HSBC PMS by Moneylife Digital

DISCLOSURE DOCUMENT (As required under Regulation 14 of SEBI (Portfolio Managers) Regulations, 1993) (i)

The Disclosure Document (hereinafter referred to as â&#x20AC;&#x2DC;the Documentâ&#x20AC;&#x2122;) 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 Principal Officer

(v)

Name Address

: :

Phone E-mail

: :

Mr Puneet Chaddha HSBC Asset Management (India) Private Limited 3rd Floor, Mercantile Bank Chamber, 16, V. N. Road, Fort, Mumbai 400 001 +91 22 6614 5000 puneetchaddha@hsbc.co.in

This Disclosure Document is dated November 2, 2011.

Portfolio Management Services HSBC Asset Management (India) Private Limited SEBI Registration No. INP000001322 0

TABLE OF CONTENTS Sr. No.

Contents

Page No.

Disclaimer

Definitions

3-4

Description

5-8

Penalties, pending litigation or proceedings, findings of inspection or investigations for which action may have been taken or initiated by any regulatory authority

9-10

Services Offered

11-15

Risk Factors

16-18

Client Representation

The Financial Performance of the Portfolio Manager

19-20

Portfolio Management Performance

21-23

Nature of Expenses

24-25

Taxation

26-31

Accounting Policies

32-33

Investor Services

1. Disclaimer 1.1. This Disclosure Document has been prepared in accordance with the SEBI (Portfolio Managers) Regulations, 1993 as amended from time to time and filed with SEBI. This Document has neither been approved nor disapproved by SEBI nor has SEBI certified the accuracy or adequacy of the contents of the Document. 2. Definitions 2.1

Act

2.2

Cash Account

2.3

Chartered Accountant

2.4

Client

2.5

Discretionary Portfolio Manager

2.6

Fund Manager

2.7

Funds

2.8

Large cap stock

2.9

Mid and Small a stock whose marked capitalization is the lower of the cap stock following: ď&#x201A;ˇ the stock having the largest market capitalization on the BSE Midcap Index ď&#x201A;ˇ the 80th stock of the BSE 200 Index

2.10 Non Discretionary Portfolio Manager 2.11 Person directly or indirectly connected 2.12 PMS Agreement 2.13 PMS Portfolios

The Securities and Exchange Board of India Act, 1992 (15 of 1992). the account in which the funds handed over by the client shall be held by the Portfolio Manager on behalf of the Client. a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) and who has obtained a certificate of practice under sub-section (1) of section 6 of that Act. any body corporate, partnership firm, individual, HUF, association of person, body of individuals, trust, statutory authority, or any other person who enters into agreement with the Portfolio Manager for the management of his portfolio. a Portfolio Manager who exercises or may, under a contract relating to portfolio management, exercises any degree of discretion as to the investments or management of the portfolio of securities or the funds of the client, as the case may be. the individual(s) appointed by the Portfolio Manager who manages, advises or directs or undertakes on behalf of the client (whether as a Discretionary Portfolio Manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be. the moneys placed by the Client with the Portfolio Manager and any accretions thereto. any stock whose market capitalisation does not fall within the definition of a Mid and Small Cap stock as defined herein.

a Portfolio Manager who manages the funds in accordance with the directions of the client. any person being an associate, subsidiary, inter connected company or a company under the same management within the meaning of section 370(1B) of the Companies Act, 1956 or in the same group. includes contract entered between the Portfolio Manager and the client for the management of funds or securities of the client. any of the investment Portfolios as mentioned herein or such Portfolios that may be introduced at any time in future by the

2.14 Portfolio 2.15 Portfolio Manager

2.16 Principal Officer 2.17 Rules 2.18 Regulations 2.19 SEBI / Board 2.20 Securities

2.21 Securities Lending Scheme

Portfolio Manager. the total holdings of securities belonging to the client. HSBC Asset Management (India) Private Limited (AMIN), who has obtained certificate of registration from SEBI to act as a Portfolio Manager under Securities and Exchange Board of India (Portfolio Managers) Rules and Regulations, 1993, vide Registration no. INP000001322. a director of the Portfolio Manager who is responsible for the activities of portfolio management and has been designated as principal officer by the Portfolio Manager. The Securities and Exchange Board of India (Portfolio Managers) Rules, 1993. The Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993, and as may be amended by SEBI from time to time. the Securities and Exchange Board of India. ‘Securities’ as per Securities Contracts (Regulation) Act, 1956 include: 

shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate



derivatives (contracts which derive their value from the prices, or index of prices, of underlying securities)



units or any other instrument issued by any collective investment scheme to the investors in such schemes



security receipts as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002



units or any other such instrument issued to the investors under any mutual fund scheme



Government securities



such other instruments as may be declared by the Central Government to be securities



rights or interests in securities.

the securities lending as per the Securities Lending Scheme, 1997 specified by the Board.

3. Description 3.1.

History, Present Business and Background of the Portfolio Manager: HSBC Asset Management (India) Private Limited (AMIN) is a private limited company incorporated under the provisions of the Companies Act, 1956 having its Registered Office at 3rd Floor, Mercantile Bank Chamber, 16, V. N. Road, Fort, Mumbai 400 001. The paid-up equity share capital of the Portfolio Manager is Rs. 9 crores. HSBC Securities and Capital Markets (India) Private Limited holds 100% of the equity capital of the Portfolio Manager. AMIN has been appointed as the Investment Manager of HSBC Mutual Fund vide Investment Management Agreement dated 7 February 2002, executed between the Trustees of HSBC Mutual Fund and AMIN. SEBI approved AMIN to act as the Investment Manager for the Schemes of HSBC Mutual Fund vide letter dated 27 May 2002. As on September 30, 2011, AMIN had assets of over Rs. 4888 crores under management under its Mutual Fund business with offices in 14 cities viz., Mumbai, New Delhi, Chennai, Kolkata, Bangalore, Ahmedabad, Hyderabad, Pune, Indore, Coimbatore, Kochi, Lucknow, Chandigarh and Baroda. As on September 30, 2011 AMIN had assets of approximately Rs 338 crores under management in its PMS business. AMIN has renewed its Certificate of Registration as Portfolio Manager from SEBI on September 6, 2011 for Registration No. INP000001322. The Registration is valid for a period of 3 years i.e. from September 16, 2011 till September 15, 2014. Promoters of the Portfolio Manager, directors and their background 3.1.1.

Promoter

“HSBC Securities and Capital Markets (India) Private Limited (HSCI)” HSCI is a member of the HSBC Group, one of the largest banking and financial services organisations, in the world. Headquartered in London, HSBC operates through longestablished businesses in five regions: Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. Through its global network of some 10,000 offices in 82 countries and territories, HSBC provides a comprehensive range of financial services to more than 125 million customers: personal, commercial, corporate, institutional and investment and private banking clients. HSCI offers integrated investment banking services, securities and corporate finance & advisory. HSCI is a member of The Bombay Stock Exchange Limited and National Stock Exchange (capital and derivative market segments) and is also a category I Merchant Banker and underwriter registered with Securities and Exchange Board of India. Equities: HSCI is primarily an institutional stockbroker, with a client base spanning foreign institutional investors, Indian financial institutions, mutual funds and select retail clients. The business is backed by comprehensive research covering around 62 of India’s largest, actively traded securities across 13 industry groups. Global Investment Banking: HSCI provides public and private sector corporates and government clients with strategic and financial advice in the areas of mergers and acquisitions, primary and secondary market funding, privatisations, structured financial solutions and project export finance.

HSCI holds 100% of the paid up equity share capital of the AMIN. 3.1.2.

Board of Directors (i) Naina Lal Kidwai 52/60 M G Road, Fort, Mumbai 400001 Group General Manger & Country Head,, India The Hongkong & Shanghai Banking Corporation 5

Recipient of several awards for Business in India, Ms. Kidwai has been awarded the Padma Shri by the Government of India for her contribution to trade and industry. An MBA from Harvard Business School, Ms. Kidwai is the Group General Manager and Country Head of the HSBC group of companies in India which comprises Banking services, Insurance broking, Asset Management, Securities broking, Software development and the Global service centres. Prior to joining HSBC, she was the Vice Chairman and Head of the Investment Bank of J M Morgan Stanley in India and the Morgan Stanley representative on the Board of Directors. Before her stint with JM Morgan Stanley, she was the head of ANZ Grindlays, Investment Bank. (ii)

Glenn Berry 35H Manhattan Heights, 28 New Praya, Kennedy Town, Hong Kong Chief Operating Officer, Asia Pacific HSBC Global Asset Management (Hong Kong) Limited Glenn Berry is the Chief Operating Officer for HSBC Global Asset Management (AMG) in Asia and is responsible for all the operations and risk management efforts for all the AMG enitities in Asia. In addition, he is also responsible for managing the IT service across the region and generally responsible for all the operating activities within the region. Prior to joining HSBC in 2011, Glenn worked as a strategic program manager at iShares within Blackrock responsible for the transition of all the iShares Europe.assets from the incumbent administrator and custodian to a new provider. He also functioned as the President of BGI Trust and Banking in Japan. He holds a BA (Hons) from Lincoln College, the University of Oxford and has been working in the industry since 1986.

(iii) Sayed P Mustafa Sobha Ivory Apartments, Flat 251, 5th floor 7/1, St. Johnâ&#x20AC;&#x2122;s Road, Bangalore 560 042 Executive Ex Vice President Treasury, M&A and Investor Relations, Hindustan Unilever Limited Mr Mustafa holds a bachelors degree from St Stephens College, University of Delhi and is a Chartered Accountant and a Fellow of the Institute of Chartered Accountants of England and Wales. He has worked in the UK for a number of years and was a Partner in a Chartered Accountants firm in London prior to his joining Unilever. At Unilever, he had held several senior management and leadership positions over a number of years and his responsibilities covered strategic financial restructuring, mergers and acquisitions, development of external communication strategy, management of the supply chain, business performance, commercial controls and Financial & Management Accounting.

(iv)

Ashok Kumar Jha E 1/20, Ground Floor, Vasant Vihar New Delhi- 110057 Mr. Jha was a member of the premier Civil Service in India, the Indian Administrative Services (IAS) for 38 years. He has worked in all the major Economic Ministries/Departments in the Government of India, i.e. Ministries of Commerce, Department of Industrial Policy, Ministry of Finance, as well as in the Foreign Office. He functioned as Secretary to the Government of India in the Department of Economic Affairs, Ministry of Finance and Finance Secretary, Ministry of Finance, Government of India. Prior to this, he was Secretary to the Government of India in the Department of Industrial Policy & Promotion. Post his retirement from Government in May 2007, he was with Hyundai Motor India Limited as President till July 2009 where his role was to oversee all activities including production, sales & marketing and finance. Mr Jha has a Masters degree in Economics from Delhi School of Economics, Masters Degree in Development Economics from Australian National University, Canberra and is a Visiting Fellow, Oxford University, U.K.

(v)

Kishori J Udeshi 15, Sumit Apartment, 31 Carmichael Road, Mumbai 400026 Executive Ex-Deputy Governor, Reserve Bank of India Ms Kishori Udeshi has an M.A. Degree in Economics from Bombay University. She moved on to a professional career in central banking and became the first woman to be appointed as Deputy Governor of the Reserve Bank of India. As Deputy Governor of RBI, she was on the Board of SEBI, NABARD, Exim Bank and was the Chairman of Bharatiya Reserve Bank Note Mudran (Pvt) Ltd., Bangalore. She was also the Chairman of Deposit Insurance and Credit Guarantee Corporation. Ms Udeshi is currently Chairman of The Banking Codes and Standards Board of India, set up by the RBI to evaluate, oversee and enforce the observance of the two Banking Codes.

(vi)

Puneet Chaddha 314 D N Road, Fort, Mumbai - 400 001 Chief Executive Officer HSBC Asset Management (India) Private Limited Puneet Chaddha has around 21 years of experience in banking and financial services. Prior to joining HSBC Asset Management (India) Private Limited as CEO, he was heading commercial banking division of the HSBC bank from 2007. Puneet Chaddha had joined HSBC from ANZ Grindlays Bank 17 years ago as Relationship Manager of Securities Services He also had his stint with other functions viz:- Corporate banking, Cards and Retail assets division. He is a B E in Electronics and Communication from BITS and also holds Master of Management Studies from Bombay University.

3.2. Top 10 Group companies/firms of the Portfolio Manager in India on turnover basis a) b) c) d) e) f) g) h) i) j)

The Hongkong and Shanghai Banking Corporation Limited, India HSBC Securities and Capital Markets (India) Private Limited HSBC Pragati Finance (India) Private Limited (formerly know as HSBC Primary Dealership (India) Private Ltd) HSBC Software Development (India) Private Limited HSBC Professional Services (India) Private Limited HSBC Electronic Data Processing India Private Limited HSBC Operations and Processing Enterprise (India) Private Limited HSBC Private Equity Advisors (India) Private Limited HSBC Agency (India) Private Limited HSBC Financial Holdings (India) Private Limited

(The above are the Group companies in India based on turnover, however they are not listed as per turnover) 3.3. Details of the services being offered: Discretionary/ Non discretionary/ Advisory. The Portfolio Manager offers Discretionary, Non â&#x20AC;&#x201C; discretionary and Advisory services as per individual client agreement.

4. Penalties, pending litigation or proceedings, findings of inspection or investigations for which action may have been taken or initiated by any regulatory authority. 4.1. All cases of penalties imposed by the SEBI or directions issued by SEBI under the Act or Rules or Regulations made thereunder. The nature of the penalty/direction. Penalties imposed for any economic offence and/ or for violation of any securities laws. No penalties have been imposed on the Portfolio Manager by SEBI and no directions have been issued by SEBI under the Act or Rules or Regulations made thereunder. There are no penalties imposed on the Portfolio Manager for any economic offence and / or for violation of any securities laws. 12

4.2. Any pending material litigation / legal proceedings against the Portfolio Manager / key personnel with separate disclosure regarding pending criminal cases, if any. There are no pending material litigation / legal proceedings or criminal cases against the Portfolio Manager / key personnel. 13

4.3. Any deficiency in the systems and operations of the Portfolio Manager observed by SEBI or any regulatory agency. There has been no deficiency in the systems and operations of the Portfolio Manager observed by SEBI or any regulatory agency. 14

4.4. Any enquiry/ adjudication proceedings initiated by SEBI 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. a) SEBI issued an Order dated 23 April 2010 regarding the change in modified duration made in HSBC Gilt Fund in January 2009 and warned the Board of Trustees of HSBC Mutual Fund, HSBC Mutual Fund, HSBC Asset Management (India) Private Limited (AMC) and its CEO that they should strictly comply with the law governing the conduct and business of mutual fund in securities market. Upon an appeal filed an aggrieved investor against the said Order, Securities Appellate Tribunal (SAT) issued an Order dated May 03, 2011 to the Mutual Fund, Trustees of the Mutual Fund, AMC and CEO of the AMC (Respondents) pertaining to the change effected in HSBC Gilt Fund. SAT held that the changes brought about in the scheme altered the fundamental attributes of the same affecting the interest of unitholders. SAT therefore directed the Respondents to comply with regulation 18(15A) of the SEBI Regulations and provide an exit option to the appellants of the case. The AMC has filed an appeal against the SAT Order with the Supreme Court and the same is pending before the Court. b) HSBC Securities and Capital Markets (India) Private Limited (HSCI), the promoter of the Portfolio Manager was acting as a merchant banker under the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 1997 for an open offer made by Global Green Company Limited for the shares of Saptarishi Agro Industries Limited in the year 2000. Some of the shares of the target company were not listed at the time of the open offer but were stated as listed in the letter of offer. An enquiry is in progress under SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations 2002 for alleged contravention of SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 1997 and SEBI (Merchant Bankers) Regulations, 1992. HSCI has submitted that there has been no failure on the part of HSCI to comply with its obligations as a merchant banker. Subsequent to the enquiry officer's recommendation of a minor penalty i.e. HSCI be censured, a show cause notice has been issued by SEBI requiring HSCI to show cause as to why the said penalty should not be imposed. HSCI has reiterated its earlier stand and submitted that there has been no failure on the part of HSCI to comply with its obligations as a merchant banker. HSCI had sought a personal hearing before the Whole Time Member, SEBI; submissions were made by HSCIâ&#x20AC;&#x2122;s counsel at the hearing held on 5

September 2006. Subsequent to the hearing, an order dated 7 March 2007 was passed by SEBI imposing a minor penalty of censure on HSCI. Thereafter, HSCI appealed against the said order before the Securities Appellate Tribunal, Mumbai on 23 April 2007 which was admitted by the Securities Appellate Tribunal and the next date of hearing was scheduled for 11 December 2007. The Securities Appellate Tribunal heard the arguments of both Parties on the 11 and 12 December 2007 respectively and has further sought written arguments from both parties, which have been submitted to the Securities Appellate Tribunal on 14 December 2007. Subsequent to the hearing held before SAT and submission of written arguments, an order dated 20 February 2008 was passed by SAT upholding SEBIâ&#x20AC;&#x2122;s minor penalty of censure on HSCI. c) HSCI was acting as a merchant banker under the SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations, 1997 for an open offer made by indiaSTAR (Mauritius) Limited for the shares of Garware Offshore Services Limited in the year 2008. SEBI had initiated an enquiry against HSCI and thereby issued a Show Cause Notice dated 30 July 2008 calling upon the Sponsor to show cause as to why further action should not be taken against it for the violations alleged to have been committed by the Sponsor under Regulations 25 and 38 of the SEBI (Intermediaries) Regulations, 2008. HSCI had filed a detailed response in this regard on 10 September 2008 and had sought a personal hearing in the matter. Accordingly, submissions were made by HSCI at the hearing held on 6 October 2008. Pursuant to the said hearing, SEBI had vide its letter dated 4 March 2009, informed HSCI of the enquiry officerâ&#x20AC;&#x2122;s recommendation i.e. the matter is not a fit case to levy any penalty. Thereafter, vide a letter dated 08 September 2009, SEBI informed HSCI that the enquiry proceedings initiated against HSCI pursuant to the show cause notice dated 30 July 2008 have been closed by SEBI. Other than as disclosed above, there are no enquiry/ adjudication proceedings initiated by SEBI 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 employees, under the Act or Rules or Regulations made thereunder. The above information has been disclosed in good faith as per the information available to the Portfolio Manager.

5. Services Offered The Portfolio Manager offers the following three types of services: 5.1. Discretionary – the portfolio account of the client is managed at the full discretion and liberty of the Portfolio Manager. 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 backoffice responsibility for trade execution, custody or accounting functions. 5.4. The present investment objectives and policies including the types of securities in which it generally invests shall be clearly and concisely stated in the document for easy understanding of the potential investor. Investment Objective The investment objective is to seek capital appreciation over the long term. The endeavour is wealth creation through long term compounding. PMS Portfolios: i.

HSBC Alpha Account Signature Portfolio – This portfolio focuses on companies that offer sustainable long-term business growth and are available at a reasonable discount to their intrinsic value. The portfolio attempts to invest in diversified stocks across capitalisation, sectors and industries. The Portfolio attempts to deliver reasonable returns by following investment approach to generate and consistent performance from a well-diversified portfolio. The Portfolio Manager follows bottom-up, research-based investment style. The portfolio attempts to optimise returns through power of compounding. The Portfolio Manager exercises risk control through price-value mismatch i.e. investing in companies that are traded at a significant discount to their intrinsic value and thereby offering margin of safety. The portfolio focuses on companies with sustained growth prospects in business and potential of higher RoEs (Return on equity) or superior cash flows. Benchmark Indices : BSE 500 The Portfolio Manager may invest in derivatives or any other instrument as may be permitted by SEBI / RBI / such other Regulatory Authority from time to time including Units of Schemes of Mutual Funds and as may be decided by the Portfolio Manager. The Portfolio Manager may also participate in the Securities Lending Scheme.

ii.

HSBC Alpha Account Strategic Portfolio – The portfolio seeks to invest in equities and equity related instruments with focus on companies that are misappraized or temporarily impaired resulting in price-value mismatch. The Portfolio aims to deliver reasonable returns over the long-term. The investment is essentially made in listed entities. Private equity investment proposals (unlisted companies) may be considered, considering their attractive fundamentals and possibility of unlocking significant gains in future on listing.

Benchmark Index : BSE Midcap The Portfolio Manager may invest in derivatives or any other instrument as may be permitted by SEBI / RBI / such other Regulatory Authority from time to time including Units of Schemes of Mutual Funds and as may be decided by the Portfolio Manager. The Portfolio Manager may also participate in the Securities Lending Scheme. iii.

HSBC Large Cap Oriented Portfolio-This portfolio seeks to generate long term capital growth from an actively managed portfolio primarily comprising companies registered in and/or listed on a regulated market of India. The Portfolio will invest with a preference for large cap companies with at least 70% of the assets to be invested in large cap stocks. Exposure to Mid and Small cap stocks shall not exceed 30% of the total portfolio. Benchmark Index : S & P CNX Nifty The Portfolio Manager may invest in derivatives or any other instrument as may be permitted by SEBI / RBI / such other Regulatory Authority from time to time including Units of Schemes of Mutual Funds and as may be decided by the Portfolio Manager. The Portfolio Manager may also participate in the Securities Lending Scheme.

iv.

HSBC Select Portfolio - Powering the Core Sector: Under this Portfolio, the Portfolio Manager may launch different thematic portfolios from time to time. The HSBC Select Portfolio– Powering the Core Sector is an actively managed equity oriented offering from the Portfolio Manager. HSBC Select Portfolio – Powering the Core Sector aims to capture the core of India’s economic growth by investing in companies that, in the opinion of the Portfolio Manager, are likely to benefit from the potentially large spends on India’s infrastructure. The Portfolio Manager would seek to identify stocks within core sectors with a primary focus on companies involved in ancillary activities surrounding core sectors. Though, the portfolio’s primary focus would be that of the ancillary companies to the core sectors, the portfolio would have the flexibility to take exposure to companies in the core sectors like real estate or power generation. This Portfolio was launched as a close ended product initially. This portfolio is now being made open ended and will have specified transaction period at such intervals and of such period as may be decided by the Portfolio Manager at its sole discretion. During the specified transaction period, an investor can make fresh investments in to the portfolio. Redemptions shall be allowed on all business days including the specified transaction period subject to payment of applicable exit load. Benchmark Index: BSE 500 The Portfolio Manager may invest in derivatives or any other instrument as may be permitted by SEBI / RBI / such other Regulatory Authority from time to time including Units of Schemes of Mutual Funds and as may be decided by the Portfolio Manager. The Portfolio Manager may also participate in the Securities Lending Scheme. Notes to Points (i) to (iv) : The portfolio of each client may differ from that of the other client in the given portfolios, at the Portfolio Manager’s discretion. The funds remaining to be invested in any of the above portfolios at any given point of time may be deployed by the Portfolio Manager in any other short-term investments. The performance of the Portfolios may not be strictly comparable with the performance of the Indices, due to the inherent differences in the construction of the portfolios. The Portfolio Manager may from time to time, review the benchmark selection process and

make suitable changes as to use of the benchmark, or related to composition of the benchmark, whenever it deems necessary. v.

Management of Provident Fund (under Central Board of Trustees, EPFO) This Portfolio shall invest in debt securities in accordance with the investment pattern stipulated by the Ministry of Labour, Government of India and the guidelines issued by the Central Board of Trustees, Employees’ Provident Fund Organisation (CBT, EPF). 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 and the guidelines issued by the CBT, EPF. The investment pattern will be as set out below or as may be amended from time to time: (Pattern of investment is as per as per notification No.G-27031/3/99-SS-II issued by the Ministry of Labour, Government of India on July 9th, 2003 ) 1. Investment Pattern: S. Securities No. (i) Central Government securities as defined in Sec 2 of the Public Debt Act, 1944 (18 of 1944); and/or units of such mutual funds which have been set up as dedicated funds for investment in Government Securities and which have been approvedby the Securities and Exchange Board of India; (ii) (a) Government securities as defined in Sec 2 of the Public Debt Act, 1944 (18 of 1944); created and issued by any State Government; and/or units of such mutual funds which have been set up as dedicated funds for investment in Government Securities and which have been approved by the Securities and Exchange Board of India; and/or (b) Any other negotiable securities the principal whereof and interest whereon is fully and unconditionally guaranteed by the Central Government or any State Government except those covered under (iii)(a) below (iii) (a) Bonds/securities of “Public Financial Institutions” as specified under Section 4(1) of the Companies Act; “public sector companies” as defined in Section 2(36-A) of the Income Tax Act, 1961 including public sector banks; and/or (b) Short duration (less than a year) Term Deposit Receipt (TDR) issued by public sector banks. (iv) To be invested in any of the above three categories as decided by the Trustees. (v) The Trustees subject to their assessment of the risk-return prospects, may invest upto 1/3rd of (iv) above, in private sector bonds / securities which have an investment grade rating from at least two credit rating agencies.

% to be Invested 25%

15%

30%

a. Any money received on the maturity of earlier investments reduced by obligatory outgoing shall be invested in accordance with the investment pattern mentioned above. b. In case of any instruments mentioned above being rated and their rating falling below investment grade and the same rating has been confirmed by two credit rating agencies then the option of exit can be exercised.

c. The investment pattern as envisaged in the above paragraphs may be achieved by the end of a financial year. The existing investment pattern as above is subject to change based on the notifications issued by the Government of India from time to time. The investment shall be made by the Portfolio Manager through a Stock Exchange, or directly with other counterparties in respect of Government Securities and other debt instruments at the best possible rate available on the day of transactions. 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.

5.6

Types of Securities in which the funds are generally invested: (a)

Equity and Equity related securities,

(b)

Units, Magnums and other instruments of Mutual Funds;

(c)

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; and Derivatives. The Portfolio Manager may use derivative instruments like Stock Index Futures, Futures on Individual Stocks, Options on Stock Indices and Options on individual stocks, Interest rate swaps, Forward Rate Agreements or such other derivative instruments as may be introduced from time to time, as permitted by SEBI. However, in respect of investments in derivatives, the Portfolio Manager shall not leverage the Portfolio;

(f)

Tradable or any other warrants;

(g)

The Portfolio Manager may invest in private equity investment proposals (unlisted companies) considering their attractive fundamentals and possibility of unlocking significant gains in future on listing, subject to applicable regulations;

(h)

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;

(i)

Any other eligible mode of investment within the meaning of the Regulations issued by SEBI and amended thereto from time to time.

6. Risk factors General Risk Factors applicable to all Portfolios 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.

The investments made by the Portfolio Manager are subject to risks arising from the investment objective, investment strategy and asset allocation.

6.4.

The investments made by the Portfolio Manager are subject to risks arising out of nondiversification etc.

6.5.

Securities investments 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 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.

6.6.

Investment decisions made by the Portfolio Manager may not always be profitable.

6.7.

The tax benefits described in this Disclosure Document are as available under the present taxation laws and are available subject to conditions. The information given is included for general purpose only and is based on advice received by the Portfolio Manager regarding the law and practice in force in India and the investors should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the 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.

6.8.

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.

6.9.

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 nonperformance of a third party, companyâ&#x20AC;&#x2122;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 risk of total loss of value of an Asset, possibilities of recovery of loss in investments only through legal process.

6.10.

The investments made are subject to external risks such as War, natural calamities, policy changes of Local / International Markets which affects stock markets.

6.11.

Any policy change / technology change / obsolescence of technology would affect the investments made in a particular industry.

6.12.

The Client has perused and understood the disclosures made by the Portfolio Manager in the Disclosure Document before entering into this Agreement.

6.13.

The Portfolio Manager is neither responsible nor liable for any losses resulting from the operations of the Portfolios.

6.14.

Clients are not being offered any guarantee / assured returns.

6.15.

Performance of the Portfolios may be impacted as a result of specific investment restrictions provided by the client.

6.16

Risk Factors specific to HSBC Select Portfolio â&#x20AC;&#x201C; Powering the Core Sector (a)

All the general risk factors applicable to the Portfolios of the Portfolio Manager are applicable to the Portfolio.

(b)

The Portfolio Level shall be affected by interest rates and the performance of the underlying stocks.

(c)

The Client may suffer loss of opportunity for gain under the Portfolio , on account of or arising out of such circumstance / change in market conditions or for any other reason which may specifically affect the particular core sector or security, including but not limited to disruption / prohibition / discontinuation / suspension of trading in a particular security including any index or scrip specific futures / options or due to an act of any company, market intermediary, SEBI or any other regulatory authority, which may result in trading in such security(ies) being completely or partially affected.

(d)

By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated.

(e)

The recipient(s) of this material alone shall be fully responsible/are liable for any decision taken on the basis of this material. All recipients of this material should before dealing and/or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this may not be suitable for all investors. Any person subscribing to or investing in any product/financial instruments should do so on the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting

capital/debt markets. Please note that past performance of the financial products, instruments and the portfolio does not necessarily indicate the future prospects and performance thereof. Such past performance may or may not be sustained in future. Portfolio Managerâ&#x20AC;&#x2122;s investment decisions may not be always profitable, as actual market movements may be at variance with anticipated trends.

6.17

(f)

Investing in securities including equities and derivatives involves certain risks and considerations associated generally with making investments in securities. The Portfolio Level may be affected generally by factors affecting financial markets, such as price and volume, volatility in interest rates, currency exchange rates, changes in regulatory and administrative policies of the Government or any other appropriate authority (including tax laws) or other political and economic developments. The Portfolio Level may fluctuate and can go up or down. The Client is advised to carefully review the Disclosure Document, Client Agreement and other related documents carefully and in entirety and consult their legal, tax and financial advisors to determine possible legal, tax and financial or any other consequences of investing under the Portfolio, before making an investment decision. Trading volumes, settlement periods and transfer procedures may restrict the liquidity of these investments. Different segments of the Indian financial markets have different settlement periods and such periods may be extended significantly by unforeseen circumstances. The inability of the Portfolio Manager to make intended securities purchases due to settlement problems could cause the Portfolio to miss certain investment opportunities. By the same rationale, the inability to sell securities held in the Portfolio due to the absence of a well developed and liquid secondary market for debt securities would result, at times may result in losses to the Portfolio Level.

(g)

The Portfolio Manager has not authorized any person to give any information or make any representations, either oral or written, which are not stated in the Client Agreement or the Disclosure Document. The Client is accordingly advised not to rely upon any information or representations not incorporated in the Client Agreement or the Disclosure Document. Participation in the Portfolio, by any person, on the basis of statements or representations which are not contained in the Client Agreement, the Disclosure Document or which are inconsistent with the information contained therein shall be solely at the risk of such person.

(h)

The Client is urged not to rely upon or be misled by any oral promises or statements made by any party associated with the Portfolio Manager and it is brought to the special attention of investors that the Portfolio Manager will not be liable for any misstatement or communication by any such party which are not previously expressly authorized / approved by the Portfolio Manager. The Portfolio Manager shall not be responsible for any claims made by the Client based on such oral promises made by any such party.

(i)

The distribution of this product and document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions.

Risk factors specific to Management of Provident Fund (under Central Board of Trustees, EPFO) a. 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.

b. 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. 7. Client Representation 7.1. Category of clients

No. of clients

Funds managed (Rs. cr)

Discretionary/ Non Discretionary (if available)

Associates / Group companies As at 31 March 2009

Nil

As at 31 March 2010

NIL

As at 31 March 2011

NIL

As at 31 March 2009

2065 **

15150.19 **

Discretionary

As at 31 March 2010

1974 **

30429.49**

Discretionary

As at 31 March 2011

1449**

46644.26**

Discretionary

Others

* **

Includes advisory clients 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. 6

Please refer Annexure I

8. The Financial Performance of the Portfolio Manager (based on audited financial statements) (INR â&#x20AC;&#x2DC;000) Balance Sheet As on 31 March As on 31 March As on 31 March 2011 2010 2009 SOURCES OF FUNDS Shareholders' funds Share capital

90,000

554,548

636,569

532,734

5,305

983

704

Unsecured Loans

565

Deferred Tax Liability

515

650,933

727,552

623,438

119,727

93,283

104,628

Less: Accumulated Depreciation

92,860

78,609

88,005

Net block

26,867

14,674

16,623

316,200

471,749

303,458

2,569

7,292

5,752

9,482

83,151

154,652

121,177

396,722

317,293

338,462

487,165

477,697

469,121

166,636

228,401

155,012

12,663

10,736

10,752

179,299

239,137

165,764

Net current assets/(liabilities)

307,866

238,560

303,357

TOTAL

650,933

727,552

623,438

Reserves & Surplus Loan Funds Secured Loans Lease liability

TOTAL APPLICATION OF FUNDS Fixed assets Gross block

Investments Deferred tax asset Current assets, loans & advances Cash and bank balances Sundry debtors Loans and advances Current liabilities and provisions Current liabilities Provisions

Profit & Loss Statement

Year ended 31 March 2011

Year ended 31 March 2010

Year ended 31 March 2009

Total Income Total Expenses

684,493 742,163

821,232 686,674

729,410 847,126

Profit/(loss) before depreciation & tax Depreciation

(57,670) 21,267

134,558 17,491

(117,716) 16,475

Profit/(loss) before tax Provision for tax (net of deferred tax) Fringe benefit tax

(78,937) (3,084) -

117,067 (13,192) ( 39)

(134,191) (29,932) (5,465)

Net Profit/(loss) after tax

(82,021)

103,835

(169,588)

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.

Period

Portfolios Benchmarks

Returns % 01/04/2010 31/03/2011

01/04/2009 31/03/2010

01/04/2008 31/03/2009

HSBC Alpha Account Signature Portfolio Sensex BSE Midcap Nifty BSE500

-4.63% 7.48%

95.78% 96.38%

-40.41% -37.62% -53.79% -36.19% -

HSBC Alpha Account Strategic Portfolio Sensex BSE Midcap Nifty BSE500

-4.01% 0.99% -

162.77% 130.23% -

-53.21% -37.62% -53.79% -36.19% -

HSBC Capital Protection Oriented Portfolio (Maturity Date 11-03-2010) Sensex BSE Midcap Nifty BSE500

10.40% 73.76% -

-1.08% -36.19% -

HSBC Large Cap Oriented Portfolio Sensex BSE Midcap Nifty BSE500

-0.74% 11.14% -

73.69% 73.76% -

-35.73% -37.62% -53.79% -36.19% -

HSBC Capital Guard (Since Performance reporting date) Sensex BSE Midcap Nifty BSE500

9.53% 10.94% -

8.98% 80.54% -

-12.76% -37.62% -36.19% -

Portfolios Benchmarks

Period HSBC Select 1 Portfolio (Since Performance reporting date) Sensex BSE Midcap Nifty BSE500

Returns % 01/04/2010 31/03/2011

9.27% 7.48%

01/04/2009 31/03/2010

182.92% 96.38%

01/04/2008 31/03/2009

-62.84% -48.91%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 1 (Date of Maturity - 06-11-2009) Nifty

-8.81% -36.19%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 2 (Date of Maturity - 01-04-2010) Nifty

12.10% 73.76%

2.61% -36.19%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 3 (Date of Maturity - 28-06-2010) Nifty

11.75% 73.76%

-5.30% -36.19%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 4 (Date of Maturity – 20-12-2010) Nifty

16.57% 73.76%

-10.98% -36.19%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 5 (Date of Maturity – 20-12-2010) Nifty

20.45% 73.76%

-14.06% -36.19%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 6 (Date of Maturity - 25-10-2010) Nifty

62.94% 73.76%

-23.25% -27.37%

Portfolios

HSBC Equity Linked Portfolio (ELN) Series - 7 (Date of Maturity

-1.44%

Period - 23-10-2009)

Returns % 01/04/2010 31/03/2011

01/04/2009 31/03/2010

01/04/2008 31/03/2009

Benchmarks

Nifty

-27.37%

Portfolios Benchmarks

HSBC Equity Linked Portfolio (ELN) Series - 8 (Date of Maturity â&#x20AC;&#x201C; 04-11-2010) Nifty

36.55% 73.76%

-9.81% -31.55%

Notes: a) The returns shown above are post expenses.

b) There had been change in Benchmark Indices for HSBC Alpha Account Signature Portfolio, effective 1 December 2009 and change in the benchmark of HSBC Alpha Account Strategic Portfolio and HSBC Large Cap Oriented Portfolio effective 1 June 2009. 10

c) The performance of the Portfolio Manager is calculated using weighted average method taking each individual category of investments 11

d) The returns for ELN (i.e. structured products) which are matured during the relevant period have not been shown.

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. 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. 10.1.2 Depository / Custodian fee : Charges relating to custody and transfer of shares, bonds and units, opening and operation of demat account, dematerialisation and rematerialisation, and / or any other charges in respect of the investment etc. 10.1.3 Registration and transfer agents' fees : 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: The brokerage and other charges like stamp duty, transaction cost and statutory levies such as service tax, securities transaction tax, turnover fees and such other levies as may be imposed upon from time to time. 10.1.5 Fees and charges in respect of investment in mutual funds: Mutual Funds including 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: The charges payable to outsourced professional services like accounting, taxation and any legal services, etc. 10.1.7 Securities lending and borrowing charges: 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. 10.1.8 Any other incidental and ancillary charges: 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) on the fees that the client pays to the Portfolio Manager, if he / she fall under the following two categories:

a) Individual / HUFs -specified in section 194J i.e. having gross turnover from business exceeding Rs. 60 lakhs or receipt from profession exceeding Rs 15 lakh; b) Corporates- This implies, the client (as mentioned in point 1 and 2 above) while making payment of the fees would deduct tax at source. However, as per the Agreement with the client, the Portfolio Manager acts as â&#x20AC;&#x2DC;an agent as well as a trusteeâ&#x20AC;&#x2122; 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 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.

11.1

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.

11.2

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 but a tax on distributed profits of 15 percent (as increased by surcharge @ 5 per cent) will be payable by the domestic company. 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 as under: In case of distribution by a money market mutual fund or a liquid fund:  25 per cent (plus surcharge @5 per cent) when income is distributed to any person being individual or Hindu Undivided Family; and  30% (plus surcharge @ 5 per cent) when income is distributed to any other person In case of distribution by a fund other than a money market mutual fund or a liquid fund:  12.5 per cent (plus surcharge @ 5 per cent) in case of distribution to an individual or Hindu Undivided Family; and  30 per cent (plus surcharge @5 per cent) in any other case. However, no tax on such distributed income is payable by an equity oriented mutual fund. Further, the tax and surcharge on distribution as stated above will be increased by the Education Cess of 2% and Secondary and Higher Education Cess of 1%.



11.3

Capital Gains Tax Profit on sale of investments, (being shares in a company or any other securities listed on a 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 units of a Mutual Fund specified under Section 10(23D)) 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 longterm 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 listed securities 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”). 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. 26



Short term capital gains on sale of listed securities and units of an equity oriented fund are taxable @15% (plus surcharge @ 5 percent , Education Cess of 2% and Secondary and Higher Education Cess of 1%) when the transactions for sale take place on recognized stock exchanges and are subject to the STT. Additionally, STT is payable in respect of purchase of listed securities and units of an equity oriented fund on recognized stock exchanges, as follows.

Sr. No.

Taxable securities transaction

Purchase of an equity share in a company or a unit of an equity oriented 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 share or unit is settled by the actual delivery or transfer of such share or unit 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 by the actual delivery or transfer of such share or unit 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 (a) Sale of an option in securities (b) Sale of an option in securities, where option is exercised (c) Sale of a futures in securities Sale of a unit of an equity oriented fund to the Mutual Fund

Rate (per cent) 0.125

Payable by 3

Purchaser

0.125

Seller

0.025

Seller

0.017 0.125

Seller Purchaser

0.017 0.25

Seller Seller

The above-mentioned rates of STT are applicable on the transactions undertaken on or after 1 June 2006. The investor would be liable to pay STT at the above rates on the value of the securities purchased on a recognized stock exchange in India. The securities, in respect of which such tax is leviable, include:  Shares, bonds, debentures, etc or other marketable securities of a like nature in or of any incorporated company or other body corporate;  Derivatives;  Units or any other instrument issued by any collective investment scheme to the investors in such schemes; 27

 

  

Units or any other such instrument issued to the investors under any mutual fund scheme; Any certificate or instrument(by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable , including mortgage debt, assigned to such entity , and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be Security receipts defined under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Government Securities; and Other notified instruments.

The value of taxable securities transaction – (a)

(b) (c)

In the case of a taxable securities transaction relating to an option in securities, shall be – (i) the option premium, in respect of transaction of sale of an option in securities (ii) the settlement price, in respect of transaction of sale of an option in securities, where option is exercised. in case of a taxable securities transaction relating to a derivative, being “ futures”, shall be the price at which such futures is traded; and 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 Indian Companies : Long-term Capital Gains will be chargeable under Section 112 of the Income-tax Act, 1961, at the rate of 20 percent (plus surcharge @ 5 per cent, Education Cess @ 2% and Secondary and Higher Education Cess @ 1% - see note) with indexation or 10 percent without indexation (plus surcharge @ 5 per cent, Education Cess @ 2% and Secondary and Higher Education Cess @ 1%- see note).  For Resident Individuals and HUFs Long-term Capital Gains will be chargeable under Section 112 of the Income-tax Act, 1961, at the rate of 20 percent (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1%- see note) with indexation or 10 percent without indexation (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1% - see note). Where the taxable income as reduced by long term capital gains is below the exemption limit, the long term capital gains will be reduced to the 28

extent of the shortfall and only the balance long term capital gains will be charged at the flat rate of 20 percent (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1% -see note).  For any other Resident: Long-term Capital Gains will be chargeable under Section 112 of the Income-tax Act, 1961, at the rate of 20 percent (plus Education Cess @ 2% and Secondary and Higher Education Cess@ 1% - see note) with indexation or 10 percent without indexation (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1% - see note).  For foreign companies: Long Term Capital Gains will be subjected to the income tax at the rate of 20% (plus surcharge @ 2%, Education Cess @ 2% and Secondary and Higher Education Cess @ 1%, see note). However, no benefit of Cost Inflation Index is available.  For non residents other than foreign companies: Long Term Capital Gains will be subjected to the income tax at the rate of 20% (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1%, see note). However, no benefit of Cost Inflation Index is available Non Resident Indians (“NRI”s) can opt for taxation of Long Term Capital Gains u/s 115E at the rate of 10% (plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1% see note). NRIs may opt for computation of Long Term Capital Gains as per section 112 if it is more beneficial. (b)

Tax on Short Term Capital Gain: Short-term capital gains are chargeable to tax as per the relevant slab rates (discussed below).

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 longterm 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. 11.4

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, 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.

11.5

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.

11.6

The tax rates applicable to resident individuals and Hindu Undivided Families are as follows: Slab Tax Rate: (A) In the case of women residents, below the age of sixty five years at any time during the previous year: Particulars Rates of income tax 2

Where the total income does not exceed Rs.1,90,000 Where the total income exceeds Rs.1,90,000 but does not exceed Rs.5,00,000

Nil

Where the total income exceeds Rs.5,00,000 but does not exceed Rs.8,00,000

Rs.,31,000 plus 20% of the amount by which the total income exceeds Rs.5,00,000

Where the total income exceeds Rs.8,00,000

Rs 91,000 plus 30% of the amount by which the total income exceeds Rs.8,00,000

10% of the amount by which the total income exceeds Rs.1,90,000

(B) 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 Where the total income does not exceed Rs.2,50,000 Where the total income exceeds Rs.2,50000 but does not exceed Rs.5,00,000 Where the total income exceeds Rs.5,00,000 but does not exceed Rs. 8,00,000 Where the total income exceeds Rs. 8,00,000

Rates of income tax Nil 10% of the amount by which the total income exceeds Rs.2,50,000 Rs.25,000 plus 20% of the amount by which the total income exceeds Rs.5,00,000 Rs.85,000 plus 30% of the amount by which the total income exceeds Rs.5,00,000

(C) 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 Where the total income does not exceed Rs.5,00,0000

Rates of income tax Nil 30

Particulars Where the total income exceeds Rs.5,00,000 but does not exceed Rs.8,00,000 Where the total income exceeds Rs.800,000 (d)

In the case of other individuals and Hindu Undivided Families or association of persons or body of individuals, or every artificial juridical person other than those referred to in (A) (B) and ( C) above Particulars Where the total income does not exceed Rs.1,80,000 Where the total income exceeds Rs.1,80,000 but does not exceed Rs.5,00,000 Where the total income exceeds Rs.5,00,000 but does not exceed Rs.8,00,000 Where the total income exceeds Rs.800,000

11.7

Rates of income tax 20% of the amount by which the total income exceeds Rs.5,00,000 Rs.60,000 plus 30% of the amount by which the total income exceeds Rs.800,000

Rates of income tax Nil 10% of the amount by which the total income exceeds Rs.1,80,000 Rs. 32,000 plus 20% of the amount by which the total income exceeds Rs.5,00,000 Rs.92,000 plus 30% of the amount by which the total income exceeds Rs.800,000

Firms:

In case of Firms (comprising of Partnership Firms and Limited Liability Partnerships) the tax rate applicable would be 30 percent.( plus Education Cess @ 2% and Secondary and Higher Education Cess @ 1% on the amount of tax ) 11.8

Indian Companies: ď&#x192;&#x2DC; In 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). ď&#x192;&#x2DC; In case of Indian Companies having total income of more than Rs. One Crore the tax rate applicable would be 30 percent (plus 5% 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 enacted by the Finance Act 2011 and applicable for the financial year beginning April 1, 2011.

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. 31

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.

12.2 12.2.1

Maintenance of Client Account In 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 does not use the funds of one client for another client;  Portfolio Managers also maintains 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 reconciles the client-wise funds with the funds in the aforesaid bank account on daily basis.

12.2.2 12.3

The Portfolio Manager also maintains a separate depository account of each client. 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. Nontraded 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 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 abovementioned 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 income 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 ex-date. In 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 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 investor queries and complaints. Mr Kiran Rajput Vice President and Head of Operations - PMS HSBC Asset Management (India) Private Limited 3rd Floor, Mercantile Bank Chamber, 16, V N Road, Fort, Mumbai 400 001 Tel : + 91 22 6614 5000 email : hsbcpms@hsbc.co.in 13.1 Grievance redressal and dispute settlement mechanism. The Portfolio Manager shall attend to and address any client query or concern as soon as possible to mutual satisfaction. All disputes, differences, claims and questions whatsoever which shall arise either during the subsistence of the agreement with a client or afterwards with regard to the terms thereof or any clause or thing contained therein or otherwise in any way relating to or arising there from or the interpretation of any provision therein shall be, in the first place settled by mutual discussions, failing which the same shall be referred to and settled by arbitration in accordance with and subject to the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force. The arbitration shall be held in Mumbai and be conducted in English language. The agreement with the client shall be governed by, construed and enforced in accordance with the laws of India. Any action or suit involving the agreement with a client or the performance of the agreement by the either party of its obligations will be conducted exclusively in courts located within the city of Mumbai in the State of Maharashtra. For HSBC Asset Management (India) Private Limited Naina Lal Kidwai

Sayed P Mustafa

Glenn Berry

Kishori J Udeshi

Ashok Kumar Jha

Puneet Chaddha

Date Place

: November 2, 2011 : Mumbai

FORM C Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993 (Regulation 14) HSBC Asset Management (India) Private Limited 3rd Floor, Mercantile Bank Chamber, 16, V. N. Road, Fort, Mumbai 400 001 Tel : +91 22 6614 5000 Fax : +91 22 4002 3830 Email : hsbcpms@hsbc.co.in We confirm that: i)

the Disclosure Document forwarded to SEBI is in accordance with the SEBI (Portfolio Managers) Regulations, 1993 and the guidelines and directives issued by SEBI from time to time;

ii)

the disclosures made in the document are true, fair and adequate to enable the investors to make a well informed decision regarding entrusting the management of the portfolio to us / investment in the Portfolio Management Services;

iii)

the Disclosure Document has been duly certified by an independent chartered accountant, M/s N. M Raiji & Co, Universal Insurance Building, Pherozshah Mehta Road, Mumbai 400 001, Tel No. 2287 0068, bearing registration no. 39434 on November 2, 2011 (enclosed is a copy of the chartered accountants' certificate to the effect that the disclosures made in the document are true, fair and adequate to enable the investors to make a well informed decision).

Date: November 11, 2011

Puneet Chaddha Principal Officer Place: Mumbai Name and address of the Principal Officer: Name

Mr Puneet Chaddha

Address

HSBC Asset Management (India) Private Limited 3rd Floor, Mercantile Bank Chamber, 16, V. N. Road, Fort, Mumbai 400 001

Annexure 1

Related party transactions (1)

Names of related parties by/on whom control is exercised Holding Company Direct Holding HSBC Securities and Capital Markets (India) Private Limited Others HSBC Mutual Fund *

Indirect Holding HSBC Investment Bank Holdings BV HSBC Holdings PLC HSBC Finance (Netherlands) HSBC Holdings BV * HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund. (2)

Fellow subsidiaries with whom transactions have taken place during the year The Hongkong and Shanghai Banking Corporation Limited - India Branches HSBC Global Asset Management (Hongkong) Limited (Formerly known as HSBC Investments (Hongkong) Limited) HSBC Software Development (India) Private Limited HSBC Operations and Processing Enterprise (India) Private Limited HSBC Global Asset Management, London (Formerly known as HSBC Group Investment Business Limited, London) The Hongkong and Shanghai Banking Corporation Limited,Hong Kong HSBC Investment Funds (Luxembourg) S.A HSBC InvesDirect Securities (India) Limited. HSBC Financial Services (Middle East) Limited

(3)

Key management personnel and their relatives with whom transactions have taken place during the year Key management personnel Ms. Naina Lal Kidwai Mr. Vikramaaditya Mr. Ayaz Ebrahim

Mr. Ashok Jha Mr. S P Mustafa Ms. K J Udeshi

Mr. Puneet Chaddha

Annexure 1

(Currency: Indian Rupees in '000)

(4)

Revenue transactions with related parties

(INR '000) with Holding Companies

Particulars

Current year

with fellow Subsidiaries

Previous year

Current year

with Others*

Previous year

Current year

with Key Management

Previous year

Current year

Previous year

Income

Investment management fees Investment advisory fees Profit / (Loss) on sale of investments (net) (non trade)

Dividend

8,146

409,125 -

609,346 -

11,889

1,174

20,738

9,494

44,960 163 11,536 -

16,777 210 7,781 -

17,136 195 -

17,409 195 -

Expenses

Remuneration Commission/Brokerage Bank and custody charges Sitting fees Compensation Scheme related expenses Training and Education Legal and professional fees Support service charges Rent and Utilities

(5)

8,351 -

8,750 -

75,421 1,217 215 20,921 75,230 36,417

91,434 3,626 96 19,201 60,968 34,571

* HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund 2003-04 51,893,019 Capital transactions with related parties with Holding Companies

2002-03 (INR '000)

with fellow Subsidiaries

with Others*

with Key Management

Particulars Current year Deposit for premises Purchase of investments Sale of investments

Previous year

Current year -

Previous year

6,196 -

* HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund

(893) -

Current year 722,499 870,076

Previous year 690,040 529,721

Current year

Previous year -

Annexure 1

(6)

Balances with related parties

(INR '000) with Holding Companies

with fellow Subsidiaries

with Key Management

with Others*

Maximum during

Particulars 31-Mar-11

31-Mar-10

31-Mar-11

31-Mar-10

31-Mar-11

31-Mar-10

31-Mar-11

31-Mar-10

the year ended 2010-11

Assets Investment management fee receivable

35,664

82,591

Investment advisory fees receivable Deposit for premises Investments Other receivables Balances with banks in current accounts

10,406 -

18,662 4,210 -

316,200 3,608

471,749 1,716

10,406 508,875 17,731

2,136

606

98,426

90,000

5,636

1,351 43,881 10,440 17,782

Liabilities Equity share capital held by holding company Legal and professional fees Support service charges Commission/Brokerage Scheme related expenses

90,000 -

90,000

1,351 35,135 10,440 -

1,865 16,587 72,363 -

17,782

* HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund Transactions carried out with providers of finance in the normal course of business have not been disclosed in the above table in accordance with Accounting Standard 18 - Related Party Transactions prescribed by the Companies (Accounting Standards) Rules, 2006. (7)

Debts due from bodies corporate under the same management Hongkong and Shanghai Banking Corporation Limited HSBC Investment Funds (Luxembourg) S.A

(INR '000) 31 March 2011 10,406 10,406

31 March 2010 4,210 18,662 22,872