HSBC Asset Management (India) Private Limited Annual Report

Transcription

1 Annual Report

2 Directors Report The Directors have pleasure in submitting their report along with the audited financials for the Financial Year 1 April 2007 up to 31 March Financial results Particulars Current financial year ended 31 March 2008 (Rs) Previous financial year ended 31 March 2007 Gross income 895,151, ,269,199 Profit / (loss) before finance charges and depreciation 155,157, ,260,979 Finance charges 536, ,630 Depreciation 11,738,314 27,124,543 Profit / (loss) for the period 142,882,455 83,483,806 Provision for Tax 40,571,143 (24,250,192) Deferred Tax & Fringe benefit tax (Charge)/Credit (3,514,376) 18,433,426 Net Profit / (loss) for the period after adjustment of deferred 98,796,936 77,667,040 tax credit Net Profit / (loss) after taxes carried forward to the Balance 56,364,103 69,457,240 Sheet Previous period figures have been regrouped and reclassified wherever necessary to confirm the current period s presentation. Dividend Considering the financial position of the Company, the Board of Directors declared an interim dividend of 3.5% per equity share aggregating to Rs 4,200,000 paid as an Interim Dividend for the Financial Year The Directors recommend that the said interim dividend be considered as the final dividend for the Financial Year Capital The Company was incorporated on 12 December 2001 with a paid up equity share capital of Rs 100,000. On 20 December 2001, the equity share capital was increased to Rs 120,000, % of the paid up equity share capital was held by HSBC Securities and Capital Markets (India) Private Limited (HSCI) and the balance 25% by resident Indian individuals. During the year, The Company bought back 3,000,000 fully paid up equity shares of the Company, constituting 25% of the paid up capital, from the existing equity shareholders of the Company. The buyback had been occasioned on account of the fact that the Company s paid up capital and free reserves were in excess of the statutory requirements. Post buy back, HSCI holds 100% of the paid up capital of the Company.

3 Operations Mutual Fund During the year, the Fund launched five new schemes; an interval Fund viz. an open-ended debt Fund viz HSBC Flexi debt Fund (HFDF), HSBC Interval Fund (HINF) with three plans, an open ended Equity scheme investing in overseas funds viz; HSBC Emerging Markets Fund.(HEMF), HSBC Dynamic Fund (HDF), an open ended scheme and a close ended Equity scheme viz HSBC Small Cap Fund. (HSCF) HFDF is an open-ended fixed income fund that proposes to invest entirely in fixed income instruments across various maturity profiles. HINF is a Debt Oriented Interval Scheme with multiple plans.the Plans will comprise a portfolio of securities normally maturing in line with the term of the Plan. HEMF is an Open Ended Scheme seeking to provide long term capital appreciation by investing in India and in the emerging markets, in equity and equity related instruments, share classes and units/securities issued by overseas mutual funds or unit trusts. The fund may also invest a limited proportion in debt and money market instruments. HDF seeks to provide long term capital appreciation by allocating funds in equity and equity related instruments. It also has the flexibility to move, entirely if required, into debt instruments in times that the view on equity markets seems negative. HSCF is a three year close-ended equity scheme with automatic conversion into open ended equity scheme at the end of three years from the date of allotment of Units. The scheme will focus on small cap companies that have strong or improving fundamentals, high growth potential or are under-priced relative to their intrinsic value. The Fund also launched new plans of various tenors under the HSBC Fixed Term Series (HFTS). HFTS is a close-ended Income Scheme launched during the financial year The Company earned Investment Management fees to the tune of Rs crores for managing the assets of HSBC Mutual Fund. The funds under management of the Schemes of HSBC Mutual Fund as at 31 March 2008 amounted to Rs crores. The Fund had investor accounts as at 31 March 2008 in its various Schemes. Performance The performance of the Schemes of HSBC Mutual Fund as on 31 March 2008 is presented below : HSBC Equity Fund (HEF) an open-ended diversified Equity Scheme Date Of Inception : 10 Dec 02 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC Equity Fund Growth BSE

4 HSBC India Opportunities Fund (HIOF) an open-ended flexi-cap Equity Scheme Date Of Inception : 24 Feb 04 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC India Opportunities Fund - Growth BSE HSBC Midcap Equity Fund (HMEF) an open-ended diversified Equity Scheme Date Of Inception : 19 May 05 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC Midcap Equity Fund Growth NA BSE MID CAP HSBC Advantage India Fund (HAIF) an open-ended flexi-theme Equity scheme Date Of Inception : 23 Feb 06 Absolute Compounded Annualized Schemes (P2P) 6 Months 1 Year 2 Year Since Inception HSBC Advantage India Fund - Growth BSE HSBC Tax Saver Equity Fund (HTSF) - an open ended Equity linked Savings Scheme Date Of Inception : 05 Jan 07 Absolute Compounded Annualized Schemes (P2P) 6 Months 1 Year Since Inception HSBC Tax Saver Equity Fund - Growth BSE

5 HSBC Dynamic Fund (HDF) - an open-ended Scheme Date Of Inception : 24 Sep 07 Absolute Compounded Annualized Schemes (P2P) 3 Months 6 Months Since Inception HSBC Dynamic Fund Growth BSE HSBC Emerging Markets Fund (HEMF) - an open-ended Scheme Date Of Inception : 17 Mar 08 Absolute Compounded Annualized Schemes (P2P) 3 Months 6 Months Since Inception HSBC Emerging Markets Fund Growth MSCI Emerging Markets Index HSBC Unique Opportunities Fund (HUOF) - a close ended equity scheme Date Of Inception : 21 Mar 07 Absolute Compounded Annualized Schemes (P2P) 6 Months 1 Year Since Inception HSBC Unique Opportunities Fund Growth BSE HSBC Small Cap Fund (HSCF) - a close ended Equity Fund Date Of Inception : 24 Mar 08 Absolute Compounded Annualized Schemes (P2P) 3 Months 6 Months Since Inception HSBC Small Cap Fund Growth BSE SMALL CAP

6 HSBC MIP (HMIP) an open-ended Fund (An Open ended fund. Monthly income is not assured and is subject to availability of distributable surplus.) HMIP Regular Plan Date Of Inception : 24 Feb 04 Absolute Compounded Annualized Since Schemes (P2P) 1 Year 2 Years 3 Years Inception HSBC MIP - Regular Plan Growth Crisil MIP Blended Index HMIP Savings Plan Date Of Inception : 24 Feb 04 Absolute Compounded Annualized Since Schemes (P2P) 1 Year 2 Years 3 Years Inception HSBC MIP - Savings Plan Growth Crisil MIP Blended Index HSBC Income Fund (HIF) an open-ended Income Scheme The Fund has two Plans - the Investment Plan (IP) and the Short Term Plan (STP). HIF IP Date Of Inception : 10 Dec 02 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC Income Fund - IP Regular - Growth Crisil Composite Bond Fund Index

7 HIF STP Date Of Inception : 10 Dec 02 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC Income Fund - STP Regular - Growth CRISIL Short-Term Bond Fund Index HSBC Gilt Fund (HGF) Short Term Plan an open-ended Gilt Scheme Date Of Inception : 05 Dec 03 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Years 3 Years Since Inception HSBC Gilt Fund - STP Growth I-Sec Si-BEX HSBC Floating Rate Fund (HFRF) an open-ended Income Scheme The Fund has two Plans Long Term Plan (LTP) and Short Term Plan (STP). HFRF LTP Date Of Inception : 16 Nov 04 Absolute Compounded Annualized Schemes (P2P) 1 Year 2 Year 3 Years Since Inception HSBC FRF - LTP - Regular Plan - Growth Crisil Liquid Fund Index HFRF STP Date Of Inception : 16 Nov 04 Simple Annualized Compounded Annualized Since Schemes (P2P) 3 Months 6 Months 1 Year 2 Years 3 Years Inception HSBC FRF - STP - Regular Plan - Growth Crisil Liquid Fund Index

8 HSBC Cash Fund (HCF) an open-ended Liquid Scheme Date Of Inception : 04 Dec 02 Simple Annualized Compounded Annualized Since Schemes (P2P) 3 Months 6 Months 1 Year 2 Years 3 Years Inception HSBC Cash Fund Regular Growth Crisil Liquid Fund Index HSBC Liquid Plus Fund (HLPF) - an open ended Debt Scheme Date of Inception : 17 Oct 06 Absolute Compounded Annualized Schemes (P2P) 3 Months 6 Months 1 Year Since Inception HSBC Liquid Plus Fund - Regular - Growth Crisil Liquid Fund Index HSBC Flexi Debt Fund (HFDF) - an open ended Debt Scheme Date Of Inception : 05 Oct 07 Absolute Compounded Annualized Schemes (P2P) 1 Months 3 Months Since Inception HSBC Flexi Debt Fund Growth Crisil Composite Bond Fund Index

9 HSBC Interval Fund a Debt Oriented Interval Scheme Date Of Inception : 22 Nov 07 Absolute Compounded Annualized Schemes (P2P) 1 Months 3 Months Since Inception HSBC Interval Fund Plan I Growth Crisil Liquid Fund Index Date Of Inception : 11 Dec 07 Absolute Compounded Annualized Schemes (P2P) 1 Months 3 Months Since Inception HSBC Interval Fund Plan II - Growth Crisil Liquid Fund Index Date Of Inception : 19 Mar 08 Absolute Compounded Annualized Schemes (P2P) 1 Months 3 Months Since Inception HSBC Interval Fund Plan III - Growth Crisil Liquid Fund Index

10 Investor Services During the year, the number of official points of acceptance of transactions increased significantly to about 141 locations. In addition to the offices of the transfer agent, the company has Investor Service Centres in 15 locations at its own offices - namely Mumbai, New Delhi, Kolkata, Chennai, Bangalore, Hyderabad, Pune, Ahmedabad, Indore, Jaipur, Chandigarh, Kochi, Coimbatore, Lucknow and Vadodara. With a view to enhancing customer convenience, the Asset Management Company has extended the direct credit facility (for direct credit of redemption and dividend proceeds) to 1 more bank (DBS) taking the total number of such tie-ups to 15 (HSBC, Standard Chartered Bank, ABN Amro Bank, Deutsche Bank, Citibank N.A., ICICI Bank, HDFC Bank, IDBI Bank, Kotak Mahindra Bank, Axis Bank, ING Vysya Bank, Centurion Bank of Punjab, IndusInd Bank, YES Bank and DBS). Dividend payouts are generally done within 5 to 10 working days from the record date in all Schemes. The internal standards on redemption payouts have been consistently met, with very few exceptions. The number of locations for the ECS Auto Debit facility for investments through Systematic Investment Plan stands at 65 as on March On the distribution front, the number of empanelled distributors more than doubled from 3,709 as of 31 March 2006 to 7,897 as of 31 March During the year, the number of online channel partner tie-ups for distribution of the Fund s schemes grew to 22 from 12 as at 31 March Call centre operations have been extended to cover the entire country. The Asset Management Company has outsourced certain back office services including call centre services to HSBC Operations and Processing Enterprise (India) Private Limited (HOPE). The migration of a majority of activities of the Query team to HOPE, Chennai was successfully completed during the year. Awards a) HSBC Floating Rate Fund - Long Term Plan has been ranked as a Seven Star Fund and awarded the ICRA 7-Star Gold Award in the category of Open Ended Floating Rate Fund schemes for its 1 year performance till 31 December The rank indicates top performance within the specified category for its 1 year performance. Ranking methodology and Disclaimer: The rank is an outcome of an objective and comparative analysis against various parameters, including risk adjusted return, fund size, sector concentration and average maturity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 24 schemes considered in Open Ended Floating Rate Fund category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Floating Rate Fund - Long Term Plan. b) HSBC Monthly Income Plan Savings Plan has been ranked as a Five Star Fund in the category of Open Ended Marginal Equity schemes for its 1 year performance till December 31, Ranking methodology and Disclaimer: The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, company concentration, sector concentration and average maturity. The ranking methodology did not take into account entry and exit loads imposed by the Fund. There were 28 schemes considered in Open Ended Marginal Equity category for the ranking exercise. The rank is neither a certificate of statutory compliance nor any guarantee on the future performance of HSBC Monthly Income Plan Savings Plan.

11 Past performance is not indicative of future results Ranking Source & Publisher: ICRA/ICRA Online Ltd. Portfolio Management Services (PMS) The Company launched its Portfolio Management Services (PMS) offering on 27 March Portfolio Management Services is a customized proposition for high net worth clients. The service aims to provide personalized portfolio management services to select clientele depending on the investor's risk appetite, growth expectations and personal investment requirements. Currently the Company provides Discretionary and Advisory Portfolio Management Services to individual and institutional customers. As on 31 March 2008, the PMS business had Assets under Management of INR crores. There were 1477 clients under Discretionary PMS and 4 clients under Advisory PMS. During the FY , the company grew its PMS Assets under Management by INR crores, and added 1286 clients under Discretionary PMS and 3 clients under Advisory PMS. During the year under review, the PMS business had on offer 6 PMS portfolios, apart from advisory and institutional mandates, namely Signature Portfolio, Strategic Portfolio, 85% Capital Protection Oriented Portfolio, Large Cap Oriented Portfolio, Capital Guard Portfolio and HSBC Equity Linked Portfolio. The Company launched a Close-Ended Capital Guaranteed Product called "HSBC Capital Guard Portfolio" in August 2007, the first Capital Guaranteed Product in India from HSBC. The product was guaranteed by HSBC Bank plc, and ideal for investors who wish to gain from a potential equity upside, yet seek a capital guarantee on the investment amount. The Company launched the "HSBC Equity Linked Portfolio" series in August This portfolio is typically linked to the performance of an underlying equity index or a basket of equities, and seeks to generate long term absolute returns. To achieve this, the portfolio invests in Non-Convertible Debentures (NCDs) issued by entities (Issuer) that are reputable in the opinion of the Portfolio Manager. A Non Convertible Debenture (NCD) is an instrument that endeavours to provide investors 100% principal protection and a coupon. The portfolio invests in NCDs, which have a fixed tenor. An investment made in each NCD forms a part of the Equity Linked Portfolio Series, and is serially numbered. Directors There has been no change in the Board of Directors of the Company from the date of the last Annual General Meeting of the Company to the end of the year under review. As required by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the Board of Directors of the Company comprises 50% directors who are not associate of or associated in any manner with, the Sponsor of HSBC Mutual Fund (HSBC Securities and Capital Markets (India) Private Limited) or any of its subsidiaries or the Trustees of HSBC Mutual Fund.

12 Directors Responsibility Statement The Directors confirm that : (i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) the accounting policies have been consistently applied and reasonable and prudent judgement and estimates have been made so as to give a true and fair view of the state of affairs of the Company as at 31 March 2008 and of the profit or loss of the Company for the Financial Year ended 31 March 2008; (iii) proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 has been taken for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (iv) the annual accounts have been prepared on a going concern basis. Personnel Particulars of employees required under section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 are given in the Annexure forming part of this Report. Conservation of energy, technology absorption and foreign exchange earnings and outgo As the Company is the asset management company to HSBC Mutual Fund and provides portfolio management services, no reporting in respect of conservation of energy and technology absorption is required. Information regarding foreign exchange earnings and outgo is contained in points 17.3 and 17.4 of the Notes to the financial statements. Auditors M/s BSR & Co retire as auditors at the ensuing annual general meeting and are eligible for reappointment. By authority of the Board Naina Lal Kidwai Chairman Vikramaaditya Director & Chief Executive Officer Place: Mumbai Date:

13 Investors may obtain Offer Documents and Key Information Memorandums along with application forms from the office of HSBC Mutual Fund, 314 D. N. Road, Fort, Mumbai Tel: Statutory Details: HSBC Mutual Fund has been set up as a trust by HSBC Securities and Capital Markets (India) Private Limited (liability restricted to the corpus of Rs 1 lakh). The Sponsor/associates of the Sponsor/Asset Management Company (AMC) are not responsible or liable for any loss or shortfall resulting from the operation of the Schemes. The Trustees of HSBC Mutual Fund have appointed HSBC Asset Management (India) Private Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the Net Asset Value (NAV) of the Scheme(s) may go up or down depending on the factors and forces affecting the securities markets. There can be no assurance that the objectives of the Scheme(s) will be achieved. Past performance of the Sponsor, AMC, Mutual Fund or any associates of the Sponsor/AMC does not indicate the future performance of the Scheme(s) of the Mutual Fund. HSBC Equity Fund (HEF), HSBC India Opportunities Fund (HIOF), HSBC Midcap Equity Fund (HMEF), HSBC Advantage India Fund (HAIF), HSBC Tax Saver Equity Fund (HTSF), HSBC Dynamic Fund (HDF), HSBC Emerging Markets Fund (HEMF), HSBC Unique Opportunities Fund (HUOF), HSBC Small Cap Fund (HSCF), HSBC Income Fund (HIF), HSBC Gilt Fund (HGF), HSBC Cash Fund (HCF), HSBC Liquid Plus Fund (HLPF), HSBC MIP (HMIP), HSBC Floating Rate Fund (HFRF), HSBC Flexi Debt Fund (HFDF), HSBC Interval Fund (HINF) & HSBC Fixed Term Series (HFTS) are the names of the Schemes and do not in any manner indicate the quality of the Schemes or their future prospects or returns. Scheme Classification: HEF (an open-ended diversified equity Scheme) aims to generate long term capital growth from an actively managed portfolio of equity and equity related securities. HIOF (an open-ended flexi-cap equity Scheme) seeks long term capital growth through investments across all market capitalisations, including small, mid and large cap stocks. It aims to be predominantly invested in equity & equity related securities. However it could move a significant portion of its assets towards fixed income securities if the fund manager becomes negative on equity markets. HMEF (an open-ended diversified equity Scheme) seeks to generate long term capital growth from an actively managed portfolio of equity and equity related securities primarily being midcap stocks. However, it could move a portion of its assets towards fixed income securities if the fund manager becomes negative on the Indian equity markets. HAIF (an open-ended flexi-theme equity Scheme) seeks to generate long term capital growth from an actively managed portfolio of equity and equity related securities by investing primarily in sectors, areas and themes that play an important role in, and/or benefit from India s progress, reform process and economic development. HTSF (an open ended Equity Linked Savings Scheme) seeks to provide long term capital appreciation by investing in a diversified portfolio of equity & equity related instruments of companies across various sectors and industries, with no capitalisation bias. The Fund may also invest in fixed income securities. HUOF (a 3 year close ended equity scheme with automatic conversion into an open ended equity scheme at the end of 3 years from the date of allotment of units) seeks to provide long-term capital growth from a diversified portfolio of equity and equity related instruments. The focus would be to invest in stocks of companies facing out-ofordinary conditions and HDF (an open-ended Scheme) seeks to provide long term capital appreciation by allocating funds in equity and equity related instruments. It also has the flexibility to move, entirely if required, into debt & money market instruments in times when the view on equity markets seems negative. HEMF (an open ended Scheme) seeks to provide long term capital appreciation by investing in India and in the emerging markets, in equity and equity related instruments, share classes and units/securities issued by overseas mutual funds or unit trusts. The fund may also invest a limited proportion in debt and money market instruments. HSCF (a 3 year closeended equity scheme with automatic conversion into open ended equity scheme at the end of three years from the date of allotment of Units) seeks to provide long-term capital appreciation primarily from a diversified portfolio of equity and equity related instruments of small cap companies. HIF (an open-ended income scheme) aims to provide a reasonable income through a diversified portfolio of fixed income securities. The AMC's view of interest rate trends and the nature of the Plans will be reflected in the type and maturities of securities in which the Short Term and Investment Plans are invested. HGF (an open-ended gilt scheme) aims to generate reasonable returns through investments in Government Securities of various maturities. HCF (an open-ended liquid scheme) aims to provide reasonable returns, commensurate with low risk while providing a high level of liquidity, through a portfolio of money market and debt securities. HLPF (an open-ended debt Scheme) seeks to provide liquidity and reasonable returns by investing primarily in a mix of short term debt and money market instruments. HMIP (an open-ended Fund with Regular & Savings Plans; monthly income is not assured and is subject to availability of distributable surplus) seeks to generate reasonable returns through investments in debt and money market instruments with a secondary objective to seek capital appreciation through investments in equity and equity related instruments. HFRF (an open-ended income scheme) seeks to generate a reasonable return with commensurate risk through investments in floating rate debt instruments and fixed rate debt instruments swapped for floating rate returns. The Scheme may also invest in fixed rate money market and debt instruments. HFDF (an open ended Debt Scheme) seeks to deliver returns in the form of interest income and capital gains, along with high liquidity, commensurate with the current view on the markets and the interest rate cycle, through active investment in debt and money

14 market instruments. HINF (a Debt Oriented Interval Scheme) seeks to generate returns by investing in a portfolio of fixed income instruments normally maturing in line with the time profile of the respective Plan(s). HFTS (a closeended Income Scheme) seeks to generate reasonable returns by investing in a portfolio of fixed income instruments normally maturing in line with the time profile of the respective Plan(s). Terms of Issue: Units of the Scheme(s) are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Scheme(s) on all Business Days, at the Applicable NAV for all Schemes (at least once a week, i.e., every Wednesday and daily during the period of redemption in case of HSCF). HUOF, HSCF & HFTS will not be open for ongoing subscriptions/ switch ins. HUOF & HSCF would be available for sale on an ongoing basis (after a period of 3 years from the date of allotment). Conversion of HUOF & HSCF to an open-ended scheme will be done only after the balance unamortized amount has been fully recovered from the Scheme. Units can be redeemed/switched out on every Business Day at NAV based prices, subject to prevailing exit loads. In case of HSCF, units can be redeemed / switched out on a monthly basis on the stipulated date i.e. last 3 business days of every month at NAV based prices, subject to provisions of exit load, if any and recovery of balance proportionate unamortized NFO expenses. HINF will allow purchases/redemptions during the specified interval period at NAV based prices, without payment of any entry/exit load. In addition, the Scheme also provides for redemption of units on every Business Day on an ongoing basis subject to applicable exit load. Load Structure (includes SIP/STP): HEF, HIOF, HMEF, HAIF Entry 2.25% for investments/switch ins* < Rs 5 crores, otherwise Nil. Exit 1% for < Rs 5 crores, if redeemed/switched out* within 1 year from date of investment, otherwise Nil. HTSF - Entry % for investments/switch ins* < Rs 1 crore, otherwise Nil. Exit Nil. HUOF - During close ended period - Exit - Nil. However the investor will have to bear the proportionate unamortized initial issue expenses for exiting during the close ended period. SIP/SEP/STP in HUOF available after conversion to an open-ended scheme. HSCF During close ended period - Entry Nil; Exit # If the investments are redeemed/ switched out within: 1 year 2%; 2 years 1.5% and 3 years 1%. # Balance proportionate unamortized NFO expenses to be recovered in case of exit within close-ended period. Upon conversion into an open ended scheme - Entry - For investments/ switched in below Rs. 5 Crores %, otherwise Nil; Exit Nil. HMIP Entry Nil. Exit - 1% - if redeemed/switched out within 1 year from date of investment. In case of HIF-IP - Entry - Nil. Exit - 0.5% for < Rs 10 lakhs in Regular Option, if redeemed/switched out within 6 months from the date of investment. For HFRF-LT Entry Nil and Exit % for investments in Institutional Option, if redeemed/switched out within 7 days from the date of investment & 0.5% for investments below Rs. 10 lakhs in Regular Option, if redeemed/ switched out within 6 months from the date of investment. In case of HDF & HEMF - Entry % for investments/switch in* below Rs 5 crores, otherwise Nil. Exit - 1% for investment below Rs. 5 crores, if redeemed/switched out* within 1 year from the date of allotment/investment, otherwise Nil. HINF - During the specified interval period: Entry Nil and Exit Nil. In any other case Exit 0.5%. Switchover Fee: Available on a no-load basis during the specified interval period and subject to applicable loads of the Scheme during any other period. HLPF Entry and Exit - Nil. HFDF Entry Nil. Exit 0.75% - in Regular Option, if redeemed/ switched out within 6 months from the date of investment. *No load in case of switches between equity Schemes of HSBC Mutual Fund. No load in case of HCF, HGF, HIF-ST & HFRF-ST. HFTS Consult the nearest investor service centre for details. No load in case of investments by Fund-of-Funds (except HDF, HFDF, HEMF, HSCF, HINF & HFTS). The entry/exit load set forth above is subject to change at the discretion of the AMC and such changes shall be implemented prospectively. Mutual Fund investments are subject to market risks. Read the Offer Document carefully before investing.

15 Auditors Report To the Members of HSBC Asset Management (India) Private Limited We have audited the attached balance sheet of HSBC Asset Management (India) Private Limited ( the Company ) as at 31 March 2008, the profit and loss account and the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 1 As required by the Companies (Auditor s) Report Order, 2003 ( Order ) issued by the Central Government of India in terms of section 227(4A) of the Companies Act, 1956 ( the Act ), we enclose in the Annexure a statement on the matters as stated in paragraphs 4 and 5 of the said Order. 2 Further to our comments in the Annexure referred to above, we report that: (i) (ii) (iii) (iv) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account; In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; (v) On the basis of written representations received from the Directors, as on 31 March 2008, and taken on record by the Board of Directors, we report that none of the Directors are disqualified as on 31 March 2008 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

16 Auditors Report (Continued) HSBC Asset Management (India) Private Limited (vi) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) (b) (c) in the case of the balance sheet, of the state of affairs of the Company as at 31 March 2008; in the case of the profit and loss account, of the profit for the year ended on that date; and in the case of the cash flow statement, of the cash flows for the year ended on that date. For B S R & Associates Chartered Accountants Mumbai Akeel Master 16 July 2008 Partner Membership No:

17 Annexure to Auditors Report - 31 March 2008 [Referred to in paragraph 1 of the Auditors report to the members of HSBC Asset Management (India) Private Limited on the accounts for the year ended 31 March 2008] We report as follows: 1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets. (b) The Company has a regular programme of physical verification of its fixed assets by which all fixed assets are verified on a yearly basis. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets. No material discrepancies were noticed on such verification. (c) No fixed assets were disposed off during the year, and therefore, do not affect the going concern assumption. 2. The Company is a service company primarily rendering asset management services and portfolio management services. Accordingly, paragraph 4(ii) of the Order is not applicable. 3. According to the information and explanations given to us, we are of the opinion that there are no companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, Accordingly, paragraph 4(iii) of the Order is not applicable. 4. In our opinion, and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, with regard to purchase of fixed assets and sale of services. We have not observed any major weaknesses in internal control system during the course of our audit. 5. In our opinion, and according to the information and explanations given to us, there are no contracts and arrangements the particulars of which need to be entered into the register maintained under section 301 of the Companies Act, The Company has not accepted deposits from public hence directives issued by the Reserve Bank of India and the provisions of section 58A and 58 AA or any other relevant provisions of the Companies Act, 1956 and rules framed there under are not applicable for the year under audit. 7. In our opinion, the Company has an internal audit system commensurate with its size and the nature of its business. 8. The Central Government has not prescribed the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 for any of the products manufactured/services rendered by the Company. 9. (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/accrued in the books of account in respect of undisputed statutory dues including Provident Fund, Income-tax, Service tax and other material statutory dues have been regularly deposited during the year by the Company with the appropriate authorities. As at 31 March 2008, there are no undisputed dues payable for a period of more than six months from the date they became payable. As explained to us, the Company did not have any dues on account of Excise Duty, Investor Education and Protection Fund, Sales-tax, Wealth tax, Custom duty, Cess and Employees State Insurance.

18 Annexure to Auditors Report - 31 March 2008 (Continued) (b) According to the information and explanations given to us, no undisputed amounts payable in respect of Income tax, Service tax and other material statutory dues were in arrears as at 31 March 2008 for a period of more than six months from the date they became payable other than those stated in Appendix 1 to this report. (c) There were no dues on account of cess under section 441A of the Companies Act, 1956 since the date from which the aforesaid section comes into force has not yet been notified by the Central Government. (d) According to the information and explanations given to us, there are no dues of Income tax, Service tax and material statutory dues which have not been deposited with the appropriate authorities on account of any dispute. 10. The Company does not have any accumulated losses at the end of the financial year and has not incurred cash losses in the financial year and in the immediately preceding financial year. 11. In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of dues to any financial institution, bank or debenture holder. 12. In our opinion, the Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures, and other securities. 13. In our opinion and according to the information and explanations given to us, the Company is not a chit fund or a nidhi/ mutual benefit fund/ society. 14. In our opinion and based on information and explanations given to us, in respect of dealing and trading in shares, securities, debentures and other investments, proper records have been maintained of the transactions and contracts and timely entries have been made therein. The shares, securities, debentures and other investments have been held by the Company in its own name. 15. According to information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks and financial institutions. 16. In our opinion and according to the information and explanations given to us, the term loans taken by the Company have been applied for the purpose for which they are raised. 17. According to the information and explanations given to us and based on overall examination of the balance sheet of the Company, the Company has not raised any funds on short term basis for the purpose of long term investment. 18. As stated in paragraph 5 above, there are no companies/firms/parties covered in the register required to be maintained under section 301 of the Act. 19. The Company has not issued any debentures during the year. 20. The Company has not raised any money by public issues during the year. 21. According to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit. For B S R & Associates Chartered Accountants Mumbai Akeel Master 16 July 2008 Partner Membership No:

19 Details of statutory dues which have not been deposited on account of any dispute: Appendix I Name of the statute Nature of dues Amount (rupees thousand) Period to which the amount relates Forum where dispute is pending Income Tax Act, 1961 Income tax 2,534 A.Y CIT Appeals

20 Balance sheet as at 31 March 2008 (Currency: Indian Rupees) Schedule 31 March March 2007 SOURCES OF FUNDS Shareholders' funds Share capital 3 90,000, ,000,000 Reserves and surplus 4 797,088, ,723,922 Loan Funds Secured loans Lease liability 5 2,426,281 6,808,140 Unsecured loans Bank overdraft 6-509, ,514, ,041,244 Fixed assets 7 Gross block 95,526,301 91,516,267 Less: Accumulated depreciation 78,429,750 70,605,070 Net block 17,096,551 20,911,197 Investments 8 680,491, ,904,300 Deferred tax asset ,931,855 26,029,836 Long term incentive plan ,313,963 66,233,631 Current assets, loans and advances Cash and bank balances 9 5,175, ,084 Sundry debtors 10 98,345,657 49,291,098 Loans and advances ,923, ,789, ,444, ,410,773 Current liabilities and provisions Current liabilities ,024, ,079,978 Provisions 13 6,740,088 3,368, ,764, ,448,493 Net current assets 95,680, ,962,280 Miscellaneous expenditure (to the extent not written off or adjusted) ,514, ,041, Significant accounting policies 2 Notes to the financial statements 17 The schedules referred to above form an integral part of the balance sheet. As per our report attached. For B S R & Associates Chartered Accountants For and on behalf of the Board of Directors of HSBC Asset Management (India) Private Limited # Akeel Master Vithal Palekar Sanjay Prakash Partner Director Director & Membership No: Chief Executive Officer Mumbai 16 July 2008 Oruganti Ravi Vice President & Head of Compliance Mumbai 16 July 2008

21 Profit and loss account for the year ended 31 March 2008 (Currency: Indian Rupees) INCOME Schedule 31 March March 2007 Investment management fees (TDS Rs. 87,071,258 previous year Rs. 31,292,736) 729,154, ,779,433 Investment advisory fees - 108,740,842 Income from PMS Business (TDS Rs. 2,028,843 previous year Rs. 94,731) 126,213,843 8,973,477 Profit on sale of investments (net) (non trade) 9,058,511 - Dividend (non trade) 29,128,543 38,338,005 Foreign exchange gain (net) 1,593, ,390 Interest on loans advanced to staff 3,270 3,657 Other income 0-1,395 TOTAL 895,151, ,269,199 EXPENDITURE Employee costs ,654, ,304,369 Establishment and other expenses ,340, ,299,550 Depreciation 7 11,738,314 27,124,543 Lease finance charges 536, ,630 Mark-to-market loss in value of investments (net) - (191,768) Preliminary expenses and licence fees written off ,069 TOTAL 752,269, ,785,393 Profit before tax 142,882,455 83,483,806 Provision for tax (40,571,143) (24,250,192) Deferred tax charge/(credit) 3,892,214 23,188,943 Fringe benefit tax (7,406,590) (4,755,517) Net profit after tax for the year 98,796,936 77,667,040 Accumulated profit brought forward 650,723, ,266,682 TOTAL 749,520, ,933,722 Appropriation Less: Transitional provision for Gratuity as per AS 15 (revised) ,043 - Premium on redemption of Equity Shares 7,500,000 - Interim equity dividend 4,200,000 7,200,000 Dividend distribution tax on equity dividend Interim dividend 713,790 1,009,800 Transfer to capital redemption reserve 30,000,000 - Balance carried over to balance sheet 707,088, ,723,922 TOTAL 749,520, ,933,722 Basic and diluted earnings per share Significant accounting policies 2 Notes to the financial statements 17 The schedules referred to above form an integral part of the profit and loss account. As per our report attached. For B S R & Associates Chartered Accountants For and on behalf of the Board of Directors of HSBC Asset Management (India) Private Limited Akeel Master Vithal Palekar Sanjay Prakash Partner Director Director & Membership No: Chief Executive Officer Mumbai 16 July 2008 Oruganti Ravi Vice President & Head of Compliance Mumbai 16 July 2008

22 Cash flow statement for the year ended 31 March 2008 (Currency: Indian Rupees) Particulars 31 March March 2007 A B C Cash flow from operating activities Net profit before tax 142,882,455 83,483,806 Adjustments for Depreciation 11,738,314 27,124,543 Preliminary expenses - 596,069 Lease finance charges 536, ,630 Loss on sale of assets 659,030 62,077 Diminution in value of investments - (191,768) Profit / (loss) on sale of investments (net) (9,058,511) - Dividend (TDS : Nil, previous year : Nil) (29,128,543) (38,338,005) Transitional provision for Gratuity as per AS 15 (revised) (28,848) - (25,282,319) (10,094,454) Operating profit before working capital changes 117,600,136 73,389,352 Adjustments for : (Increase)/ decrease in sundry debtors (49,054,559) 446,513,852 (Increase)/ decrease in loans and advances 6,314,827 (36,565,260) Increase/( decrease ) in current liabilities and provisions 98,401,967 18,060,918 Cash generated from operations 55,662, ,009,510 Direct tax paid (96,506,690) (79,200,586) Net cash generated from operating activities ( A ) 76,755, ,198,276 Cash flow from investing activities Purchase of fixed assets (10,424,350) (33,719,017) Proceeds from sale of fixed assets 5,755,284 3,212,492 Purchase of mutual fund units (including dividend reinvestment and switch-ins) (1,423,644,468) (1,355,038,005) Proceeds from sale of mutual fund units (including switch-outs) 1,375,115, ,200,000 Dividend Income 29,128,543 38,338,005 Net cash from investing activities ( B ) (24,069,066) (419,006,525) Cash flow from financing activities Additional secured loans - 5,624,243 Repayment of secured loans (4,381,859) (4,289,178) Additional/(Refund) unsecured loans (509,182) 509,182 Lease finance charges (536,239) (652,630) Dividend distribution tax on equity dividend (713,790) (1,009,800) Interim equity dividend (4,200,000) (7,200,000) Buy Back of Equity Shares (30,000,000) - Premium on buy back of equity share capital (7,500,000) - Net cash from financing activities ( C ) (47,841,070) (7,018,183)

23 Cash flow statement for the year ended 31 March 2008 (Currency: Indian Rupees) Particulars 31 March March 2007 Net increase in cash and cash equivalents (A) + (B) + ( C ) 4,845,545 (3,826,432) Cash and cash equivalents at the beginning of the year 330,084 4,156,516 Cash and cash equivalents at the end of the year (refer note 1) 5,175, ,084 Net increase in cash and cash equivalents 4,845,545 (3,826,432) 1 Notes Cash and cash equivalents comprise of cash in hand and balances with banks in current accounts (Refer schedule 9 of the financial statements). As per our report attached. For B S R & Associates Chartered Accountants For and on behalf of the Board of Directors of HSBC Asset Management (India) Private Limited Akeel Master Partner Vithal Palekar Sanjay Prakash Membership No: Director Director & Mumbai Chief Executive Officer 16 July 2008 Oruganti Ravi Vice President & Head of Compliance Mumbai 16 July 2008