above but incurred by the Portfolio
Manager on behalf of the client shall be charged to the Client. The Portfolio Manager
shall deduct directly from the cash account of the client all the fees/costs as specified
above and shall send a statement to the client for the same.
The fees charged to the client for PMS come under the ambit of “fees for technical
services” under Section 194J of the Income Tax Act, 1961(“the Act”). As the section
calls for withholding tax, the client is required to withhold tax @ 10 % (plus
applicable surcharge and education cess if applicable) on the fees that the client pays
to the Portfolio Manager, if he / she fall under the following two categories:
a) Individual / HUFs - In case a client is having a total sales, gross receipts or
turnover from business exceeding Rs. 1 crore or receipts from profession
exceeding Rs. 50 lakhs (wef financial year 2016-17), during the financial year
immediately preceding the financial year in which such sum by way of fees for
technical services is credited or paid then he is liable to deduct tax at source on
fees credited or paid, whichever is earlier, to the portfolio manager. However, the
individuals/HUF shall not be required to deduct tax source in case such sum is
credited or paid exclusively for personal purpose of the individual/ member of the
HUF.
b) Any other person - Any other clients not covered by (a) above are liable to deduct
tax at source at the time of credit of fees or at the time of payment thereof, to the
Portfolio Manager.
This implies, the client (as mentioned in point a and b above) while making
payment or at the time of credit of the fees would have to deduct tax at source.
However, as per the Agreement with the client, the Portfolio Manager acts as ‘an
agent as well as a trustee’ of its clients and is entrusted by the client to fully
operate its bank account. Further, the clients of the Portfolio Manager have
executed a power of attorney in its favour. As the responsibility can vest with the
Portfolio Manager on account of this agreement, and as an extension to our
services, the Portfolio Manager will carry out the following on behalf of the
client:
i) Deduct tax at source at the specified rate on the fees payable by the client to
the Portfolio Manager as per the provisions of section 194J; and
ii) Make payment to the Government within the due date specified under the
Income Tax Rules, 1962.
For this purpose, we take the Permanent Account Number (PAN), the Tax Deduction
at Source Account Number (TAN) and Assessing Officer details from the client
towards the Tax Deducted at Source on behalf of the client. However, the
responsibility to issue the Tax Deduction Certificate in Form 16A and filing TDS
return remains with the client who shall provide it to the Portfolio Manager within the
statutory time limit laid down under the income tax provisions.
11. Taxation - Discloses the implications of investments in securities and the tax provisions on
Income/ Loss or Tax Deduction at Source on various investors.
The Client, i.e. Employee Provident Fund Organisation (“EPFO”) is deemed to be a recognised
Provident Fund within the meaning of that term under the Income tax Act, 1961 (“the IT Act”) as
per section 9 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and,
accordingly, any income received by the Trustees is exempt from income tax u/s 10(25) of the IT
Act.
23
However, the client would be best advised to consult his or her tax advisor/consultant for
appropriate counsel on tax treatment of the nature of income indicated herein.
Tax implications for other clients
11.1.1 Taxation
Disclose the implications of investments in securities and the tax provisions on Income/ Loss
or Tax Deduction at Source on various investors. The following are the tax provisions
applicable to Clients investing in the Portfolio Management Services under the taxation laws
as on the date herewith, as advised by our Tax Consultants.
11.1.2 Dividend
Dividends declared, distributed or paid on or after April 1, 2003 by domestic companies will
be exempt in the hands of the shareholder recipient (except where the dividend income of the
certain specified resident recipient exceeds ten lakh rupees) but a tax on distributed profits of
15 per cent (as increased by surcharge @ 12 per cent), Education Cess of 2% and Secondary
and Higher Education Cess of 1%) will be payable by the domestic company. From June 1,
2013, such tax will be computed after deducting the amount of dividend received by the
domestic company from its subsidiary where the said subsidiary has paid the tax under
section 115-O (in case of domestic subsidiary company) and under section 115BBD (in case
of a foreign subsidiary company) on such dividend.
As amended by the Finance Act, 2017, dividend will be taxable at the rate of 10 percent to the
specified assesse1, in case aggregate dividend earned during the financial year exceeding Rs
10 lakhs.
Income distributed on or after April 1, 2003 by a mutual fund specified u/s 10(23D) of the
Act will be exempt in the hands of the unitholders but a tax on distributed income will be paid
under section 115R as under:
In case of distribution by a Debt fund, money market mutual fund or a liquid fund:
25 per cent when income is distributed to any person being individual or Hindu
Undivided Family and
30 per cent when income is distributed to any other person
In case of distribution by an Infrastructure Debt Fund (“IDF”) Scheme:
25 per cent in case of distribution to an individual or Hindu Undivided Family; and
30 per cent when income is distributed to any other person other than a company.
5 per cent in case of distribution to a non-resident (not being a company) and to a
foreign company.
However, no tax on such distributed income is payable by an equity oriented mutual fund.
With effect from 1 October 2014, the rates mentioned above would need to be grossed up.
Further, the tax on such distribution will be increased by surcharge @12% and further
increased by the Education Cess @ 2% and Secondary and Higher Education Cess @ 1%.
11.2 Capital Gains Tax
1 "specified assessee" means a person other than,—
(i) a domestic company; or
(ii) a fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or
(iii) a trust or institution registered under section 12A or section 12AA.
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Profit on sale of investments, (being securities (other than a unit) listed in recognised stock
exchange in India or units of the Unit Trust of India established under the Unit Trust of India
Act, 1963 (52 of 1963) or a unit of an equity oriented fund or a zero coupon bond held for a
period of more than 12 months (36 months in case of any other investments) immediately
preceding the date of transfer, will be treated as long-term capital gains; in all other cases, it
would be treated as short-term capital gains. The taxability of long-term and short-term
capital gains is discussed below:
11.3.1 Transactions in securities on recognized stock exchange and in units of an equity
oriented fund:
Long term capital gains on sale of equity share in a company and on units of an
equity oriented fund are exempt from tax when the transactions for sale take
place on recognized stock exchanges and are subject to the Securities
Transactions Tax (“STT”) and transaction for purchase of shares is on or after 1
October 2004 and subject to STT. However, such long Term Capital Gains
arising to a company shall be taken into account in computing the book profit
and income tax payable u/s 115JB of the Act.
Short term capital gains on sale of equity share in a company and units of an
equity oriented fund are taxable @15%^ (when the transactions for purchase
and sale take place on recognized stock exchanges and are subject to the STT).
^ Plus applicable surcharge @ 7%/12% (in the case of a domestic company) and
2%/5% in the case of a foreign company, if any and education cess at 2% and
Secondary and Higher Education Cess @ 1% on tax and surcharge.
Additionally, STT is payable in respect of purchase of listed securities and units
of an equity oriented fund on recognized stock exchanges, as under:
Sr. No. Taxable securities transaction Rate (per
cent)
Payable by
1. Purchase of an equity share in a company
where
(a) the transaction of such purchase is entered
into in a recognized stock exchange; and
(b) the contract for the purchase of such share or
unit is settled by the actual delivery or transfer
of such share
0.1 Purchaser
2. Purchase of a unit of an equity oriented mutual fund,
where
(a) the transaction of such purchase is entered
into in a recognized stock exchange; and
(b) the contract for the purchase of such unit is
settled by the actual delivery or transfer of
such unit
Nil Purchaser
3.
Sale of an equity share in a company where -
(a) the transaction of such sale is entered into in
a recognized stock exchange; and
(b) the contract for the sale of such share is
settled by the actual delivery or transfer of
such share
0.1 Seller
Sale of an units of an equity oriented mutual fund
where -
a) the transaction of such sale is entered into in a
recognized stock exchange; and
b) the contract for the sale of such unit is settled by
0.001 Seller
25
Sr. No. Taxable securities transaction Rate (per
cent)
Payable by
the actual delivery or transfer of such units
Sale of an equity share in a company or a unit of
an equity oriented fund, where –
(a) the transaction of such sale is entered into in
a recognized stock exchange; and
(b) the contract for the sale of such share or unit
is settled otherwise than by the actual
delivery or transfer of such share or unit
0.025 Seller
4. (a) Sale of an option in securities 0.05 Seller
(b) Sale of an option in securities, where option is
exercised
0.125 Purchaser
(c) Sale of a futures in securities 0.01 Seller
5. Sale of a unit of an equity oriented fund to the Mutual
Fund
0.001 Seller
6. Sale of unlisted equity shares under an offer for sale
as part of an initial public offer and shares of the
company are subsequently listed on the stock
exchange
0.2 Seller
The investor would be liable to pay STT at the above rates on the value of the securities
purchased/sold on a recognized stock exchange in India. The securities, in respect of which such
tax is leviable, are: -
Equity Shares,
Derivatives;
Units of an equity oriented fund or any other instrument issued by any
collective investment scheme to the investors in such schemes;
The value of taxable securities transaction –
(a) In the case of a taxable securities transaction relating to an option in securities,
shall be –
(i) the option premium, in respect of a transaction of sale of an option in
securities
(ii) the settlement price, in respect of a transaction of sale of an option in
securities, where option is exercised.
(b) in the case of a taxable securities transaction relating to a derivative, being “
futures”, shall be the price at which such futures is traded; and
(c) in the case of any other taxable securities transaction, shall be the price at
which such securities are purchased or sold:
STT is not available as a deduction in computing capital gains. However, from the
assessment year 2009-10, where income from taxable securities transactions referred
to above is treated as business income, the person will be eligible for deduction u/s
36(1)(xv), for the amount of STT paid.
11.3.2 Transactions in other securities or transactions not on recognized stock exchanges
(a) Tax on Long Term Gain
For Domestic Companies :
Long-term Capital Gains will be chargeable under Section 112 @20 percent^
with indexation, being listed securities or units or zero coupon bond.
However, Indexation can’t be availed on debentures. Further listed securities
and can be taxed at 10% without indexation.
For Resident Individuals and HUFs
26
Long-term Capital Gains will be chargeable under Section 112 @ 20 percent^
with indexation or 10 percent ^without indexation in case of transfer of long
term capital assets, being listed securities or units or zero coupon bond.
Where the taxable income as reduced by long term capital gains is below the
maximum 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 percent^.
For NRIs and foreign companies
Long-term capital gains on transfer of unlisted securities will be taxed at the
rate of 10 percent^. However, no benefit of Cost Inflation Index is available
and the requirement of computation of gains in foreign exchange will not
apply.
However, Long Term Capital Gains (other than unlisted securities) are
taxable @ 20 percent^ with indexation
If the NRI (not being a company) or a foreign company) does not have a
Permanent Account Number, then for the purpose of TDS, the withholding
tax rate would be 20%
The tax rates are subject to DTAA benefits available to NRIs. As per the
Finance Act, 2012, submission of tax residency certificate containing
prescribed particulars, will be a necessary (though not sufficient) condition
for granting DTAA benefits to non-residents. Also in case all the prescribed
particulars are not available in tax residency certificate then Form 10F needs
to be submitted along with tax residency certificate.
^ Plus applicable surcharge @ 7%/12% (in the case of a domestic company) and
2%/5% in the case of a foreign company, if any and education Cess at 2% and
Secondary and Higher Education Cess @ 1% on tax and surcharge.
(b) Tax on Short Term Capital Gain:
Short-term capital gains are chargeable to tax as per the progressive slab rates (see
point 11.6 for tax rates). The maximum tax rate would be 30 percent (assuming
investor falls into higher tax bracket) plus surcharge, if any and education Cess at
2% and Secondary and Higher Education Cess @ 1%.
11.3.3 Capital loss can be set off against any capital gains as follows:
Long-term capital loss of a tax year, which is chargeable to tax, cannot be set off against
short-term capital gains arising in that year. On the other hand, short-term capital loss in a
year can be set off against both short-term and chargeable long-term capital gains of the same
year.
Unabsorbed short term and long-term capital loss of prior years shall be separately carried
forward. However, short-term capital loss shall be eligible for set off against the chargeable
long term capital gains while the long term capitals loss brought forward for set off shall be
eligible to be set off only against chargeable long term capital gains of the current year.
11.3 Dividend stripping
Losses arising from the sale/transfer (including redemption) of securities (including units)
purchased up to 3 months prior to the record date (for entitlement of dividends) and sold
within 9 months (in case of units) or 3 months (in case of any other securities) after such date,
27
will be disallowed to the extent of income/dividend distribution (excluding redemptions) on
such units (or other securities) claimed as tax exempt by the unitholder.
11.4 Bonus stripping
In case of units purchased within a period of 3 months prior to the record date (for entitlement
of bonus) and sold/ transferred (including redeemed) within 9 months after such date, the loss
arising on transfer of original units shall be ignored for the purpose of computing the income
chargeable to tax. The loss so ignored shall be treated as cost of acquisition of such bonus
units.
11.5 The tax rates applicable to resident individuals, Hindu Undivided Families and NRIs are as
follows:
Slab Tax Rate*:
(A) In the case of resident individuals of the age of sixty years or more but less than eighty
years at any time during the previous year:
Particulars Rates of income tax
Where the total income does not exceed
Rs. 3,00,000
Nil
Where the total income exceeds Rs.
3,00,000 but does not exceed Rs.5,00,000
5% of the amount by which the total income
exceeds Rs. 3,00,000 but does not exceed Rs.
500,000
Where the total income exceeds
Rs.5,00,000 but does not exceed Rs.
10,00,000
Rs. 10,000 plus 20% of the amount by which
the total income exceeds Rs.5,00,000 but
does not exceed Rs. 10,00,000
Where the total income exceeds Rs.
10,00,000
Rs. 110,000 plus 30% of the amount by
which the total income exceeds Rs.10,00,000
(B) In the case of every individual, being a resident in India, who is of the age of eighty
years or more at any time during the previous year:
Particulars Rates of income tax
Where the total income does not exceed
Rs.5,00,000
Nil
Where the total income exceeds
Rs.5,00,000 but does not exceed
Rs.10,00,000
20% of the amount by which the total
income exceeds Rs.5,00,000 but does not
exceed Rs. 10,00,000
Where the total income exceeds
Rs.10,00,000
Rs.100,000 plus 30% of the amount by
which the total income exceeds Rs.10,00,000
(C) In the case of other individuals other than those referred to in (A) and (B) above and
Hindu Undivided Families or Association of Persons or Body of Individuals, or every
artificial juridical person other than those referred to in (A) and (B) above:
Particulars Rates of income tax
Where the total income does not exceed
Rs. 2,50,000
Nil
Where the total income exceeds Rs.
2,50,000 but does not exceed Rs.5,00,000
5% of the amount by which the total income
exceeds Rs. 2,50,000 but does not exceed Rs.
5,00,000
Where the total income exceeds
Rs.5,00,000
but does not exceed Rs.10,00,000
Rs. 12,500 plus 20% of the amount by which
the total income exceeds Rs.5,00,000 but
does not exceed Rs. 10,00,000
Where the total income exceeds Rs. 1,12,500 plus 30% of the amount by
28
Rs.10,00,000 which the total income exceeds Rs.10,00,000
* Rebate from tax of upto INR 2,500 available for a resident individual whose net total
income is below Rs. 350,000 wef AY 2018-19.
The tax rates as mentioned above will be increased by education Cess at 2% and Secondary
and Higher Education Cess @ 1%.
# The tax rate as mentioned above in point 11.5 will be increase by a surcharge @15% if the
total income exceeds Rs. 1 crore and @10% if the total income exceeds Rs. 50 lakhs but less
than Rs. 1 crore, marginal relief is available.
11.6 Domestic Companies:
In case of Indian Companies having total turnover of less than Rs. Fifty crores in
financial year 2015-16, the tax rate applicable would be 25 percent (plus Education
Cess @ 2% and Secondary and Higher Education Cess @ 1% on the amount of tax
and Surcharge as applicable).
In the case of Indian Companies having total income of less than Rs. One Crore, the
tax rate applicable would be 30 percent (plus Education Cess @ 2% and Secondary
and Higher Education Cess @ 1% on the amount of tax).
In the case of Indian Companies having total income of more than Rs. One Crore, but
less than Ten crores, the tax rate applicable would be 30 percent (plus 7% surcharge
and Education Cess @ 2% and Secondary and Higher Education Cess @ 1% on the
amount of tax and surcharge).
In the case of Indian Companies having total income of more than Rs. Ten Crore, the
tax rate applicable would be 30 percent (plus 12% surcharge and Education Cess @
2% and Secondary and Higher Education Cess @ 1% on the amount of tax and
surcharge).
Notes:
1. The above provisions are as per the Finance Act 2017 and applicable for the financial year
beginning from April 01, 2017.
2. However, the client would be best advised to consult his or her tax advisor/consultant for
appropriate counsel on tax treatment of the nature of income indicated herein.
11.7 . Commodity Transaction Tax (‘CTT’)
CTT is would be levied on the value of taxable commodities transactions as follows:
Transaction
Rate Payable by
Sale of commodity derivative (other than agricultural
commodities) entered in a recognised association
0.1% Seller
12. Accounting policies- Disclose the accounting policy followed by the Portfolio Manager while
accounting for the portfolio investments of the clients.
12.1 Basis of Accounting
Books and Records would be separately maintained in the name of the client to
account for the assets and any additions, income, receipts and disbursements in
connection therewith, as provided by the SEBI (Portfolio Management)
Regulations, 1993, as amended from time to time. Accounting under the
respective portfolios will be done in accordance with Generally Accepted
Accounting Principles. As SEBI (Portfolio Management) Regulations, 1993, do
not explicitly lay down detailed accounting policies, such policies which are laid
down under SEBI (Mutual Fund) Regulations would be followed, in so for as
accounting and valuation for equities or equity related instruments are
concerned.
29
12.2 Maintenance of Client Account
12.2.1 In the case of investments by the Client in listed securities and in the event that
the Client is a Non-Resident Indian, as defined by SEBI from time to time and
further in instances where the Client opts for the Non-Pool Account, the
Portfolio Manager shall keep the funds of the Client in a separate designated
account to be maintained by it in a scheduled commercial bank and shall also
maintain a separate Portfolio record in the name of the Client in its books for
accounting the assets and income of the Client.
In line with SEBI circular No. IMD/DOF I/PMS/Cir- 4/2009 dated 23 June
2009, the portfolio manager keeps the funds of all clients in a separate bank
account maintained by the portfolio manager and the following conditions are
adhered to:
There are clear segregation of each client’s fund through proper and clear
maintenance of back office records;
Portfolio Managers do not use the funds of one client for another client;
Portfolio Managers also maintain an accounting system containing
separate client-wise data for their funds and provide statement to clients
for such accounts at least on monthly basis; and
Portfolio Managers reconcile the client-wise funds with the funds in the
aforesaid bank account on daily basis.
12.2.2 The Portfolio Manager also maintains a separate depository account of each
client.
12.3 Portfolio Valuation
12.3.1 Investments in Equity or Equity Related instruments and Debt
Securities listed on a recognized stock exchange are valued at the last
quoted closing price on the National Stock Exchange of India Limited
(NSE). If on a particular valuation date, a security is not traded on NSE,
the value at which it is traded on The Stock Exchange, Mumbai (BSE)
is used or any recognized stock exchange. If a particular security is not
listed on the NSE, then it is valued at the last quoted closing price on
the BSE on the valuation date or on a recognized stock exchange as the
case may be.
12.3.2 Non-traded and thinly traded equity securities, including those not
traded within thirty days prior to the valuation date are valued at fair
value as determined by HSBC Asset Management (India) Private
Limited. Non-traded and thinly traded Fixed Income Instruments,
including those not traded within seven days prior to the valuation date
will be valued at cost plus interest accrual till the beginning of the day
plus the difference between the redemption value and the cost spread
uniformly over the remaining maturity period of the instrument.
12.3.3 Equity securities awaiting listing are valued at fair value as determined
in good faith by HSBC Asset Management (India) Private Limited.
Fixed Income Instruments that are awaiting listing will be valued at
cost plus interest accrual till the beginning of the day plus the
difference between the redemption value and the cost spread uniformly
over the remaining maturity period of the instrument.
12.3.4 Equity share warrants listed on a recognised stock exchange are valued
at the last quoted closing price on NSE. If on a particular date the
30
warrant is not traded on NSE the value at which it is traded on BSE is
used. If no sale is reported at that time the last quoted closing price of
the equity shares receivable by the Portfolio when the option is
exercised less price per share payable upon exercise of the warrant and
the last dividend if any paid by the issuer of the warrants on the shares
of the issuer is used.
12.3.5 Instruments bought on ‘repo’ basis are valued at the resale price after
deduction of applicable interest up to the date of resale.
12.3.6 Investments in Mutual funds will be valued at the repurchase NAV
declared for the relevant schemes on the date of the report or the most
recent NAV will be reckoned.
12.3.7 In the Derivatives segment, the unrealized gains/losses for Futures and
Options will be calculated by marking all the open positions to market.
12.4 Securities Transaction
Investment securities transactions are accounted for on a trade date basis. The cost of
the investments acquired or purchased would include brokerage, stamp charges and
any charges customarily included in the broker’s contract note or levied by any statue
except STT(Securities Transaction Tax). Similarly, in case of Sale Transaction, the
above-mentioned charges will be deducted from the sale price. STT charged on
purchase/sale of securities during the financial year is recognized as an expense.
Realised Gains/Losses will be calculated by applying the First in/ First Out method.
12.5 Income/expenses
All investment incomes and expenses will be accounted on accrual basis. Dividend
will be accrued on the ex-date of the securities and the same will be reflected in the
clients’ books on the ex-date. Similarly, bonus shares will be accrued on the ex-date
of the securities and the same will be reflected in the clients’ books on the ex-date. In
the case of Fixed Income instruments, purchased/sold at Cum-interest rates, the
interest component upto the date of purchase /sale will be taken to interest
receivable/payable account and net of interest will be at the cost/sale for the purpose
of calculating realized gains/losses.
13. Investors services
13. Name, address and telephone number of the investor relation officer who shall attend to the
* HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund.
The nature and volume of transactions during the year and balances outstanding as year end with related parties in the ordinary course of business above are as
follows:
Particulars with Holding Company with fellow Subsidiaries with others* with Key Management
Notes to related party disclosures (to the extent of material transactions)
March 31,2016 March 31,2015
Investment management fees
HSBC Mutual Fund 500,536 395,246
Advisory fees
HSBC Global Asset Management (Hongkong) Limited 367,702 429,530
Managerial Remuneration
Puneet Chaddha 16,685 25,114
Training
HSBC Global Asset Management (Hongkong) Limited 101 110
Brokerage and incentives
HSBC Mutual Fund 1 -
The Hong Kong and Shanghai Banking Corporation Limited - India - 3,799
Support service charges
HSBC Global Asset Management Limited 14,234 30,354
HSBC Global Asset Management (Hongkong) Limited 27,007 22,979
The Hongkong and Shanghai Banking Corporation Ltd - Hongkong 8,760 8,540
HSBC Electronic Data Processing (India) Pvt Ltd 9,586 9,514
The Hong Kong and Shanghai Banking Corporation Limited, India 581 -
Rent and Utilities
The Hong Kong and Shanghai Banking Corporation Limited - India 33,290 30,505
Repairs and maintenance - Computers
HSBC Securities and Capital market Pvt ltd 4,879 5,084
HSBC Software Development Pvt Ltd 8,435 425
Scheme related expenses
HSBC Mutual Fund 7,386 32,019
Compensation
HSBC Mutual Fund - 649
Bank and Guarantee charges
The Hong Kong and Shanghai Banking Corporation Limited - India 2,033 1,119
Issue of equity shares
HSBC Securities and Capital market Pvt ltd - 89,652
Deposit for premises
The Hong Kong and Shanghai Banking Corporation Limited - India (2,940) -