INVESTMENT AVENUES IN CURRENT MARKET SCENARIO Insights: PMS and - - PowerPoint PPT Presentation

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INVESTMENT AVENUES IN CURRENT MARKET SCENARIO Insights: PMS and - - PowerPoint PPT Presentation

INVESTMENT AVENUES IN CURRENT MARKET SCENARIO Insights: PMS and Alternative Investment Funds in India Speaker : AMIT SAXENA Date : 18 th Dec 2019 India Poised for growth India is the 5 th largest economy in the world at around $2.6tn and


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SLIDE 1

INVESTMENT AVENUES IN CURRENT MARKET SCENARIO

Insights: PMS and Alternative Investment Funds in India Speaker : AMIT SAXENA Date : 18th Dec 2019

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SLIDE 2
  • India is the 5th largest economy in the world at around $2.6tn and is poised to double in next 8-10

years – first trillion in 58 yrs, second trillion in 7 years and third trillion expected to be in 6 years

  • Indian Asset Management industry (MF) is around $350bn (CAGR 15.5% ~ FY07-18) expected to go

around $1.47tn in next 5-7yrs (AMFI)

  • Concentrated market i.e. Top 5 AMC ~60% AUM and Top10 ~ 82% AUM, Just ~11% to GDP vs. World

average of >60% and USA ~114% (Bloomberg)

India – Poised for growth

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SLIDE 3

Growing number of public companies in India

Source: SEBI, IBEF data

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Highest number of listed companies - India

Source: SEBI, IBEF data, World bank, Globaleconomy

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SLIDE 5

Fastest growing HNI population – India - $8.3tn

Source: SEBI, IBEF data

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SLIDE 6

 42% of companies with market cap between Rs. 100 to 20,000 crores have no broker covering the company  21% of companies have only 1 broker covering the company  Mid & small cap space is largely undiscovered by the institutional investors  Early movers are likely to have an advantage

Yet India’s market remains under researched and under penetrated

Due to the diversity of listed companies along with the large number of listed stocks and the opportunity in mid market investing, it is important to participate in India opportunity via a

  • nshore asset manager as

they would be better equipped to capitalize due to their local expertise and on the ground experience.

Source: Bloomberg Data Jan 2018

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SLIDE 7

Mutual Funds in India

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SLIDE 8
  • AMC industry would grow multi-fold (financial saving, Demon, GST, Literacy etc.)
  • Increasing regulations in MF space i.e. stock categorization, size of scheme will make it difficult for managers

to beat index in traditional fund vehicles

  • Owner/Manager model (akin to USA/developed markets) would emerge in India and Successful fund

managers would set-up niche boutique shops (become entrepreneurs in search of alpha)

  • Increasing HNI population would look for customized alternative products to generate alpha

New normal for AMC’s - India

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SLIDE 9

Introduction to Managed Accounts i.e. Portfolio Management Schemes (PMS)

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SLIDE 10
  • Meant for personalised and professional management of finances of HNIs / Institutions
  • Investment portfolio in Stocks, fixed income, structured products managed by a professional money manager
  • Minimum investment of Rs 25 lakhs
  • Discretionary PMS:
  • where the fund manager takes decisions on investors' behalf
  • Non – discretionary PMS (Advisory based)
  • fund manager needs to take approvals from the investors on suggested investments

Managed Accounts

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SLIDE 11
  • Professional management
  • Transparency
  • Securities in demat account of the investor
  • Details of each trade triggered by the exchanges and depositories
  • Fee can be customised for each investor
  • Custom solutions
  • Based on risk / reward appetite
  • Personal Restrictive list (ESG, Sharia, etc)

Advantage PMS

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SLIDE 12
  • Identify
  • Right asset allocation suitable for your client
  • Appropriate Fund Manager based on
  • Investment philosophy and the appropriate investment strategy
  • Flexibility and ability of strategy to deliver alpha
  • Model portfolio and how comfortable you are with stocks in the portfolio
  • Past Track record (Looking beyond performance – volatility, consistency, drawdown, turnover, shift in strategy)
  • Servicing capability (ability to customize and maintain restrictive list, etc)

How to select PMS strategy for your client

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SLIDE 13
  • AMCs to disclose investment strategies filed with SEBI under disclosure document
  • Investors sign PMS agreement along with opening of a Demat A/c and a Bank A/c (Optional)
  • Investors can signup using cash or stock transfer
  • On folio creation – Portfolio is aligned to a Model portfolio
  • Fees (can be customized for each investor)
  • Fixed / Performance fees
  • charged typically monthly / quarterly on daily accrual
  • Investors shared with monthly portfolio, performance and fund strategy updates by the AMC

How it works

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  • Taxation
  • At investor level
  • AMCs share tax statement for ease of filing returns
  • However, Investors need to consolidate their holdings and transactions across demat accounts in order to file returns

correctly

How it works - taxation

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SLIDE 15

Key players - PMS

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Introduction to Alternative Investment Funds (AIF)

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  • An alternative investment fund is any fund established or incorporated in India in the form of a trust or a company or a limited

liability partnership or a body corporate which

  • is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in

accordance with a defined investment policy for the benefit of its investors

  • is not covered under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, Securities and Exchange

Board of India (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities And does not include:

  • Family Trusts
  • Holding companies
  • Employee welfare trusts or gratuity trusts
  • ESOP Trusts
  • SPV not established by fund managers
  • Funds managed by reconstruction company
  • Minimum Capital Commitment of Rs 1 cr

AIFs in India

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SLIDE 18

Gr Growt wth h story

  • ry of AI

AIF F Indus ustry try

Key Facts ts:

  • SEBI has permitted approx. 600 AIFs* to be set up; Participants include AMCs, Private Equity,

Venture Capital firms, Hedge Funds, Corporates, Boutique Investment Funds, Individuals etc.

  • Funds Raised: Category II largest segment (60%) ; Category III growing strongly (28%)
  • In the last 1 year, in terms of Funds Raised Cat II has grown by approx. 60% and Cat III has grown
  • ver 48%

*Number of registered AIF trusts, actual number of Schemes is much higher. Source: SEBI

18 290,340 144,480 119,758 10,000 60,000 110,000 160,000 210,000 260,000 310,000 AIF Commitments Raised (INR Cr) Funds Raised (INR cr) Investments (INR Cr)

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Indus ustry ry Composi sitio ion

Types es Descript ption

  • n

Funds ds Raised ed Categor gory I

Startup or early stage ventures, Social ventures, SME, Infrastructure Other sectors considered as socially desirable

10% Rs 14,636 Crs Categor gory II

AIFs which do not fall in either category I or category III Pre IPO, Distress Debt, Real Estate (Debt / Mezz/ Equity), Credit (Sector Agnostic), Private Equity / Start Up Equity

62% 62% Rs 89,998 Crs Categor gory III

Employs diverse or complex trading strategies Absolute Return / Long Short Funds, Long Only / Thematic Equity, Commodity

28% 28% Rs 39,846 Crs Total Rs Rs 1,44, 4,480 480 Crs

19 19

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The Growth of CAT III AIFs

  • Primarily Includes
  • Long only buy & hold oriented funds without leverage
  • Hedge Funds/ Long Short / Absolute Return Strategies

39846 46 500 10500 20500 30500 40500 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19

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SLIDE 21

Composition

CAT I, 14,636 , 10% CAT II, 89,998 , 62% CAT III, 39,846 , 28%

Jun-19

CAT I CAT II CAT III

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The life cycle of an AIF

CAT 3 funds are usual ally shorte

  • rter

r in the range ge of 3.5-5. 5.5yrs 5yrs

Source: Shardul Amarchand Mangaldas and Co.

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SLIDE 23
  • Professional management in a pooled investment vehicle (with limited corpus)
  • Ability to have complex products, leverage, derivatives, etc
  • Fund Manager skin in the game
  • Scale benefits (QIB / Anchor investment in IPOs, Large deals in PE/ VC/structured debt space)
  • Transparency
  • SEBI mandates full disclosure on regular / quarterly basis (MFs also disclose monthly)
  • AMCs update through factsheets and fund updates
  • Fee transparently defined in the fund PPMs (same for every investor in the same class)
  • Drawdown structure (reduces cash drag)
  • Combines the best of MF and PMS (no bank / demant accounts)

Advantage AIF

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SLIDE 24
  • Identify
  • Right asset allocation suitable for your client
  • Appropriate Fund / Fund Manager based on
  • Investment philosophy and the appropriate investment strategy
  • Flexibility and ability of strategy to deliver alpha
  • Past Track record (Looking beyond performance – volatility, consistency, drawdown)
  • Tenure, Liquidity options and cash flows provided by the fund
  • Suitable fee structure (performance based structure can become expensive if fund delivers!)

How to select AIF strategy for your client

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  • AMCs to disclose investment strategies filed with SEBI under Private Placement Memorandum
  • Investors sign Contribution agreement
  • Investors can make Capital Commitment and initial drawdown (drawdown or full upfront mode)
  • Fund undertakes multiple closures during the fund raising period (allots on Par / prevailing NAV based on strategy)
  • Fees standard as per class the investor chooses
  • charged typically monthly / quarterly on daily accrual
  • Investors shared with monthly / quarterly portfolio, performance and fund strategy updates by the AMC

How it works

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SLIDE 26
  • Taxation
  • Cat I and Cat II accorded with Passthrough status – TDS applicable
  • Cat III – No passthrough status
  • Tax paid at the fund level in PAN of the scheme
  • Investors receive post tax proceeds (no TDS in investors PAN)
  • So AIF advantage is
  • Invest, at the end of tenure receive post fees and post tax proceeds (No hassles)

How it works - taxation

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SLIDE 27

Fund Management Vehicles

Parameters Mutual Fund PMS AIF Investor Type Retail and High Networth Individuals (HNIs) HNIs HNIs and Ultra HNIs Access type Online and Offline Offline Offline (Private placement only) Liquidity Open and Close ended funds Open ended with exit charges on early redemption Close ended for CAT 1 and 2 and Open ended/Close ended depending on strategy Minimum Investment (INR) INR 500/5000 INR 2.5 million (INR 25 lacs) INR 100 million (INR 1 crore) Draw down option Not Available Not Available Available Nature of investment SIP or One time One time/Top-up One time or Draw down sub to min 1 crore commitment except Employees of the fund Annual Expense One time setup fees- Nil Mgmt Fees - 2.0%-2.5% Fixed fees Profit Sharing - NA One time setup fees- Nil Mgmt Fees - 2%- 2.5% Fixed or ~1.5% Fixed fees with profit sharing (Carry) One time setup fees- 1-2% Mgmt Fees - 1.5%-2.5% Fixed or 1- 2% Fixed fees with profit sharing (Carry) Customization Not Available Option available to each investor Not Available

Source : Abakkus Estimates/Mint

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Fund Management Vehicles

Parameters Mutual Fund PMS AIF Transparency High Low Medium to High Maximum No of fund investors No Limit No Limit Each scheme limit of 1000 investors (except VC funds) Managers Contribution/Skin in the Game 1% of corpus or INR 5 million which ever is lower No Managers continuing interest in the Category I & II AIF- not less than 2.5% or INR 50 million whichever is lower, Category III- 5% or INR 100 million whichever is lower. Minimum Networth requirement INR 500 million (INR 50 crore) INR 20 million (INR 2 crore) No requirement except manager's contribution Pooling or Segregation of funds/securities Pooling of Funds/Assets Segregation of each client’s holdings Pooling of Funds/Assets Taxation Pass through Taxation i.e. Tax in the hand of investor depending on holding period Pass through Taxation i.e. Tax in the hand of investor depending on holding period Pass through Taxation for CAT 1 and 2 and No Pass-through for CAT 3 Funds i.e. Tax in the hand of fund

  • n behalf of investors

Source : Abakkus Estimates/Mint

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TH THANK NK YOU OU

29

Strictly Confidential. For Private Circulation Only, not for Public Distribution

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SLIDE 30

Annexure

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0% 94% 23% 41% 37% 49% 47% 45% 39% 38% 38% 36% 34% 32% 27% 23% 29% 27% 24% 23% 20% 18% 17% 16% 15% 14% 12% 12% 64% 50% 55% 43% 45% 47% 49% 50% 53% 56% 53% 53% 62% 65% 58% 58% 61% 60% 61% 62% 64% 63% 67% 69% 73% 72% 6% 12% 9% 8% 7% 8% 9% 12% 11% 8% 9% 13% 15% 11% 12% 12% 14% 14% 16% 20% 20% 19% 21% 19% 17% 15% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Share of Comittment Raised by AIF's

Cat 1 Cat 2 Cat 3

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0% 100% 4% 46% 35% 23% 20% 8% 9% 11% 20% 24% 23% 22% 18% 17% 17% 17% 19% 17% 13% 12% 13% 11% 10% 11% 10% 10% 0% 0% 85% 40% 51% 57% 56% 69% 63% 60% 63% 61% 56% 52% 64% 64% 60% 60% 60% 57% 60% 57% 59% 58% 60% 59% 62% 62% 0% 0% 11% 15% 14% 19% 24% 23% 28% 30% 18% 15% 21% 25% 18% 19% 23% 23% 21% 26% 26% 30% 28% 31% 30% 30% 27% 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Share of Funds Raised by AIF's

Cat 1 Cat 2 Cat 3

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SLIDE 33

0% 0% 1% 1% 18% 11% 7% 6% 6% 6% 13% 21% 19% 19% 16% 15% 14% 14% 17% 16% 15% 12% 13% 12% 11% 11% 10% 10% 0% 0% 91% 71% 67% 64% 74% 72% 66% 63% 66% 62% 61% 54% 63% 67% 62% 60% 60% 56% 55% 51% 55% 56% 57% 59% 62% 62% 0% 0% 8% 28% 15% 25% 19% 22% 28% 31% 21% 18% 20% 27% 21% 18% 24% 26% 23% 27% 30% 37% 31% 32% 32% 30% 28% 28% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Share of Investments done by AIF's

Cat 1 Cat 2 Cat 3

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Growth of Alternate Investments - India

Source: SEBI, CAIA and author estimates

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SLIDE 35

Key players - AIF

Cat I Cat II Cat III VC Infra

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SLIDE 36

BarclayHedge Hedge Fund Industry AUM ($ Billions)- $4.7tn expected by 2023

$- $500.00 $1,000.00 $1,500.00 $2,000.00 $2,500.00 $3,000.00

Hedge Fund Industry AUM ($ Billions)

  • Preqin Global # Hedge funds ~ 10,000,
  • Preqin Global # Alternative Managers ~ 28000

Source: BarclayHedge

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SLIDE 37

Gun shots, gun powder & capacity

Source: SEBI, CAIA and author estimates

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SLIDE 38

Opportunities on all sides - Parties Involved in an AIF

Source: Shardul Amarchand Mangaldas and Co

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SLIDE 39

Talent pool estimates – AIF industry

No of Funds INR Crores USD Bn INR Crores USD mn No of AIF Fund Licenses - India (June 2018)* 435 74,893 10.4 172 23.9 No of AIF Fund Licenses - India (Feb 2019)* 519 No of Estimated Schemes of Above funds*** 1038 Average Total Employee Count per fund*** 7 Approx Total AIF Job Market - India 3633 Top 20 Distributors - RM/PBG - Leage Table** 2400 Fund Accounting (Per fund 2 people)*** 1038 Registrar and Transfer Agent (Top3 R&T)*** 250 Lawyers/Custodian/Trustee*** 280 Total Estimated Industry Size - Domestic Funds 7601 No of FPI Registered India (Feb 2019)* 9399 30,90,508 429.2 329 45.7 Foreign Venture Capital Investment (Feb 2019)* 247 36740 5.1 149 20.7 Average Total Employee Count per fund*** 2 Average People Estimated - Offshore funds 19292 Total AIF Employee Pool - Estimate*** 26893 32,02,141 445 650 90

*Source - NSDL/SEBI Data as on Feb 18, 2019 **Asia Private Banker League Table 2017 Estimated ***Abakkus/Author Estimates

Invested Amount Average per fund

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SLIDE 40

Global head count estimates - AIMA

Source: GPP/AIMA

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SLIDE 41

History of Alternate Investments in India

Source: Shardul Amarchand Mangaldas and Co

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SLIDE 42

Global Buzz - Alternatives

Source : CAIA/World Economic Forum/Preqin

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SLIDE 43

Global Buzz – Investor Allocations

Source : CAIA/World Economic Forum/Preqin

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SLIDE 44
  • Terms & Conditi

tions with respect to to this Present ntati tion:

  • Th

This pre resent ntati tion is is str trictly tly for for inf nform rmati tion and and ill llus ustr trati tive purp urposes only nly and and shoul uld not be be consid nsidere red to to be be an an offer, r, or

  • r soli

licita tati tion of

  • f an

an offer, r, to to buy uy or

  • r sell

ll any any securi uriti ties or

  • r fund

unds or

  • r to

to ent nter int nto any any cont ntri ributi ution agre reement

  • nts. Be

Before re any nyone ne consid nsiders rs an an inv nvestm tment nt, it it is is importa tant nt to to re readth thro roug ugh and nd und unders rsta tand nd the the cont ntent nts of

  • f the

the Pri Private te Plac lacement nt Memora randu ndum (PPM PM). Ab Abakkus As Asset Mana nager LL LLP (“AAM”) is is the the In Investm tment nt Mana nager of

  • f the

he Ab Abakkus us Gro rowth wth Fund

  • Fund. AAM

AAM is is dul uly autho uthori rized to to launch launch and nd manage schemes hemes of

  • f Abakkus

us AIF AIF und under the the SE SEBI BI (Alte Altern rnate te In Investm tment nt Funds Funds) Regul ulati tions, ns, 201 2012, and nd any any amendm ndment nts th there reto to fro rom ti time to to ti time and and rules, guideli lines nes, circul ulars rs issued under the the Securiti ties Excha hange Board rd of

  • f India Act, 1992

1992.

  • Th

This pre resent ntati tion has been pre repare red and and issue ued on

  • n the

he basis of

  • f int

ntern rnal data, publi ublicly ly available le inf nform rmati tion and and other her sourc urces beli lieved to to be be re reli liable

  • le. The

The inf nform rmation cont ntained ned in in th this docum ument nt is is for for genera neral pur urposes only nly and and not a comple lete te disclosu losure re of

  • f every

ry materi terial fact and and term terms and condi nditi tions

  • ns. The

he inf nform rmation / data ta here herein alone ne is is not suff ufficient nt and nd shouldn’t be be us used for for the the developm lopment nt or

  • r imple

lement ntati tion of

  • f an

an investm tment nt str trate

  • tegy. It

It sho houl uld no not be be construe nstrued as as investment nt advice to to any ny part

  • rty. All

All opini nions, ns, figure ures, cha hart rts/g /gra raphs hs, esti timates tes and and data ta incl nclud uded in in th this pre resent ntati tion are re as as on

  • n date

te and and are re subj ubject to to change wi with thout ut noti

  • tice. The

he sta tatement tements cont ntained ned here herein may may incl nclude sta tate tement nts of

  • f fut

uture ure expecta tati tions ns and nd oth ther forwa rward rd-lo looking ng statement tements th that are re based on

  • n our

ur curr urrent views ws and and assumpti umptions ns and nd inv nvolve lve known wn and and unk unkno nown ri risks and and unc uncert rtaint nties th that coul uld cause actua tual re resul ults ts, perf rform rmance or

  • r event

nts to to differ materi terially ly fro rom tho hose expre ressed or

  • r impli

lied in in suc uch sta tatement

  • tements. Readers

rs sha hall ll be be ful ully ly re responsib nsible le / li liable for for any any decision taken on

  • n the

he basis of

  • f th

this pre resent ntati tion. Inv Investm tment nts in in Securi uriti ties are re subj ubject to to mark rket and and oth ther ri risks and nd th there re is is no no assura rance nce or

  • r guar

uarant ntee th that the he objecti tives of

  • f any

ny of

  • f the

the Sc Scheme hemes wi will ll be be achi

  • hieved. The

The schem heme may may no not be be suit uited to to all ll categ tegori ries of

  • f investo

tors rs. The The materi terial is is based up upon inf nformati tion tha hat we we conside nsider re reli liable le, but ut we we do do not re repre resent nt th that it it is is accura urate te or

  • r comple

lete, te, and and it it shoul uld no not be be re reli lied up upon as as suc

  • uch. Opini

nions, ns, if if any, ny, expre ressed are re our opini nions ns as as of

  • f the

the date te of

  • f

appeari ring on

  • n thi

his materi terial only

  • ly. Whi

hile le we we end ndeavour ur to to up update te on

  • n a re

reasona nable le basis the the inf nform rmati tion discussed in in thi his materi terial, l, th there may may be be re regul ulatory, ry, compli lianc nce, or

  • r other

her re reasons ns tha hat pre revent nt us us fro rom doing so

  • so. Recipient

nt sha hall ll und unders rsta tand nd th that the he afore rement ntioned ned sta tatement tements cann nnot disclose lose all ll the he ri risks and and cha haracteri teristi

  • tics. The

The re recipient nt is is re reque uested ted to to ta take int nto conside nsidera rati tion all ll the he ri risk facto tors rs incl nclud uding ng their heir fina nanci ncial condi nditi tion, suit uitabili lity ty to to ri risk re return, urn, etc

  • tc. and

nd ta take pro rofessional advice before re inv nvesti

  • ting. As

As wi with th any any inv nvestm tment nt in in securi uriti ties, the the Valu lue of

  • f the

he port rtfoli lio und under mana nagement nt may may go go up up or

  • r down dependi

nding ng on

  • n the

he vari rious us facto tors and nd forc rces affecti ting ng the he capita tal mark

  • rket. Th

This docum ument nt is is no not for publi ublic distri ributi ution and nd has been furni urnished hed sole lely ly for for inf nformati tion and and mus ust no not be be re repro roduc uced or

  • r re

redistr tribute uted to to any any other her pers

  • rson. Pe

Persons ns int nto who whose possession thi his docum ument nt may may come are requir uired to to observ rve these restri ricti tions

  • No

No cli lient nt or

  • r pro

rospecti tive cli lient nt shoul uld assume ume th that any ny inf nform rmati tion pre resent nted in in thi his pre resent ntati tion as as the the re receipt of,

  • f, or
  • r a subs

ubsti titute tute for, r, pers rsona nali lized indi ndividual ual advice fro rom the he adviser or

  • r any

any oth ther inv nvestm tment nt pro

  • rofessional. In

In making ng an an Investm tment nt decision, Investo tor must rely on

  • n their own examinati

tion of

  • f the

the terms of

  • f the

the offeri ring, inclu luding the the merits ts and and risk inv nvolv lved

Disclaime aimer

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SLIDE 45

TH THANK NK YOU OU

45

Strictly Confidential. For Private Circulation Only, not for Public Distribution