DISCLOSURE DOCUMENT
For
PORTFOLIO MANAGEMENT SERVICE

JULY 2017

UNIFI CAPITAL PRIVATE LTD

11, KAKANI TOWERS.15, KHADER NAWAZ KHAN ROAD,
CHENNAI 600 006

 

SEBI Regn No: INP 000000613

DISCLOSURE DOCUMENT
For
PORTFOLIO MANAGEMENT SERVICE

JULY 2017

  • The Document has been filed with the Board along with the certificate in the prescribed format in terms of Regulation 14 of the SEBI (Portfolio Managers) Regulations, 1993
  • The purpose of the document is to provide essential information about Unifi’s portfolio services in a manner to assist and enable the investors in making informed decision for engaging a Portfolio Manager.
  • The necessary information about Unifi required by an investor before investing is contained herein and the investor is also advised to retain the document for future reference.
  • All the Intermediaries involved in the service are registered with SEBI as on the date of the document.
  • The name, phone number, e-mail address of the principal officer is:
  • Mr.K.Sarath Reddy
  • Telephone: 044-28331556/28332719
  • E-mail – info@unificap.com
  • 2

    TABLE OF CONTENTS

    Sl. No Particulars Page No.
    1 Disclaimer 4
    2 Definitions 4
    3 Description 4
    4 Penalties, Pending Litigations etc. 8
    9 Services Offered 9
    6 Risk Factors 38
    7 Client Representation 56
    8 Financial Statements 58
    9 Portfolio Management Performance 58
    10 Expenses 61
    11 Taxation 65
    12 Accounting Policies 69
    13 Investors Services 70
    14 Arbitration 71
    3

    1. Disclaimer clause

    The particulars of this Disclosure document have been prepared in accordance with the SEBI (Portfolio Managers) Regulations, 1993 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

    In this document, unless the context otherwise requires:

    1. a) “Act” means the Securities and Exchange Board of India, Act 1992.
    2. b) “Body corporate” shall have the meaning assigned to it in or under clause (7) of section 2 of the companies Act 1956.
    3. c) “Certificate” means a certificate of registration issued by the Board.
    4. d) “Regulations mean the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.
    5. e) “Chartered Accountant” means 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.
    6. f) “PrincipalOfficer” means 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
    7. g) “Custodian “means the entity appointed as custodian by the Portfolio Manager to provide custodial services and to act as a custodian on the terms and conditions as are agreed between the Custodian and the Portfolio Manager
    4

    3. Description

    (i) History, Present Business and Background of the Portfolio Manager.

    Unifi was incorporated on the 2nd of January 2001. Unifi obtained SEBI’s approval to become a member of the National Stock Exchange and commenced broking operations on the NSE on 6th August 2001.The company obtained SEBI approval to act as a Portfolio Manager in March 2002 and commenced operations from April 2002. The registration is being renewed periodically.

    Unifi has obtained registration in April 2005 as a depository participant with CDSL and commenced operations from July-2005. Unifi is also registered as a member with Bombay Stock Exchange since May 2008.

    Unifi’s principal businesses are Portfolio Management, Stock Broking, Corporate Finance & Advisory and Depository services. Unifi is headquartered in Chennai and focuses on serving customers in the four Southern states and Mumbai.


    Unifi was founded and managed by experienced Professionals. Unifi greatly values its independence in fulfilling its advisory role in a truly unbiased manner.


    (ii) Promoters of the Portfolio Manager, Directors and their Background.

    Mr. K.Sarath Reddy,Chairman and Managing Director of the company is the Principal Promoter of the company. His experience and other particulars are furnished hereunder.


    5

    Details of Board of Directors & their background

    Mr.K.Sarath Reddy - Managing Director

    In a career spanning over 25 years, Mr. Sarath Reddy has led a variety of functions in the field of Investments. Having started his career in Mumbai with Standard Chartered Bank, he took the first opportunity to that came along to turn into an entrepreneur. He founded Unifi Capital in 2001 with a highly experienced team.

    Mr. Sarath Reddy was born on 16th August 1967. He has a BA in economics from Loyola College Chennai and MBA finance from Utah State University in USA.

    Mr. Sandeep Reddy - Member, Board of Directors

    Mr. Sandeep is the co-founder of Peepul Capital. Prior to the launch of Peepul Capital in 2000, he had 10 years of experience in Strategy Consulting with PriceWaterHouse in San Francisco and with Andersen Consulting in London. He has been one of the early participants in the rapidly evolving Indian Private Equity industry having been active for over ten years. He takes overall responsibility in defining and executing Peepul Capital's strategy. In that role he has spawned and built a number of entities as well as driven migration through their lifecycles.

    Mr. Sandeep Reddy was born on 22nd July 1968.He has a BS in Computer Science and Finance from Utah State University and an MBA from IMD (Switzerland).

    Mr. K.Narendranath - Executive Director

    6

    Mr. Narendranath is one of Unifi's co-founders. He manages day to day operations, finance and compliance. He began his financial services career in 1980. During a 20 year stint with a leading non-bank finance company, he has had hands-on exposure at a senior level to equipment leasing, hire purchase, and credit cards. Functionally, he has handled business development, client relationship, capital raising, compliance and back-room operations

    Mr. Narendranath was born on 18th November 1953 and has a Masters degree in Economics from Madras Christian College.

    Mr. Maran Govindasamy - Executive Director

    Mr. Maran Govindasamy is one of Unifi’s co-founders and currently holds position of Executive Director. Over his 24 years in the capital markets, he has worked with some of the leading names in the industry. In addition to managing investments for some of Unifi’s most important relationships he has also been instrumental in spear heading Unifi’s initiatives in major markets like Mumbai and Delhi. His passion for value investing approaches help in designing niche investment themes for Unifi to pursue.


    Mr. Maran was born on 29th July, 1971. He did his Bachelors in Computer Science.

    (iii)Top 10 Group companies/Firms of the Portfolio Manager on Turnover basis (Latest audited financial statements may be used for this purpose).

    The company has set up a wholly owned subsidiary, Unifi Investment Management Private Ltd in Mauritius on 15th March 2007.

    7

    A wholly owned subsidiary, Unifi Financial Private Ltd has been incorporated on 14th March 2008.

    (iv) Details of the services being offered: Discretionary/Non-Discretionary/ Advisory.

    The company offers Discretionary and Non-Discretionary Portfolio Management and Advisory Services, to Individuals, NRIs and Corporates.

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

    i. All cases of penalties imposed by the Board or the directions issued by the Board under the Act or Rules or Regulations made there under.

    ii. There are no cases of penalties imposed by the Board under the Act or Rules or Regulations made there under.

    iii. The nature of the penalty/direction. Not applicable.

    iv. Penalties imposed for any economic offence and/ or for violation of any securities laws. Nil.

    v. Any pending material litigation/legal proceedings against the Portfolio manager / key personnel with separate disclosure regarding pending criminal cases, if any. Nil.

    8

    vi. Any deficiency in the systems and operations of the portfolio manager observed by the Board or any regulatory agency. An inspection of the Books of accounts and other records was conducted by the Board during the year 2013. The Board observed a few deficiencies relating to complying with some of the Regulations for PMS. The Board has advised the Company to be careful and cautious and ensure the strict compliances of the provisions of the SEBI Act, SEBI (Portfolio Managers) Regulations 1993 and the directives/circulars issued from time to time while carrying out Portfolio Management Services activity.

    vii. Any enquiry/ adjudication proceedings initiated by the Board against the portfolio manager or its directors, principal officer or employee or any person directly or indirectly connected with the portfolio manager or its directors, principal officer or employee, under the Act or Rules or Regulations made there under. Nil.

    iii. The nature of the penalty/direction.
    Not applicable.

    iv. Penalties imposed for any economic offence and/ or for violation of any securities laws.
    Nil.

    5. Services Offered

    The Clients Portfolio is customized taking into account the clients preferences and objectives with reference to risk and reward as indicated in the clients application form.

    9

    We believe that it is the consistency of returns that makes a portfolio grow over a period of time rather than large gains followed by large losses. While it is important to compare with stated benchmarks, it must be recognised that for an intelligent analysis 5 to 10 years are required i.e. sufficient time for at least 1 bull and bear cycle..

    Scope of Instruments

    Unifi’s expertise primarily lies in equities, derivatives, debt and equity mutual funds and other related instruments. Allocation of investible funds will be driven by our objective of optimising returns while keeping a careful eye on Risk.

    The Investment approach

    Unifi currently has nine distinct investment approaches:

    • Deep Value at Discount
    • HoldCo Fund.
    • Spin Off – New
    • APJ-20
    • Event Arbitrage Strategy
    • Large Cap Sector Fund
    • Equal Weight Large Cap
    • Insider Shadow Fund
    10
    • The Green Fund
    • Blended Portfolio
    i) Deep Value at Discount (DVD
    Objective

    The Fund seeks to achieve above-average returns with below-average risk. The market’s current focus is on short-term issues, rather than on a long-term structural shift. Today’s valuations allow for exceptional returns along with substantial downside protection. The Fund aims to double investors’ capital in 36 months or less.

    Investment Strategy

    The Fund concentrates on exploiting inefficiencies in the market. Market inefficiencies typically arise in the following situations:

    • Over-reaction to a short-term negative event, a poor earnings report for example. From Contrarian Investment, Extrapolation and Risk (Lakonishak, Schleifer and Vishny): “Putting excessive weight on recent past history, as opposed to a rational prior, is a common Judgment error in psychological experiments and not just in the stock market.”
    • A sector that is currently temporarily depressed.
    • A business that is in the midst of a turnaround.
    • Widespread market dislocation driven by a geo-political/economic shock.
    11
    • Institutional imperative of benchmarking that causes portfolio managers to chase businesses with good recent business performance and sell those that haven’t.
    • Large corpuses under institutional management that suppress the incentive to seek out small companies that aren’t widely followed or understood.
    • Institutional reluctance to purchase, and disclose, companies with recent “negative” headlines.
    • Institutional reluctance to purchase, and disclose, companies with recent “negative” headlines.
    • Indiscriminate selling e.g. a margin call on a promoter pledge.
    • Corporate restructurings such as demergers or spin-offs.
    • High-uncertainty but low-risk situations.
    Universe

    The Fund’s investment universe is the set of all listed companies whose market capitalization ranges from Rs. 200 cr. to Rs. 5000 cr. The Fund’s primary source of investment ideas will come from a custom screener that is designed to filter companies whose stock has underperformed relative to the business over a 5-year time period by a significant margin (20% or greater). Benjamin Graham and David Dodd’s text titled ‘Security Analysis’, often labelled the Bible of Value Investing, starts with this Horace quote that is appropriate in this context:“Many shall be restored that are now fallen and many shall fall that are now in honour.


    12

    ”Another source of ideas will be news flows of disclosures made by insiders/companies under Clause 7&8 (Substantial Acquisition of Shares and Takeovers) and clause 13 (Prohibition of Insider Trading) of SEBI Regulations. The Fund will also source ideas from spin-off announcements from companies that have been disclosed to the exchanges. All ideas that have been so sourced will be subject to the rigorous, bottom-up, fundamental analysis that Unifi Capital has been practicing over the last decade.


    Investment risks

    While the approach itself is rooted on buying at a discount to conservative valuation, there nevertheless exist possibilities for negative surprises in individual securities including, but not limited to:

    • An issue that had been assessed as being temporary morphing into a long-term fundamental deficiency
    • Erosion of a moat that had previously been assessed as being durable
    • Value-destroying acquisitions
    • Change in business strategy/management behaviour that are at odds with prior communication

    However, the emphasis on price paid for each individual security should protect the overall portfolio from the possibility of a significant permanent loss of capital.

    13
    ii. HoldCo Fund
    Objective

    The Fund strives to generate substantial capital appreciation by investing in holding companies that are trading at a significant discount to their fair value as represented by the current market capitalisation of their subsidiary companies. The recently enacted Companies Act, 2013 have enabled certain shareholder rights and are likely to bring sweeping changes in how companies approach “Related Party Transactions”. The renewed thrust of MCA and SEBI in ensuring higher level of corporate governance could prompt promoters to consider delisting their holding companies, leading to value unlocking for public shareholders. The Fund aims to deliver a 200% return on investors’ capital in 60 months or less.

    Investment Strategy

    The Fund would focus on holding companies which are sub-scale and run as group holding companies rather than strategic investment companies. These companies which are typically run by, for and of the promoter are the most likely ones to feel the heat of change in regulatory landscape. There is a clear opportunity to plan well and buy assets with a fair value of Rs.100 at Rs.50 or lower. The intent is to nudge the promoters to act responsibly in unlocking of value either through de-merger or de-listing routes. Unobtrusive activism will be pursued as a catalyst to induce the promoters to de-merge valuable assets and /or de-list as the case may be.

    The strategy is well-aligned with the interests of all the stakeholders.

    14

    The Promoter-Managements would soon realize that conflicting Related Party Transactions are no longer possible and would want to get the much required flexibility and freedom by de-listing. Even if they pay a considerable premium to current market prices, they would still acquire the required stake at a meaningful discount to its fair valuation.

    Universe

    Large Holding Companies administered with strategic intent are unlikely to be delisting candidates and hence the fund would like to focus on Mid-Sized Holding Companies that

    • Offer deep value i.e. where their current market capitalization is fraction of the market value of their investments.

    • Potentially deal in related party transactions where seeking approvals as per Section 188 could get complicated going forward


    Investment Risks

    Illiquidity is the biggest risk beckoning the investor considering exposure to Holding Companies. Most of value unlocking in holding companies will have “pressure cooker” effect in price whereby a single event can overnight make the valuation convergence happen whether it is 100% or more. Till then the stock may remain sideways or even drop in a rising market.

    15

    Price volatility is also an unavoidable phenomenon where the discount between fair value and market value converge in a bull market and widen in a bear market in addition to volatility in fair value itself. Sophisticated investors believe risk is a chance for absolute loss of capital and since each stock is bought at steep discount to current price of a growing asset, chances are less for a capital loss. On the other hand, if we define risk as measured by standard deviation of the stock, then such stocks would fall under the high risk category.

    iii. Spin Off – New
    Objective

    The fund seeks to generate superior risk adjusted returns relative to market indices by investing in stocks of companies undergoing a demerger. Typically, such an action by the company will help remove the holding company discount that the market attributes and thereby enhance the stock's valuation. Unifi's proposition is to gain from the information and fundamental asymmetry linked value-price mismatch, by closely tracking the entire Spin-Off process and investing in such companies after a detailed review of their fundamentals.

    Investment Strategy

    As businesses enter different life cycles, the stakeholders realise that the manner in which they attract different capital, financial, return metrics and consequently very different investor interests.

    16

    As a result, this leads to a vastly altered valuation proposition for the consolidated entity that holds the different lines of businesses. Understandably, one business is deemed to be far more valuable than the other. But the consolidated value of the business does not in its entirety capture the same as it has to account for the lower valued business. In other words, the sum of the parts is almost always lesser than that of the whole.


    Corporate India has woken up to the fact that spinning off an unrelated business, or a business with a distinctly and vastly different growth profile is key to realizing the right value for the respective business, and is in the long term interest of its key stake holders. The Unifi Spin Off Fund seeks to identify such opportunities where the sum of the parts is greater than the whole and invest in such parts to unlock value that was hitherto lost in a conglomerate’s consolidated set of books.


    Universe

    Our universe is built from the Spin-offs approved by Boards of respective companies as filed with the stock exchanges. At any point in time, our portfolio may include 20% of companies that may not have publicly announced a demerger but we believe, through our primary research, are close to doing so. From the universe of such companies, we would select ideas to invest based on a bottom up approach that we have been practicing over the last fourteen years.

    17
    Investment Risk

    While various research reports support our inferences about the outperformance potential of Spin-offs, the skewed return performance of the stocks suggest that the portfolio will likely to have higher volatility in relation to broader markets. Since the Spin-off strategy is based on the hypothesis of identifying a stock valued at X, based on prevailing peer valuation of respective businesses, and buying it at or below 0.7X; it is fair to expect that a Spin-off portfolio will have lesser capital risk than broader markets. Lack of sustained transaction flow is a possible risk.

    APJ-20
    Objective

    The Fund seeks to achieve absolute returns with below-average risk over a horizon of 4-5 years. The fund will invest in sectors that would benefit from the next stage of India’s growth on the back of improvement in India’s economic and policy climate. The Fund endeavours to grow investors’ capital by 3x in 5 years timeor less.

    Investment Strategy

    We believe that select participants in industries such as (a) agriculture, (b) speciality chemicals, (c) mining, (d) hi tech manufacturing and (e) infrastructure will see a new wave of growth over the next 5 years and will be a direct beneficiary of India’s macro policy initiatives as well as inherent demographic strengths it has built over a period of time.

    18

    Over the years, each of the target sectors has built a niche set competencies that have bordered on being disruptive. This has translated to them enjoying a quasi-oligopolistic status in their industry. However, these developments in absolute terms are at a small number. The evolution of the end user industry is such that, this base is poised to experience high growth and operating advantage over the next few years. In other words, each of these firms, have a high inbuilt option to participate in a disproportionate pay off. Our endeavour is to participate with concentrated positions across sectors that will be a direct or proxy beneficiary of the growth in the specified industries. While our study of the opportunities reveals the underlying and obvious risks that could play out in future, we believe the risk reward equation is favourable to an equity investor at current valuations considering the next 5 years’ potential growth.

    Universe

    The Fund’s investment universe is the set of all listed companies whose market capitalization ranges from Rs. 200 cr. and above across broad spectrum of sectors. The investee companies would necessarily be one that has built a niche for itself over the years and is set to leverage on the same to deliver a pace of return that is disproportionate on the upside, in the coming years.

    Investment risks

    The key risk is a sustained under performance in all or select components of the Indian economy which will then automatically slow down the pace of growth of our investment universe as well.

    19

    Also, risks may emanate from adverse policy climate or regulations that may affect the operations of the industry as such. In addition, the micro level risks include:

    • Inability to grow revenues in sync with expectations previously communicated and thought reasonable
    • Change in the macro industry structure due to which margins may come under cloud
    • Wrong full capital allocation across capital expenditure or expensive acquisitions
    • Change in business strategy/management behaviour that are at odds with prior communication
    • Governance issues

    However, the investment committee will ensure that the emphasis on price paid for each individual security should protect the overall portfolio from the possibility of a significant permanent loss of capital.

    v. Event Arbitrage Strategy
    Objective

    The fund seeks to generate stable absolute returns that are consistently superior to conventional fixed income instruments by identification and quick execution of low risk – moderate gain event arbitrage opportunities arising in the equity markets from time to time.

    20

    Additionally, nominal and high yield debt would be considered to ensure optimum utilisation of funds and enhance returns with uncompromising emphasis on capital preservation.

    Investment Strategy

    The core investment strategy is to exploit corporate event arbitrage opportunities in the listed capital markets that inherently have limited correlation to economic cycles and market volatility. These opportunities are driven by corporate events like mergers, acquisitions, delisting and buyback of shares through a “tender offer”. The risk- return pay-off in most of such deals is deal-specific and hence has limited correlation to market cycles.

    Corporate events like mergers, acquisition, enhancement of stake in the companies, buy back of shares etc lead to any of the following -

    • Share of one company is swapped with shares of another company in a pre-specified ratio.
    • An entity, other than promoters, acquires more than 25 percent stake in a company. It is required to make open offer to the shareholders to acquire another 26 percent as per the SEBI Substantial Acquisition of Shares and Takeover Regulations, 1997.
    • An existing promoter wants to increase the stake in the company or delist the company, hence gives open offer to acquire additional shares.
    • A company decides to buy-back its own shares.
    21

    Typically, the price at which the buyer makes an offer for purchase is higher than the prevailing market price so as to induce shareholders to offer their shares. Arbitrage opportunities emerge in such cases due to the perceived discount in the pre-event market price in relation to the open offer and the post-event price, occurring largely due to asymmetric information distribution, difference in investment objectives and expectation amongst investors. In case of swap of shares there could be differences in the market price of the two companies, which do not correctly reflect the swap ratio and throws up an arbitrage opportunity. Our expertise lies in identifying and quickly converting these opportunities into profit.

    Event arbitrage also is possible in Initial Public Offers (IPO) segment whose activity tends to peak in buoyant markets. Selective participation in IPOs through measured applications in order to take advantage of the “proportionate allotment” system could be quite profitable. Such IPO arbitrage requires a much disciplined approach in timely exit.

    Unifi is a registered member of both cash market segment and derivatives segment of the National Stock Exchange. Hence from time to time, we are able to locate arbitrage opportunities across the two segments execute them quickly to offer risk-free good returns to the investors.

    Generally, we participate in those opportunities where –

    • there is sufficient liquidity in the scrip
    • the management is reasonably sound
    22
    • the process of share acquisition is completely transparent, and,
    • where the balance of risk-reward after taking into account the possibility of non-acceptance of shares offered (in case of public tenders) and the capital loss/risk on the shares not accepted is reasonably estimated to be in our favour.

    Nominal and High Yield Debt: It is quite possible that there may not sufficient Event Arbitrage opportunities at a given point of time. Hence, we do invest in debt / fixed income papers either short term or with high liquidity instead of parking money in low yielding liquid mutual funds. The focus is on opportunities in the AA to Investment Grade segment to optimize after tax yields while balancing risks. Typically, all debt investments are made with Hold to Maturity (HTM) mind-set but some of it could be traded opportunistically to maximize capital appreciation or minimize risk. The returns from this strategy arise on account of periodical coupon accruals as well as capital gains. Credit and credibility assessment of counter parties, collaterals, structures as well as intermediaries involved will carried out rigorously before getting into any opportunity.

    Investment Risk

    Investments in Tender Offers are done with certain underlying assumptions as regards the offer completion timelines, tendering pattern and post offer market price. While these assumptions are backed up by detailed analysis of various fundamental and behavioural aspects including historical trends, the actual occurrences may or may not be as per our expectations.

    23

    Any adverse outcomes contrary to our hypothesis could result in losses and negatively impact the overall portfolio returns. As is the case with any debt investments, the fund’s fixed income portfolio is also subject to credit, liquidity and price risks. Firm adherence to company-specific limits along with a complete bottom-up review of the issuer company and the management abet us to manage the credit risk. However, illiquidity of corporate bonds, given the shallowness of debt markets in India, is something we have to live with. We are constantly looking to increase our network of debt market intermediaries to help us create liquidity in case the need arises. It is subject to price volatility due to changes in interest rates especially if RBI changes its policy stance. As we have structured this part of the allocation with a hold-to-maturity mindset and are comfortable with the carry yield, we would not be unduly concerned about the intermediate price fluctuations.

    vi.Large Cap Sector Fund
    Objective

    Our objective is to build a Long Term portfolio of large cap stocks that will seek to generate superior risk adjusted return relative to the benchmark (SENSEX). While the Sensex has 30 stocks across 11 sectors; we will build a portfolio of around 25 stocks across sectors that will outperform the relative constituents of the Sensex over the long run. The universe for this purpose will be BSE 200.

    24
    Investment Strategy

    The investment strategy will be to manage differential sector exposure levels to constituents of BSE 200, relative to the Sensex. Alpha will be generated by maintaining an overweight stance on sectors expected to lead the market and by going under weight/ avoiding sectors that are expected to lag the market.


    Methodology: Research shows that no two sectors lead the market performance in consecutive years. Meaning, at different points in time, different sectors drive the markets. As India’s economy grows, certain sectors will enjoy growth rates faster than the others due to their inherent strengths, industry cycles and other macro-economic factors. Portfolio weights will be decided on the basis of two parameters (a) Current Economic Indicators and (b) Company Fundamentals.


    Sector weights will be determined on the basis of companies most expected to benefit from the current economic indicators (for instance, interest rates, foreign exchange movements, global economic health and others) business cycles. Individual stocks will be identified on the basis of their underlying fundamentals and the extent of positivity of prevailing economic indicators on them in addition to comfort on the quality of their earnings. Growth and valuation.

    25
    Investment Risk

    The Portfolio will comprise of approximately 25 stocks. Exposure per company will range between 2-5% except when the company’s weight in the Sensex is above 5%. Typically, we will underweight/overweight a sector to the extent of 25%-200% of its weight in the Sensex. In any case, no sector will constitute more than 40% of the portfolio. The average market capitalization of the portfolio will be more than the median market capitalization of BSE 200. While the portfolio focuses primarily on a buy and hold strategy, we will balance the same with a rational approach to selling when fundamentals have deteriorated or valuations become too demanding even in the face of reasonable growth prospects in the long run. Cash and Cash equivalents shall not exceed 20% of Portfolio. Derivatives will typically not be used except on rare occasions as a hedge, but never for leverage. Risks include general market risks, sector selection risk and valuation downgrade risks.

    vii. Equal Weight Fund:
    Objective

    The objective of the fund is to build a long term portfolio of blue chip companies with the objective of generating superior long term returns both at an absolute level as well as relative to the benchmark BSE-Sensex.

    26
    Investment Strategy

    Sensex has 30 stocks with weights across 1%-10%. The proposed portfolio will have 30 or lower number of stocks but with equal weightage. The investment strategy will be to have equal exposure to the chosen stocks by booking profits in stocks that are rising and taking exposure to stocks that have fallen. While the frequency of such rebalancing could differ from daily to monthly, the trigger to rebalancing will be the price movement of the stocks held, by a certain percentage.

    Universe

    Our universe of stocks will be limited to Top 100 companies as represented by BSE 100. The BSE-100 index consist of front line leaders in their respective industries and are companies that have the best operating levers, financial metrics, and sustainability power in economic cycles with relatively better governance and disclosure standards. Though India has more than 3000 listed and traded stocks with total market capitalization of Rs.95 Lakh Crores ($1500 Billion), Top 100 constitute 70% of the value. Though the universe would be BSE 100, Sensex stocks will likely have a majority of the exposure.

    Investment Risk

    Our universe of stocks will be limited to Top 100 companies as represented by BSE 100.

    27

    The BSE-100 index consist of front line leaders in their respective industries and are companies that have the best operating levers, financial metrics, and sustainability power in economic cycles with relatively better governance and disclosure standards.Though India has more than 3000 listed and traded stocks with total market capitalization of Rs.95 Lakh Crores ($1500 Billion), Top 100 constitute 70% of the value. Though the universe would be BSE 100, Sensex stocks will likely have a majority of the exposure

    Investment Risk

    The portfolio will be equally spread across 30 of Top 100 companies of India. While the strategy strives to equal weight all the stocks in the portfolio at constant intervals, we will balance the same with a rational approach to selling when fundamentals have deteriorated or valuations become too demanding even in the face of reasonable estimates in the long run. Cash and cash equivalents shall not exceed 20% of portfolio


    viii. Insider Shadow Fund
    Objective

    The fund seeks to generate superior risk adjusted returns, in relation to the broad market, by investing in fundamentally sound companies which have repurchased its own shares or where its promoters’ have acquired additional shares at market prices.

    28

    Typically, such an action by a company or a controlling shareholder demonstrates their conviction that the company’s growth prospects or inherent value has not been captured in its stock price at that point. Unifi’s proposition is to gain from the eventual balancing of the value-price mismatch in the market by identifying and investing in such companies after a detailed review of their fundamentals and corporate governance standards.

    Investment Strategy

    The basic strategy is to invest in companies where the promoter or the company has acquired additional shares

    • At market prices either through creeping acquisition or buyback route
    • That seem to be motivated either by an undervalued stock price or an impending improvement in business prospects that are still to be reflected in the market price and
    • Where complete disclosures of stock purchases have been made to stock exchanges.
    • The underlying assumption behind this strategy is that the managers and controlling shareholders have a clear advantage over other market participants and are well positioned to take sensible investment decisions especially in case of small and under-tracked companies. By limiting the investible universe to such companies, we believe that we would be able to improve the probability of achieving superior risk adjusted returns.
    29

    We find that promoters typically use one or more of the following methods to increase their stake by:

    • Preferential issue of shares and/or warrants.
    • Merger of promoter owned private/public companies.
    • Creeping acquisition in open market.
    • Voluntary open offers.
    • Subscribing to the unsubscribed public portion in rights issues.
    • Initiating the company to do a buyback either through market purchases or tender offer route
    • While preferential issues invariably enable promoters to hike stake at a price substantially lower than the market price, mergers are also structured to get the same benefit. However, we would focus only on those companies where promoters increased stake by purchasing the shares at then-prevailing market prices or at a premium in any form, be it rights, creeping acquisition, tender offers or buybacks

    Universe

    Our universe is built from the news flow of disclosures made by promoters/executives/companies under Clause 7 & 8 of SEBI (Substantial Acquisition of Shares & Takeovers) Regulations and Clause 13 of SEBI (Prohibition of Insider Trading) Regulations.

    30

    We will never consider companies where such disclosures are not made, thereby clearly avoiding market rumours and speculation. Such disclosures are constantly screened and fed into our internal model based on which the universe is expanded / pruned. From the universe of such companies, we would select ideas to invest based on a bottom up approach that we have been practicing over the last six years.

    Investment Risks

    While research supports the view that insider shadowing works best in the aggregate, in few cases it could result in negative value creation. Lehman Brothers did a USD 10 Billion buyback just a few months before bankruptcy. Even in Indian context, we have had similar instances as some promoters tend to get carried away in predicting that good times will continue to persist. Few promoters also just use this medium to send a signal without any genuine interest to buy. To address such risks, we will meticulously deploy a second layer of filtering based on the merit of fundamentals and scrutiny of the promoter’s behaviour.

    To quote, Warren Buffet: “Before investing in a company that is repurchasing its own shares, you should investigate the company fundamentals and its management quality. Overall, if a company purchases its own shares on a regular basis and its fundamentals appear sound, you should consider buying shares in the company”.


    We have a 10 year track record in observing almost all open offers / buybacks and have built a library of information.

    31

    The experience gained in actually investing client assets in 100+ such transactions over this period is unmatched in the industry. This strength along with our successful sector trend investing strategy will help us in creating a portfolio that offers superior returns to market at relatively lesser risk. On the whole, Unifi is well positioned in a sweet spot to achieve the desired results.

    ix. The Green Fund
    Objective

    The idea of a vibrant Green economy, brought about by the looming threat of climate change, has been identified as a key theme that we currently believe will transform industries and create enormous opportunities for our clients.

    “Green investments refer broadly to companies that operate primarily in the renewable energy, clean technology and environmental technology space. These would include companies that provide products and services offering solutions to environmental problems or that improve the efficiency of natural resource use.

    Investment Strategy

    The Fund will focus on investing in companies which would provide the support infrastructure for a “Green Economy” This would include manufacturers/producers of renewable energy systems , organic chemicals, emission control products, energy efficiency products, water & waste management solutions.

    32

    As this is an evolving theme newer business models are expected to develop during the course of time. Unifi’s key strength has been its ability to identify the next generation of winners from the small and midcap space. In continuation of this strategy Unifi would primarily focus in the small and midcap space to identify companies which fit into the Green theme.

    Universe

    The Universe of Companies would be broadly selected from the following sectors:

    • Renewable & Alternative energy
    • Energy efficiency
    • Water infrastructure & technologies
    • Pollution reduction
    • Waste recycling and management
    • Environmental support services
    • Green Chemicals

    These sectors are only indicative of our current thinking and it is entirely possible that as our research progresses we might look at companies beyond these sectors. But in all cases the Green theme would be the underlying basis for selection.

    33
    Investment Risks

    The foundation for the Green theme is predicated on climate change, the effect of which if not controlled or reversed has the potential to threaten the very existence of humanity within the next 100 years. Therefore, it is quite clear that the criticality of the green theme will become even more evident in the future. Nonetheless, from an investment perspective, there are certain underlying risks investors should be aware of:

    • Regulations would be one of the important drivers in the transformation of the economy into a green economy. However, sometimes due to short-term political considerations, the government of the day might hesitate to legislate certain key regulations. For example: The incoming Trump administration has promised to roll back some of the existing environmental regulations.
    • Technology is playing a key role in many aspects of the evolving green economy across the world. Current technologies could be overshadowed and rendered obsolete due to new innovations and discoveries. In this backdrop, the business models of some of the companies in which we invest may become redundant/obsolete due to technology disruption.
    • As this is an evolving theme, there could be a possibility of high concentration risk due to limited availability of investable ideas under this theme.
    • The hype created around the renewable energy space has attracted significant number of new players including businesses from other industries. This has the potential to drive down energy prices to a level which would make the renewable sector unappealing from an investment perspective.
    34
    • Due to the evolutionary nature of this theme, to realize the full value of our investments would require a long-term outlook. During the interim period, significant volatility could be experienced in the value of our investments.
    x. Blended Portfolio
    Objective

    The Blended Portfolio Strategy is targeted at individuals who have a relatively longer term horizon and seek a passive style of investing which relies on the fund manager’s discretion of choosing the best opportunities from UNIFI’s thematic fund universe in a dynamically changing investment universe.


    Investment Strategy

    Investments under this fund will be cherry picked from across the portfolio of companies that Unifi manages across each of the 5 distinct funds it manages. In effect, the endeavor is to be able to identify the “the best of the best”. This fund aims in cutting down the investors switching cost and effort in migrating between best opportunities at any diverse point of time


    Value creation requires a mental model which goes beyond the obvious. It requires a meticulous mind-set which is able to sift through reams of information and assimilate only that which is relevant in identifying value accretive opportunities.

    35

    Metaphorically this could be compared to searching the proverbial needle in a haystack. This fund investment strategy will be to pick best opportunities from the following themes.

    Spin Off: In a single corporate structure with multiple businesses, the sum of the value of the separate parts is often less than that of the whole. A de-merger of disparate businesses, unlocks the financial and management bandwidth required for the respective businesses to grow. Spin off fund invests in situations that offer great scope for the businesses to realize their full growth potential and attract commensurate market valuation.

    DVD: Few segments of the market tend to be mispriced in spite of visible growth prospects, resulting in such stocks trading at a deep discount to their intrinsic value. Reasons could vary from inadequate understanding of a business by most analysts, low relative market cap and liquidity or the lack of correlation to benchmark indices. DVD invests in such businesses and exploits market inefficiencies.

    Holdco: Many holding companies are run as group holding companies rather than strategic investment companies. This results in a perennial discount in their valuations but such discounts are not a constant. The holdco fund identifies strong underlying businesses and looks for massive valuation discounts that are likely to recover as promoters feel the heat of change in the regulatory landscape; meantime benefiting from value convergence in a rising market.

    36

    APJ 20: As always, markets fancy few sectors that have done well in the past ignoring the rest. Of the sectors which are less understood, few like speciality chemicals, agri, precision manufacturing have become globally competitive and are privy to an expanding market opportunity. APJ20 invests in firms that have evolved and are in a ripe position to benefit from such growth prospects.


    Green Fund: The investment focus of the green fund is on companies which provide products and services that help in reducing the carbon footprint in the environment and/or result in more efficient use of natural resources. Within the context of this strategy, the sectors that have been identified for creating the portfolio are - emission control, energy efficiency, water management and waste management.

    Universe

    The fund’s investment universe would include the diverse investment opportunities within the following mentioned funds at any specific point of time: SPIN OFF, DVD, HOLDCO, APJ20 and the Green fund.

    The fund’s investments will be majorly concentrated in small and midcap space wherein it is difficult for “institutional” type of capital to invest and where Unifi’s relatively smaller size helps us to focus in niche areas of the market.

    37
    Investment Risks

    Though careful and meticulous effort would be put in selecting only the best of opportunities’ within UNIFI’s fund universe, the risks here can originate from the time it may seek for value unlocking in case of stocks picked from the Spin Off or Holdco universe. Other risks will include ones associated with illiquidity, change in strategy, change in business fundamentals and value destructive acquisitions in the case of stocks selected from the APJ, Green or DVD universe.

    6. Risk factors
    • Securities investments are subject to market risks and there can be no assurance or guarantee that the strategy's objectives will be achieved.
    • As with any investment in securities, the market value may go up or down depending on the various factors and forces affecting the capital markets
    • Past performance of the Portfolio Manager does not indicate the future performance of the strategy's managed by the Portfolio Manager.
    • Trading volumes, settlement periods, regulatory and legal issues and transfer procedures may restrict the liquidity of investments made by the strategy’s leading to delays in receipt of proceeds from sale of securities. This may cause the time taken for processing Redemption of investment to be significant.
    • The performance of a strategy may be affected by changes in Government policies, regulation, general levels of interest rates and risk associated with trading volumes, liquidity and settlement systems in the markets.
    38
    • Investments in debt instruments are subject to default risk and interest rate risk, Interest rate risk results from changes in demand and supply for money and other macroeconomic factors and create price changes in the value of the debt instruments. Consequently, the Value of the strategy may be subject to fluctuation. Generally, prices of long term securities fluctuate more in response to interest rate changes than short term securities.
    • Investments in debt instruments are subjective to reinvestment risks as interest rates prevailing on interest or maturity due dates may differ from the original coupon of the bond, which might result in the proceeds being invested at a lower rate.
    • Engaging in securities lending is subject to risks related to fluctuations in collateral value/settlement/liquidity/counter party.
    • The Portfolio Manager or any of its associates is not responsible or liable for any loss resulting from the operation of the Service.
    • The strategies may also use various derivatives and hedging products from time to time as would be available and permitted by SEBI, in an attempt to protect the value of the portfolio and enhance clients’ interest. In case the strategy utilizes any derivatives under the regulations, the strategy may in certain situations, be exposed to price risks.
    • The strategy invests in arbitrage opportunities arising from tender offers due to buy back of shares, and tender offers due to mergers and acquisitions in India and Overseas. Such corporate events are exposed to delays on account of litigation, and risk of withdrawal by a seller/buyer/counter-offerer, change in government policy/regulation exposing the strategy to significant price risks.
    39
    • Most companies in this universe are in high/highest corporate tax brackets. Moreover, India being a price sensitive market, any change in excise structure would impact selling price, demand and/or company margins. Also, increases in personal taxes correspondingly reduce disposable income, thereby reducing consumption. Hence any modification to existing tax rate or structure would impact business performance.
    • The universe is to a great extent dependent on strong consumer spending, to be able to deliver strong performance. Political uncertainty creates a weaker consumer environment, as individuals defer purchases until discerning a more secure, stable environment (often referred to as the “feel good factor”).
    • The performance of the Indian economy is closely related to the performance of the monsoon. It directly impacts agricultural production and therefore rural incomes which is an important determinant of consumer demand. Industrial growth is also therefore indirectly dependent on the monsoon.
    • The Portfolio Manager has not authorized any person to give any information or make any representations, either oral or written not stated in the Disclosure Document in connection with the Strategy.
    • Prospective investors are advised not to rely upon any information or representations not incorporated in the Disclosure Document as the same have not been authorized by the Portfolio Manager. Any investment made by any person on the basis of statements or representations which are not contained or which are inconsistent with the information contained in the Disclosure document shall be solely at the risk of the investor.
    40
    • The focus of Event Arbitrage strategy is to generate stable, consistent and above average returns. While all efforts of the Portfolio Manager will be to achieve the objective it must be recognized that the underlying investments are subject to market forces and in extreme circumstances the level of volatility could be very high.
    • The portfolio Manager recognizes that diversification of Risk through allocation of capital across multiple investments is essential. However the actual limits with reference to any specific investment are left to the judgment of the Fund Manager. While this provides flexibility to optimize investment returns it could potentially have an adverse impact in the event of underperformance of a large exposure, if any.
    • The Portfolio Manager is a member of the National Stock Exchange and The Bombay Stock Exchange and secondary Market transactions are usually executed by its Secondary Markets Business group. Such transactions are strictly at an arms length, however it must be recognised that conflicts of interest may/do arise.
    Basic Risks involved in Trading on the Stock Exchanges

    The basic risks involved in trading on the Stock Exchanges ( National Stock Exchange of India ("NSE") / (The Stock Exchange, Mumbai ( “BSE”) has been formulated by the Exchanges in coordination with the Securities and Exchange Board of India ("SEBI") and contains important information on trading in Equities and F&O Segments of NSE / BSE. All prospective constituents should read this before trading on Capital Market/Cash Segment or F&O segment of the Exchanges.

    41

    It must be clearly understood by you that your dealings on NSE/BSE through a member shall be subject to your fulfilling certain formalities set out by the member, which may interalia include your filling the know your client form, client registration form, execution of an agreement, etc., and are subject to the Rules, Byelaws and Regulations of NSE/BSE and its Clearing Corporation, guidelines prescribed by SEBI and in force from time to time and Circulars as may be issued by NSE/BSE or its Clearing Corporation/Clearing House and in force from time to time.

    NSE/BSE does not provide or purport to provide any advice and shall not be liable to any person who enters into any business relationship with any trading member and/or sub-broker of NSE/BSE and/or any third party based on any information contained in this document. Any information contained in this document must not be construed as business advice/investment advice. No consideration to trade should be made without thoroughly understanding and reviewing the risks involved in such trading. If you are unsure, you must seek professional advice on the same.

    1. In considering whether to trade or authorize someone to trade for you, you should be aware of or must get acquainted with the following:-

    1.1 Risk of Higher Volatility:

    Volatility refers to the dynamic changes in price that securities undergo when trading activity continues on the Stock Exchange. Generally, higher the volatility of a security/contract, greater is its price swings.

    42

    There may be normally greater volatility in thinly traded securities/contracts than in active securities/contracts. As a result of volatility, your order may only be partially executed or not executed at all, or the price at which your order got executed may be substantially different from the last traded price or change substantially thereafter, resulting in notional or real losses.

    1.2 Risk of Lower Liquidity:

    Liquidity refers to the ability of market participants to buy and/or sell securities/contracts expeditiously at a competitive price and with minimal price difference. Generally, it is assumed that more the numbers of orders available in a market, greater is the liquidity. Liquidity is important because with greater liquidity, it is easier for investors to buy and/or sell securities / contracts swiftly and with minimal price difference, and as a result, investors are more likely to pay or receive a competitive price for securities / contracts purchased or sold. There may be a risk of lower liquidity in some securities / contracts as compared to active securities / contracts. As a result, your order may only be partially executed, or may be executed with relatively greater price difference or may not be executed at all.

    1.2.1 Buying/selling without intention of giving and/or taking delivery of a security, as part of a day trading strategy, may also result into losses, because in such a situation, stocks may have to be sold/purchased at a low/high prices, compared to the expected price levels, so as not to have any obligation to deliver/receive a security.

    43
    1.3 Risk of Wider Spreads:

    Spread refers to the difference in best buy price and best sell price. It represents the differential between the price of buying a security and immediately selling it or vice versa. Lower liquidity and higher volatility may result in wider than normal spreads for less liquid or illiquid securities / contracts. This in turn will hamper better price formation.

    1.4 Risk-reducing orders

    Most Exchanges have a facility for investors to place "limit orders”, "stop loss orders" etc". The placing of such orders (e.g., "stop loss” orders, or "limit" orders), which are intended to limit losses to certain amounts, may not be effective many a time because rapid movement in market conditions may make it impossible to execute such orders.

    1.4.1 A "market" order will be executed promptly, subject to availability of orders on opposite side, without regard to price and that, while the customer may receive a prompt execution of a "market" order, the execution may be at available prices of outstanding orders, which satisfy the order quantity, on price time priority. It may be understood that these prices may be significantly different from the last traded price or the best price in that security.

    1.4.2 A "limit" order will be executed only at the "limit" price specified for the order or a better price. However, while the customer receives price protection, there is a possibility that the order may not be executed at all.

    44

    1.4.3 A stop loss order is generally placed "away" from the current price of a stock / contract, and such order gets activated if and when the stock / contract reaches, or trades through, the stop price. Sell stop orders are entered ordinarily below the current price, and buy stop orders are entered ordinarily above the current price. When the stock reaches the pre-determined price, or trades through such price, the stop loss order converts to a market/limit order and is executed at the limit or better. There is no assurance therefore that the limit order will be executable since a stock / contract might penetrate the pre-determined price, in which case, the risk of such order not getting executed arises, just as with a regular limit order.


    1.5 Risk of News Announcements:

    Issuers make news announcements that may impact the price of the securities/contracts. These announcements may occur during trading, and when combined with lower liquidity and higher volatility, may suddenly cause an unexpected positive or negative movement in the price of the security / contract.


    1.6 Risk of Rumours:

    Rumours about companies at times float in the market through word of mouth, newspapers, websites or news agencies, etc. The investors should be wary of and should desist from acting on rumours.

    45
    1.7 System Risk:

    High volume trading will frequently occur at the market opening and before market close. Such high volumes may also occur at any point in the day. These may cause delays in order execution or confirmation.

    1.7.1 During periods of volatility, on account of market participants continuously modifying their order quantity or prices or placing fresh orders, there may be delays in order execution and its confirmations.

    1.7.2 Under certain market conditions, it may be difficult or impossible to liquidate a position in the market at a reasonable price or at all, when there are no outstanding orders either on the buy side or the sell side, or if trading is halted in a security due to any action on account of unusual trading activity or stock hitting circuit filters or for any other reason.

    1.8 System/Network Congestion:

    Trading on NSE/BSE is in electronic mode, based on satellite/leased line based communications, combination of technologies and computer systems to place and route orders. Thus, there exists a possibility of communication failure or system problems or slow or delayed response from system or trading halt, or any such other problem/glitch whereby not being able to establish access to the trading system/network, which may be beyond the control of and may result in delay in processing or not processing buy or sell orders either in part or in full.

    46

    You are cautioned to note that although these problems may be temporary in nature, but when you have outstanding open positions or unexecuted orders, these represent a risk because of your obligations to settle all executed transactions.


    2. As far as Futures and Options segment is concerned, please note and get yourself acquainted with the following additional features:-


    2.1 Effect of "Leverage" or "Gearing"

    The amount of margin is small relative to the value of the derivatives contract so the transactions are 'leveraged' or 'geared'. Derivatives trading, which is conducted with a relatively small amount of margin, provides the possibility of great profit or loss in comparison with the principal investment amount. But transactions in derivatives carry a high degree of risk.


    You should therefore completely understand the following statements before actually trading in derivatives trading and also trade with caution while taking into account one's circumstances, financial resources, etc. If the prices move against you, you may lose a part of or whole margin equivalent to the principal investment amount in a relatively short period of time. Moreover, the loss may exceed the original margin amount.

    47
    • Futures trading involves daily settlement of all positions. Every day the open positions are marked to market based on the closing level of the index. If the index has moved against you, you will be required to deposit the amount of loss (notional) resulting from such movement. This margin will have to be paid within a stipulated time frame, generally before commencement of trading next day.
    • If you fail to deposit the additional margin by the deadline or if an outstanding debt occurs in your account will be liable for any losses incurred due to such close-outs.
    • Under certain market conditions, an investor may find it difficult or impossible to execute transactions. For example, this situation can occur due to factors such as illiquidity i.e. when there are insufficient bids or offers or suspension of trading due to price limit or circuit breakers etc.
    • In order to maintain market stability, the following steps may be adopted: changes in the margin rate, increases in the cash margin rate or others. These new measures may also be applied to the existing open interests. In such conditions, you will be required to put up additional margins or reduce your positions.
    • You must ask your broker to provide the full details of the derivatives contracts you plan to trade i.e. the contract specifications and the associated obligations.
    • 2.2. Risk of Option holders:
      • An option holder runs the risk of losing the entire amount paid for the option in a relatively short period of time.
    48
    • This risk reflects the nature of an option as a wasting asset which becomes worthless when it expires. An option holder who neither sells his option in the secondary market nor exercises it prior to its expiration will necessarily lose his entire investment in the option. If the price of the underlying does not change in the anticipated direction before the option expires to an extent sufficient to cover the cost of the option, the investor may lose all or a significant part of his investment in the option.
    • The Exchange may impose exercise restrictions and have absolute authority to restrict the exercise of options at certain times in specified circumstances.
    2.3. Risk of Option Writers:
    • If the price movement of the underlying is not in the anticipated direction, the option writer runs the risks of losing substantial amount.
    • The risk of being an option writer may be reduced by the purchase of other options on the same underlying interest and thereby assuming a spread position or by acquiring other types of hedging positions in the options markets or other markets. However, even where the writer has assumed a spread or other hedging position, the risks may still be significant. A spread position is not necessarily less risky than a simple 'long' or 'short' position.
    • Transactions that involve buying and writing multiple options in combination, or buying or writing options in combination with buying or selling short the underlying interests, present additional risks to investors. Combination transactions, such as option spreads, are more complex than buying or writing a single option.
    49
    • And it should be further noted that, as in any area of investing, a complexity not well understood is, in itself, a risk factor. While this is not to suggest that combination strategies should not be considered, it is advisable, as is the case with all investments in options, to consult with someone who is experienced and knowledgeable with respect to the risks and potential rewards of combination transactions under various market circumstances.

    3. General:
    3.1 Commission and other charges

    Before you begin to trade, you should obtain a clear explanation of all commission, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your loss.


    3.2 Deposited cash and property

    You should familiarise yourself with the protections accorded to the money or other property you deposit particularly in the event of a firm insolvency or bankruptcy. The extent to which you may recover your money or property may be governed by specific legislation or local rules. In some jurisdictions, property which has been specifically identifiable as your own will be pro-rated in the same manner as cash for purposes of distribution in the event of a shortfall. In case of any dispute with the member, the same shall be subject to arbitration as per the bye laws/regulations of the Exchange.

    50

    3.3 The term ‘constituent’ shall mean and include a client, a customer or an investor, who deals with a member for the purpose of acquiring and/or selling of securities through the mechanism provided by NSE/BSE.

    3.4 The term ‘member’ shall mean and include a trading member, a broker or a stock broker, who has been admitted as such by NSE/BSE and who holds a registration certificate as a stock broker from SEBI.

    Investor’s Rights and Obligations

    1.1 You should familiarise yourself with the protection accorded to the money or other property you may deposit with your member, particularly in the event of a default in the stock market or the broking firm’s insolvency or bankruptcy.

    1.1.1 Please ensure that you have a documentary proof of your having made deposit of such money or property with the member, stating towards which account such money or property deposited

    1.1.2 Further, it may be noted that the extent to which you may recover such money or property may be governed by the Bye-laws and Regulations of NSE/BSE and the scheme of the Investors’ Protection Fund in force from time to time.

    1.1.3 Any dispute with the member with respect to deposits, margin money, etc., and producing an appropriate proof thereof, shall be subject to arbitration as per the Rules, Byelaws/Regulations of NSE/BSE or its Clearing Corporation/Clearing House.

    51

    1.2 Before you begin to trade, you should obtain a clear idea from your member of all brokerage, commissions, fees and other charges which will be levied on you for trading. These charges will affect your net cash inflow or outflow.


    1.3 You should exercise due diligence and comply with the following requirements of the NSE/BSE and/or SEBI:


    1.3.1 Please deal only with and through SEBI registered members of the Stock Exchange and are enabled to trade on the Exchange. All SEBI registered members are given a registration no., which may be verified from SEBI. The details of all members of NSE/BSE and whether they are enabled to trade may be verified from NSE/BSE website (www.nseindia.com / www.bseindia.com).

    1.3.2 Demand any such information, details and documents from the member, for the purpose of verification, as you may find it necessary to satisfy yourself about his credentials.

    1.3.3 Furnish all such details in full as are required by the member as required in "Know Your Client" form, which may also include details of PAN or Passport or Driving Licence or Voters Id, or Ration Card, bank account and depository account, or any such details made mandatory by SEBI/NSE at any time, as is available with the investor.

    52

    1.3.4 Execute a broker-client agreement in the form prescribed by SEBI and/or the Relevant Authority of NSE or its Clearing Corporation / Clearing House from time to time, because this may be useful as a proof of your dealing arrangements with the member.

    1.3.5 Give any order for buy or sell of a security in writing or in such form or manner, as may be mutually agreed. Giving

    1.3.6 Ensure that a contract note is issued to you by the member, which contains minute records of every transaction. Verify that the contract note contains details of order no., trade number, trade time, trade price, trade quantity, name of security, client code allotted to you and showing the brokerage separately. Contract notes are required to be given/sent by the member to the investors latest on the next working day of the trade. Contract note can be issued by the member either in electronic form using digital signature as required, or in hard copy. In case you do not receive a contract note on the next working day or at a mutually agreed time, please get in touch with the Investors Grievance Cell of NSE/BSE, without delaying.

    1.3.7 Facility of Trade Verification is available on NSE/BSE website (www.nseindia.com/ www.bseindia.com), where details of trade as mentioned in the contract note may be verified from the trade date upto five trading days. Where trade details on the website, do not tally with the details mentioned in the contract note, immediately get in touch with the Investors Grievance Cell of NSE/BSE.

    53

    1.3.8 Ensure that payment/delivery of securities against settlement is given to the concerned member within one working day prior to the date of pay-in announced by NSE/BSE or it’s Clearing Corporation / Clearing House. Payments should be made only by account payee cheque in favour of the firm/company of the trading member and a receipt or acknowledgement towards what such payment is made be obtained from the member. Delivery of securities is made to the pool account of the member rather than to the beneficiary account of the member.


    1.3.9 In case pay-out of money and/or securities is not received on the next working day after date of pay-out announced by NSE/BSE or its Clearing Corporation / Clearing House, please follow-up with the concerned member for its release. In case pay-out is not released as above from the member within five working days, ensure that you lodge a complaint immediately with the Investors’ Grievance Cell of NSE/BSE.


    1.3.10 Every member is required to send a complete 'Statement of Accounts', for both funds and securities settlement to each of its constituents, at such periodicity as may be prescribed by time to time. You should report errors, if any, in the Statement immediately, but not later than 30 calendar days of receipt thereof, to the member. In case the error is not rectified or there is a dispute, ensure that you refer such matter to the Investors Grievance Cell of NSE/BSE,without delaying.


    1.3.11 In case of a complaint against a member/registered sub-broker, you should address the complaint to the Office as may be specified by NSE/BSE from time to time.

    54

    1.4 In case where a member surrenders his membership, NSE/BSE gives a public notice inviting claims, if any, from investors. In case of a claim, relating to "transactions executed on the trading system" of NSE/BSE, ensure that you lodge a claim with NSE/BSE/NSCCL/Clearing House within the stipulated period and with the supporting documents.


    1.5 In case where a member is expelled from trading membership or declared a defaulter, NSE/BSE gives a public notice inviting claims, if any, from investors. In case of a claim, relating to "transactions executed on the trading system" of NSE/BSE, ensure that you lodge a claim with NSE/BSE within the stipulated period and with the supporting documents.

    1.6 Claims against a defaulter/expelled member found to be valid as prescribed in the relevant Rules/Bye-laws and the scheme under the Investors’ Protection Fund (IPF) may be payable first out of the amount vested in the Committee for Settlement of Claims against Defaulters, on pro-rata basis if the amount is inadequate. The balance amount of claims, if any, to a maximum amount of Rs.10 lakhs per investor claim, per defaulter/expelled member may be payable subject to such claims being found payable under the scheme of the IPF.

    Notes
    • The term ‘constituent’ shall mean and include a client, a customer or an investor, who deals with a trading member of NSE/BSE for the purpose of acquiring and / or selling of securities through the mechanism provided by NSE/BSE.
    55
    • The term ‘member’ shall mean and include a member or a broker or a stock broker, who has been admitted as such by NSE/BSE and who holds a registration certificate as a stock broker from SEBI.

    • NSE/BSE may be substituted with names of the relevant exchanges, wherever applicable.

    7. Client Representation:

    The company has Clients under Discretionary & Non-Discretionary Portfolio Services, the details are:


    Category of Clients Number of Clients Funds Managed (Rs. in crores)
    March 2016 March 2017 Jun- 17 March 2016 March 2017 Jun17
    Disc * ND ** Disc ND Disc ND Disc ND Disc ND Disc ND
    Companies / Group Companies 34 - 71 - 83 - 146 - 245 - 308 -
    Others 670 21 1248 43 1552 58 708 18 1443 59 1749 68
    Total 704 21 1319 43 1635 58 854 18 1688 59 2057 68
    56

    ii. Complete disclosure in respect of transactions with related parties as per the standards specified by the Institute of Chartered Accountants of India.

    The following clients, who are related parties as per the standards specified by the Institute of Chartered Accountants of India, have Portfolio accounts with the Portfolio Manager.

    Name of the Client / related party Nature of relationship Balance Outstanding As on 30th June 2017 Asset under Management – As on 30th June 2017 Nature of transaction
    Mal Reddy Director’s father 1,297Cr 2,30,24,368 Portfolio Investment
    Urmilla Reddy Director’s mother 6,575Dr 37,98,403 Portfolio Investment
    Sylakumari .K Managing Director’s Mother 11,457Dr 64,56,823 Portfolio Investment
    Anya Reddy Managing Director’s Mother 21,978Dr 4,22,27,016 Portfolio Investment
    Indium Software (India)Pvt. Ltd. Managing Director is on the Board of Directors - 1,30,29,549 Portfolio Investment

    Unifi Financial Pvt Ltd., A wholly owned subsidiary has a Broking account with the Portfolio Manager.

    57
    8. Financial Performance of the Portfolio Manager


    31st March 2015 Audited 31st March 2016 Audited 31st March 2017 Unaudited
    Total Income (Net) 239,951,721 18,44,27,295 48,87,92,611
    Profit After Tax 54,313,861 3,39,33,030 20,48,44,588
    Paid Up Capital 17,648,151 1,76,48,151 1,85,08,256
    Free Reserves 181,400,740 21,00,23,543 40,22,38,130
    Net worth 199,048,891 22,76,71,694 42,07,46,386
    9. Portfolio Management performance of the portfolio manager for the last three years , and incase 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.
    58
    Investment Strategy April 2014 to March 2015 April2015 to March 2016 April 2016 to March 2017
    Returns (%) Benchmark (%) Returns (%) Benchmark (%) Returns (%) Benchmark (%)
    Deep Value at Discount 82 49 14 0.25 48 33
    Holdco 110 24 10 0.25 75 24
    Spin Off Fund - New 20 20 18 0.25 16 33
    APJ 20 (commenced from December 2015) - - - - 44 33
    Event Arbitrage Strategy 13 18 9 8 12 16
    Large Cap Sector Fund 46 25 -3 -9 28 17
    Equal Weight Large Cap (commenced from November 2014) - - -2 -9 16 17
    Insider Shadow Fund 79 49 8 0.25 34 33
    59
    * Benchmark for
    Event Arbitrage Nifty G-Sec Composite Index
    Large Cap Sector Trend Investments Sensex
    Spin Off Investments - New BSE Midcap
    Insider Shadow Fund BSE Midcap
    Deep Value at Discount BSE Midcap
    Holdco BSE 500
    Equal Weight Large Cap Sensex
    APJ 20 BSE Midcap
    Methodology:
    • The returns reflect the performance of a representative account in each strategy.
    • The annualised returns earned(net of all expenses including the fees paid to the Portfolio Manager) during the specified period of reporting is computed
    10. Margin

    A portion of the corpus is collected from each client which is placed as a Deposit with a Bank towards Margin requirements of the Exchanges.

    60

    The interest earned on this deposit is passed on to the clients at the end of each financial year, after deduction of TDS if any.

    11. Execution of Trades

    Unifi capital P Ltd., is a member of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) and will be executing trades on the NSE/BSE using its own terminals.

    12. Custodian

    IL&FS Securities Services Limited (ISSL), a subsidiary of Infrastructure Leasing and Financial Services Ltd (IL&FS), has been appointed as Custodian.

    13. Nature of expenses

    a. Fees for Portfolio Service:
    • At a pre agreed Management fee and a proportion of the profit earned over and above an agreed threshold return.

    • The returns and fees will be computed and charged on completion of one year from commencement or as of 31st March. Profits/losses will be computed taking into account booked profits/losses plus mark to market gains minus mark to market losses minus expenses (Other than performance based fees).
    61
    b. Set Up Fees :
    • Unifi may levy a set up fee up to 2 % for the initial funds and for additional funds received.
    c. Depository charges:
    CDSL
    Annual Maintenance Charge Rs. 500.00
    Purchases (Market & Off Market) Nil.
    Sale (Market & Off Market) 0.03%(MinRs.25.00) plus Taxes
    Custody Charges Nil
    Dematerialisation : Rs. 3.00 per certificate.
    Postage per demat request Rs.25.00
    Rematerialisation : Rs.25.00 per certificate
    Postage per remat request : Rs.25.00
    Creation/Confirmation of pledge Rs. 25/- plus CDSL Charges
    Closure/Confirmation of pledge 0.02 % plus CDSL Charges
    Invocation of pledge: Rs.50.00 per transaction
    62
    d.Custodian& Administrative charges:

    • 0.05% p.a. on the value of the Portfolio charged at the end of each month.

    e. Register and transfer agent fee:

    • Back office operations are managed by Unifi and no separate fees are charged.

    f. Brokerage:

    • Brokerage on purchase and sales of securities will not exceed 0.75% or 0.10 paise of the transaction value, whichever is higher.

    g. Bond Transaction Fee :

    • Rs. 250 per transaction
    63
    h. Transaction costs:
    Description of charges NSE Cash Segment NSE Futures & Options BSE Cash Segment
    GST 18.% 18% 18%
    Securities Transaction Tax (Govt. Levy) 0.10% Futures 0.010% (only on Sales) Options- 0.05 % on premium 0.10%
    Transaction charges levied by the Exchange 0.00325% 0.0019% for Futures 0.05% for Options IL&FS Clearing Charges 0.0005% for Futures 0.015% for Options Per Trade Charge – Re.1/-
    Payout charges for Purchases 0.005% + Re.1/- per ISIN - 0.005% + Rs.1/- per ISIN
    Inter Settlement charges 0.02% + Rs.5/- Per ISIN - 0.02% + Rs.5/- Per ISIN
    i) Stamp Charges:

    • As applicable in the State where the client resides.
    64
    14. Taxation:

    As per the taxation laws in force as at the date of the Disclosure document, the tax implications to the clients under the Portfolio Management service are stated herein below. The information so stated is based on Unifi’s understanding of such tax laws in force as on date of the Disclosure document.

    The following information is provided only for general information purposes. In view of the individual nature of tax benefits, the client is advised to consult with his or her own tax consultant with respect to the specific tax implications arising out of their participation in the PMS Service.

    Short Term Capital Gains:

    In respect of gains made on investments held for a period of not more than 12 months is added to the total income of the individual. Total income including short term capital gains is chargeable to tax as per the relevant slab rates. The maximum tax rates applicable to different categories of assessees are as follows (plus surcharge and Cess wherever applicable on the total tax payable):

    Resident Individuals and HUF 30 %
    Partnership Firms 30 %
    65
    Indian Companies 25-30 %
    Non Resident Indians 30 %
    Foreign Companies 40 %
    Overseas Financial Organisations 30 %

    However, Short Term Capital Gains made on transfer of equity shares or units in equity oriented mutual fund, where the transaction of sale is entered into on a recognised Stock Exchange in India, is chargeable to tax at a concessional rate of 15% plus surcharge and Cess as applicable. Further, such transaction is chargeable to Securities Transaction Tax at the applicable rates.


    Long term Capital gains:

    For Individuals and Hindu undivided families :

    • Long term capital gains in respect of investments held for a period of more than 12 months will be chargeable under section 112 of the Income Tax Act at the rate of 20 % plus surcharge, Education Cess and Higher Education Cess, as applicable on such Tax. Capital gains will be computed after reducing the aggregate of cost of acquisition (as adjusted by cost inflation index notified by the Central Government) and expenditure incurred wholly and exclusively in connection with transfer.
    66
    • An assesse will have an option to apply concessional rate of tax of 10 % plus surcharge, Education Cess and Higher Education Cess as applicable on such tax, provided the long term capital gains are computed without Substituting indexed cost in place of cost of acquisition.
    • Further, in the case of individuals and Hindu Undivided Families, being resident, where taxable income as reduced by long term capital gains, is below the basic exemption limit, the Long term capital gains will be subject to Income Tax at 20 % plus surcharge plus education cess and Higher Education Cessas applicable on such tax. However, with effect from July 11, 2014, this option to apply concessional rate of tax of 10% is not available in respect of transfer of debt oriented mutual fund.
    • For Partnership firms, Indian companies and other Residents.
    • Long term capital gains will be subjected to the Income tax at the rate of 20 % plus surcharge, Education cessand Higher Education Cess as applicable on such tax as the case may be.
    • For Non Resident and Foreign companies:
    • Long term capital gains will be subjected to the Income Tax at the rate of 20 % plus surcharge, Education Cess and Higher Education Cess as applicableon such tax. However no benefit of indexation is available.
    • For Non Resident Indians :
    • Under Section 115 E of the Income Tax Act, for Non Resident Indians, income by way of Long term capital gains is chargeable at the rate of 10 % plus applicable surcharge plus education cess and Higher Education Cess as applicable on such tax. Such long term capital gains would be calculated without indexation of cost of acquisition.
    67
    • Non Resident Indians may opt for computation of long term capital gains as per section 112, which is more beneficial.
    • For overseas Financial Organisations, including Overseas Corporate Bodies fulfilling conditions laid down under sec 115 AB ( Offshore Funds)
    • Under section 115 AB of the Act, Long term capital gains from investments in shares held for more than12 months would be chargeable at the rate of 10 % plus surcharge, Education cess and Higher Education Cess as applicable on such tax.Such gains would be calculated without indexation of cost of acquisition.
    • As per the Finance Act, 2002, in computing the income under the head ‘Capital Gains’, brought forward losses on transfer of long term capital assets would be allowed to be set off only against gains from the transfer of long term capital assets. A long term capital loss brought forward can be set off only from long term capital gain.
    • As per the Finance Act, 2004, with effect from 1st October 2004, long term capital gains made on transfer of equity shares or units in equity oriented mutual fund (a fund where the investible funds are invested by way of equity shares in domestic companies to the extent of more than 65% - upto May31, 2006 it is 50%), where the transaction of sale is entered into on a recognised Stock Exchange in India, is exempt from tax under section 10 (38) of the Income tax Act.
    • However, such sale is subject to Securities Transaction Tax as applicable. With effect from Assessment year 2007-08, Long Term Capital Gains generated by a Company & which is exempt under section 10 (38) will be taken into consideration to calculate book profits tax under section 115 JB for the purpose of calculating Minimum Alternate Tax.
    68
    15. Accounting policies.

    Significant Accounting Policies in relation to PMS Accounting

    Valuation of Stock

    Stock Valuation for computation of Profits/Losses shall be on ‘First in First out Method’.


    Transaction Costs

    GST, Securities Transaction tax, Exchange Turnover charges, depository charges and other transaction costs, if any shall be charged to the clients at actual cost.


    PMS Fees

    Management Feeis charged on NAV basis. The charges shall be at the contracted annual rate and shall be charged to the client on a monthly basis. Performance based fee is charged annually/ on 31st March at the contracted rates and will be computed on the basis on the high water mark principle over the life of the investment. Service tax and other statutory levies at applicable rate shall be levied on the PMS fee.


    Interest, Dividend & Other returns

    Returns from investment in units of Mutual fund in the form of interest, dividend, profit & loss on investment shall be passed on to the clients.

    69

    Profit or loss on sale of investment shall be recorded on the date of sale or redemption of investment. Interest from banks, dividends received by clients, etc. shall be passed on to the clients at net value in the form of cash credits and TDS certificates wherever applicable.

    16. Investors services

    i. Name, address and telephone number of the Investor Relation officer who shall attend to the investor queries and complaints.

    • K. Narendranath, Compliance Officer
    • Unifi Capital Pvt. Ltd
    • 11, Kakani Towers.15, Khader Nawaz Khan Road, Chennai 600 006,
    • Tel: 044-28331556
    • Email: naren@unificap.com
    • Email ID of Investor Relations Cell: ir@unificap.com

    ii. Investors may contact the Investor Relations Officer for all grievances with respect to investor’s services. If no response is received within a reasonable time period the matter may be referred to the Principal Officer of the Portfolio Manager and also to SEBI through SCORES - URL – http://scores.gov.in

    70

    iii. Grievance redressal and dispute settlement mechanism.


    The Portfolio Manager will endeavor to address all complaints regarding service deficiencies or causes for grievance, for whatever reason, in a reasonable manner and time. If the investor remains dissatisfied with the remedies offered or the stand taken by the Portfolio Manager, the investor and the Portfolio Manager shall refer the matter for Arbitration.


    17. Arbitration

    Any dispute or difference between the parties with regard to the services and all connected and related matters whatsoever shall be discussed and settled amicably. In the event of any failure to resolve the disputes or differences amicably, all such disputes or differences whatsoever shall be referred to Arbitration. The Arbitration Proceedings shall be conducted in English and in accordance with the provisions of the Indian Arbitration and Conciliation Act, 1996 or any statutory modification or enactment thereof. The Venue of Arbitration shall be Chennai.

    71
    S.No Name of Director Signature
    1 K. Sarath Reddy Signed
    2 K. Narendranath Signed
    Date: 20th July 2017
    Place: Chennai
    72

    ABOUT UNIFI

    Unifi Capital Private Limited is a specialized portfolio management company based in Chennai and has offices in Mumbai, Bangalore, Hyderabad and Delhi. It is managed by a core team of 5 experienced capital market professionals who co-founded the company in 2001 along with the principal founder and Chief Investment Officer Sarath Reddy. Unifi manages funds for several high net worth families in India.

    Unifi offers multiple customized investment opportunities to its clients with varied levels of risks. Building differentiated styles that offer stable absolute returns or superior relative returns with high levels of personalization and customer service is fundamental to Unifi’s portfolio management service. It rigorously follows a disciplined investment process and places utmost focus on safety of client capital. Unifi is regulated by the Securities and Exchange Board of India.

    Mumbai Maran Govindasamy +91 98410 96034
    Harshawardhan Agarwal +91 99301 12828
    Chandri Shah +91 99205 25910
    Chennai Krishna Prasad +91 98947 40044
    Anto Vinesh +91 98431 08007
    73
    Bengaluru Christopher Vinod +91 96322 44747
    Hyderabad Prabhakar +91 98496 69488
    Delhi Harshawardhan Agarwal +91 99301 12828
    RavindKumar +91 92050 71210
    Disclaimer

    Securities, investments are subject to market risks and there can be no assurance or guarantee that the objectives will be achieved. As with any investment in securities, the value of the portfolio under management may go up or down, depending on the various factors and forces affecting the capital market. Past performance of the Portfolio Managers is not an indication of the future performance of the Portfolio Managers. Investors in the fund or not being offered any guaranteed / assured returns.

    This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its completeness or accuracy. References to actions of specific companies have been made as a matter of fact but the comments on such actions represent only our judgment and analysis and not that of the specific companies. This material is not an offer to sell or a solicitation to buy any securities or any financial instruments mentioned in the report.

    © 2017 Unifi Capital Private Limited. All Rights Reserved

    74

    Unifi Capital Pvt. LImited, 11,Kakani Towers, 15,Khader Nawaz Khan Road,Nungambakkam,Chennai- 600 006.

    Tel: +91-44-28331556,+91-44-28332723

    Email:info@unificap.com

    www.unificap.com

    Mumbai | Chennai | Bengaluru | Hyderabed | Delhi

    75