reliance nippon life asset management ltd Management discussions

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

1. Indian Economic Overview

Continuing the robust growth witnessed in FY22, India experienced another successful year in FY23. The complete reopening of the economy helped the services sector drive GDP recovery. However, the real GDP growth moderated from over 9% in FY22 to nearly 7% in FY23, owing to the sharp decline in global GDP growth. High and sticky global inflation and the resultant tightening of monetary policy around the world resulted in a sharp decline in global demand. In such a challenging global environment, the Indian economy also faced some headwinds, including weaker exports, reduced foreign exchange reserves and lower foreign capital inflows. Strong domestic demand and global supply shock also resulted in higher inflation in India, which averaged above the upper end of the RBIs comfort range of 6%. The RBI, however, managed the situation well, and as the economy became self-reliant, in FY23, the monetary accommodation was withdrawn gradually. After a cumulative 250 bps repo rate hike, the RBI raised the rate to 6.5% towards more neutral level.

In FY23, Indias fiscal situation saw an improvement as the higher tax buoyancy - both in direct and indirect tax collection - supported fiscal consolidation for the central government and state governments. For instance, the net direct tax collections grew by 17.6% yoy in FY23, higher than budgeted estimates. Similarly, FY23 saw a strong 23% yoy growth in GST collections, reaching 518.1 trillion. Average monthly GST collections also rose to 51.5 trillion in FY23, versus 51.2 trillion in FY22 on account of stronger compliance along with strong domestic demand growth. In March, GST collections topped 51.6 trillion and grew 13% yoy, ending the fiscal year on a strong note.

In terms of growth leadership, Capex emerged to be the fastest-growing segment. In terms of GDP components, real investment growth is likely to demonstrate double-digit growth for the second consecutive year in FY23, due to the recovery in household and Government Capex. The Governments resolve to lead the Capex momentum was visible in the FY24 budget announcement as well. To ramp the virtuous cycle of investments and job creation, the Budget took the step to hike capital expenditure outlay by 37.4 % in BE 2023-24 to a record 510 trillion from the 57.28 trillion in RE 2022-23. Moreover, in 10M FY23, the central government capex grew by 29% yoy to 55.7 trillion. The Government Capex spend focus is predominantly on road, railways, water and sanitation.

The recovery of private sector Capex is still in its nascent stages. Bank Credit to GDP ratio saw an increase in FY23, while Bank Credit grew 15% yoy, led by growth in the services sector and personal loans.

Outlook

In conclusion, there are a few challenges facing the Indian economy, such as the balance of payments risk, sticky inflation, and tighter global financial conditions. On the other hand, there are noteworthy positives as well, such as the decline in commodities prices including crude oil prices, solid momentum in GST collections, and the Government Capex push. As per IMF, India continues to be a bright spot in an uncertain global economy. There could be some moderation in growth in FY24, owing to weak exports and the impact of past interest rate tightening on Indias domestic demand. But overall, the Indian economy has a strong long-term potential.

2. Mutual Fund Sector Industry Overview

The Mutual Fund Industry has been witnessing robust growth. Over the last 10 years, the Assets Under Management (AUM) of the industry has grown at a CAGR of 17% and is currently at 540.51 Lakhs Crore. This rate of growth is a result of various factors including Indias high nominal GDP growth, increased financialisation with investors choosing financial assets over physical assets, improved awareness levels through campaigns such as Mutual Funds Sahi Hai, the credibility of products with high transparency, liquidity, diversification, and professional management, and the digitalisation of investments.

FY23, however, has been relatively muted for the industry. AUM growth was 5.6%, weighed down by significant outflows in debt funds. The industry witnessed an outflow of 59,38,375 Crores from debt funds (ex-liquid funds). Equity funds, including passive funds, continued to attract investor interest. There was a total inflow of 56,40,103 Crores in equity funds (including in hybrid/arbitrage/index funds), largely through systematic investments. Monthly SIP flows touched 514,276 Crores in March 2023, while SIP AUM at 56.83 Lakhs Crores grew by 18.6% in the year. The ETF category (including Fixed Income ETFs) saw an inflow of 51,56,162 Crores. The Target Maturity Debt Funds category, which are passive debt funds offering reasonable visibility of returns for investors, was launched in the year, it witnessed a growth of 577,610 Crores during the year.

The year witnessed a continuous and sharp increase in interest rates, globally and domestically, leading to yields going up across the curve and risk aversion among fixed income investors. Equity markets were volatile for the most part of the year, and closed the year with flat returns. S&P BSE Sensex return for the year was at 0.7%.

Participation from Individual Investors

Individual investor participation continues to be robust. The industry added 1.62 Crores folios in the year. The total folios stood at S14.57 Crores, with unique investors at S3.73 Crores. The interest in passives continued to be strong with an addition of ~20 lakhs folios.

Asset Mix

Equity AUM, as a proportion of total AUM, rose from 49% to 52% in the year. The share of debt- oriented schemes went from 27 to 22%, given the risk-aversion in a rising interest rate scenario.

Equity

A high-risk fund that invests primarily in equity securities with the goal of capital appreciation over the medium to long term. The returns are linked to the performance of the capital markets. There are different types of equity funds - diversified funds, sector-specific funds and index-based funds. In addition to equity funds, balanced/hybrid funds invest both in equity and debt instruments and strive to provide growth as well as regular income. Equity AUM contributes 52% to the total industry assets, and saw an 11.0% increase in the year.

Debt Funds

Debt Funds/Fixed Income Funds invest predominantly in debt and money market instruments, i.e. corporate bonds, debentures, Government Securities, Certificates of Deposits, Commercial Papers, etc. Debt AUM makes up 22% of total industry assets and decreased by 13.2% in the year.

Liquid Funds

Also known as Money Market Funds, these funds invest in highly liquid money market instruments and provide easy liquidity. Liquid funds are short-tenure investments and typically used by corporate houses, institutional investors and high net worth individuals to deploy surplus liquidity. Liquid AUM contributes 14% to total industry assets and saw an increase of 8.2%.

ETF

Exchange Traded Funds track an index, a commodity, or a basket of assets as closely as possible but trade like shares on the stock exchanges. ETF AUM contributes 13% to total industry assets and grew by 23.4%.

Top 10 AMCs AUM Trends

The Indian MF industry has over 40 AMCs and that includes private sector companies, joint ventures with foreign entities and NBFC/ bank-sponsored AMCs.

The industry remains largely consolidated in the top 10 AMCs, and currently, they manage 531.3 Lakhs Crores, which accounts for ~80% of the industry AUM.

Geographic Mix

Historically, AUM has been concentrated in the Top 30 (T-30) cities due to presence of institutional investors as they have a higher concentration of assets in non-equity schemes. The T-30 cities hold the majority of MF assets with a share of 83%, while the B-30 cities, or beyond the T-30, held 17% of the assets as of March 2023. AUM from B-30 has a higher composition of equity assets compared to T-30 cities.

Investor-wise break-up of AUM

The industrys investors base can be broadly categorised as Retail, High Net-Worth Individuals (hni) and Institutional. Over the last year, Retail and HNI segments grew by 13.0% and 10.9%, respectively, while Institutional AUM declined marginally at -0.7%. Institutional accounts for 42% of the industry AUM, whereas HNI AUM is at 33% and Retail AUM is at 25%.

SIP Inflow Growth Continues

Systematic Investment Plan or SIP, as it is commonly known, is an investment plan offered under Mutual Funds where a fixed amount can be invested in a scheme periodically, at fixed interval, like, once in a month.

SIP inflows began the year on a strong note and kept the momentum going through the year. Inflows increased on a month-on-month basis, indicating mature behaviour and the long-term investment horizon of individual investors. The total gross inflows from SIPs were 51.56 lakhs Crores for the year. The breadth of the investor base continued to expand, with the total number of SIP accounts at 6.36 Crores as on March 31, 2023, with an addition of 1.08 Crores accounts during the year. The gradual increase in participation from the retail segment, and the rising prominence of SIPs bring in a sense of stability to industry inflows.

Outlook

Given the current low levels of penetration, the Indian mutual fund industry has a long runway ahead. Indias mutual fund penetration (AUM to GDP) is in mid-teens, which is much lower than the world average of over 70%. However, there are some key drivers that are likely to unlock the fundamental and sustained growth potential of the industry, and these include Indias favourable demographic dividend, the formalisation of the economy, growing financial inclusion, greater disposable income and investable surplus, increasing financial savings, higher investor awareness, investor-friendly regulations, wide range of transparent and investor-friendly products, ease of investing, tax incentives, expanding distribution coverage, digitalisation, and perception of mutual funds as long-term wealth creators.

As far as capital markets are concerned, the primary concerns that had been ailing both the equity and fixed income markets - high inflation and aggressive rate hikes by the Central Banks - are largely behind. In anticipation of rate hikes, the yield levels had gone up across various tenures, offering investors high carry at this point of time. Combined with high carry, and the prospect of yields coming down in the medium term when expectations of stabilisation in rates, and possible rate cuts start building up, the prospects for fixed income investing are relatively bright. Similarly, after almost two years of a lacklustre equity market performance, the markets are anticipating improvements in the macro environment - a scenario that would be positive for equity market investments as well.

The mutual fund industry, with their several advantages, such as the ability to offer professionally managed, diversified portfolios, with high levels of transparency, liquidity and relatively low cost stands to benefit from the structural growth opportunities over the long term, and from what may be a benign capital market environment in the near to medium term.

3. Alternative Investment Funds

Alternative Investment Funds (AIFs) are pooled investment vehicles that collects funds from sophisticated investors (both domestic and international) to make investments in nontraditional investment assets (in accordance with a defined investment policy) for the benefit of its investors. The minimum investment amount by any investor in an AIF is S1 Crore.

SEBI has identified three categories of AIFs based on investments as below:

Category I: Funds that have positive spillover effects on the economy for which certain incentives/concessions might be considered, e.g. venture capital funds, Angel funds, SME Funds, social venture funds, infrastructure funds, etc.

Category II: Predominantly includes funds that invest in unlisted securities and includes funds like PE Funds, Debt funds, etc. and represents the largest segment AIF category.

Category III: Include funds that deploy diverse or complex trading strategies, including use of debt/leverage through investment in listed or unlisted debentures, e.g. hedge funds or funds that invest with a view to earn short-term returns form huge part of this segment.

As of June 2022, commitments raised are approximately at S6.95 lakhs Crores, of which funds raised are approximately. 49% i.e. S3.39 lakhs Crores. Within funds raised, Category II (71%) represents the largest segment, followed by Category III (20%,). Since 2012, SEBI has permitted more than 1,000 AIFs to be set up. Participants include AMCs, Private Equity, Venture Capital firms, Hedge Funds, Corporates, Boutique Investment Funds, Individuals, etc.

4. Portfolio Management Services

Portfolio Management Services (PMS) is an investment management service offered by asset management companies, brokerage houses and wealth managers to wealthy investors, such as HNIs and institutions. It is one of the most versatile investment vehicles is best suited for concentrated, benchmark-agnostic, bottom-up stock picking.

PMS is broadly divided into discretionary and non-discretionary/advisory. The PMS industry AUM as of February 2023 was at approximately S26.75 lakhs Crores.

5. Company Overview

True Blue Asset Management Player

Nippon Life India Asset Management Limited (NAM India, or the Company) is one of the largest asset management companies in India, with a track record of over 27 years, and a total AUM of S3.63 lakhs Crores as on March 31, 2023. The Company is involved in managing

(i) Mutual funds including exchange traded funds (ETFs)

(ii) Managed accounts, including portfolio management services (PMS), alternative investment funds and pension funds

(iii) Offshore funds and advisory mandates The Company is promoted by Nippon Life Insurance Company, one of the leading private life insurers in Japan, with assets of over $ 722 billion as on March 31, 2023. The following table illustrates the closing AUM of the Companys respective offerings:

Mutual Fund

Nippon India Mutual Fund (NIMF) offers a well- rounded portfolio of products, i.e. Equity, Debt, Liquid as well as ETF for investors to meet varying requirements. The Company started its mutual fund operations in 1995 as the asset manager for Reliance Mutual Fund. It constantly endeavours to launch innovative products and customer service initiatives to increase value to investors. As on March 31, 2023, the Company managed QAAUM of g 2,93,159 Crores. With 1.96 Crores folios, the Company has the largest base of investors in the industry. As of March 31, 2023, NIMF manages 98 schemes (including 18 in the equity category and 41 in the passive segment).

Business Strengths

Strong Base of Retail investors and Assets

NIMF has been known for its strength in the retail segment. Over the last two decades, the Company has meticulously built its assets in this category and created long-term wealth for its retail investors. It will continue to enhance these offerings to further expand its investor base. NIMFs retail AAUM contribution to total AAUM is amongst the highest in the industry at 29%. Also, the Company has the largest base of retail investors in the industry, with retail folios crossing 1.88 Crores as on March 31, 2023. The Company plans to ramp up its efforts in this segment with a mix of on-ground presence in smaller locations and evolving digital assets to improve experience and to on-board new investors.

Higher Share of AUM from Beyond Top 30 Locations

NIMF continues to be amongst the leaders in the Beyond Top 30 cities segment (B-30 locations. These locations have a higher share of equity assets compared to non-equity assets. This segment contributed an AUM of g55,680 Crores, with a share of 19% of total assets, which is higher than the industry average. In smaller locations, there is a need for face-to-face communication to get new investors into the MF industry. NIMF has one of the largest on-ground presences—270 locations pan India—and we endeavour to provide an all-round interface for our online and offline investors.

AUM from B-30 locations

SIP and STP—Long Term and Stable Inflows

SIP and STP are among the strongest pillars of the industry, and in addition to providing long-term sustainable inflows, they also instill a savings habit among investors and ensure steady disciplined investing rather than ad-hoc investment. NIMF received g1,115 Crores in inflows from systematic transactions in March 2023, which is a recurring monthly inflow, resulting in annualised inflows of ~g13,400 Crores. The book has 48.4 lakh SIP and STP folios that have grown by 22% in FY23. The overall inflows crossed g10,964 Crores in FY23.

Leadership Position in the Passive Category

Having the largest market share in the ETF segment with assets of g70,024 Crores, the company offers the most diverse range of passive products in the industry with 25 ETF schemes and 13 Index funds. NIMF successfully launched several new funds in this category, indicating its strong commitment to the Investor First philosophy. With 102 lakh folios, NIMF holds 61% of the industrys folio market share, and added about 17 lakh folios in FY23 as compared to the 62 lakh folios in FY22. Approximately, 70% of the exchange volumes are contributed by NIMFs ETF schemes. There has been a consistent participation of HNI segment in passive products, indicating greater adoption by an evolved class of investors.

De-risked Distribution Model

Mutual Fund Distributors (MFDs), foreign banks, Indian private and public sector banks, national distributors, and digital platforms make up the Companys multichannel distribution network. On March 31, 2023, the Company had more than 91,000 empanelled distributors in India, among the highest in the industry.

Making Deeper In-roads into India

Currently, NAM India has a pan-India network of more than 270 locations, which is amongst the highest in the industry. The Company continues to focus on B-30 cities, as assets from smaller locations have higher persistency and are more profitable.

Managed Accounts AIF

Our subsidiary, Nippon Life India AIF Management Limited (NIAIF) is one of the prominent investment managers in the Indian Alternative Investment Industry. There are 19 schemes of AIFs launched by NIAIF, across Category II and Category III. NIAIF offers various strategies under Listed Equity, High Yield Real Estate Debt, Credit, and Tech/VC FoF.

Key highlights of the year include:

— FY23 has been a milestone year for NIAIF, as the commitment raised by the Company crossed g5,000 Crores, with the year closing at g5,600 Crores

— Continued to deliver consistent long-term investment performance across asset classes

— Highest-ever equity gross sales of over g1,000 Crores during the year through Nippon India Equity Opportunities AIF Scheme 7 & 8

— NIAIF successfully launched and made initial closing for Nippon India Yield Plus AIF Scheme 4- a follow- on fund to existing real estate mandates for Japanese Investors

— Continued investment activities of Nippon India Digital Innovation Fund (FoF): Invested across 11 underlying VC funds till date; deployed ~70% of commitment raised

We are optimistic about FY24 backed by a healthy pipeline of new launches such as:

— Nippon India Credit Opportunities, a domestic performing credit fund

— Follow on Nippon India Digital Innovation Fund for both domestic and offshore investors

— Nippon India Social Impact and Green Housing Fund for global institutional investors

— Equity Opportunities Fund for domestic and offshore investors

— Nippon India Special Opportunities Fund, a Pre-IPO focused fund

PMS

The Company provides portfolio management services to high-net-worth individuals and institutional investors. It is one of the few AMCs in India who have won and managed various prestigious government mandates in the past. The Company continues to manage the two prestigious government mandates, i.e. Post Office Life Insurance and Rural Post Office Life Insurance. Currently, there are four equity strategies offered to investors, and all investment strategies under PMS continue to outperform their benchmarks and peer groups over the long term. As on March 31, 2023, the Companys total AUM was approximately g61,600 Crores, as part of the managed accounts business.

Offshore Funds and Advisory mandates

The Company manages offshore funds and distribution through its subsidiary Nippon Life India Asset Management (Singapore) Pte. Ltd. (NAM Singapore) in Singapore, and also has a representative office in Dubai, UAE.

The overseas subsidiary helps to cater to institutional and high net worth investors across Asia, Middle East, UK, US, Latin America, and Europe. As on March 31, 2023, NAM Singapore managed a total AUM of $ 1,078 million or g 8,855 Crores as part of its international offshore managed portfolio.

NAM Singapore serves the requirement of overseas retail, institutional and high-net worth investors who are keen to invest into India, by offering both the Equity and the Fixed Income offerings investing into India.

The Company also acts as an Investment Advisor for India-focused equity and fixed income funds in Japan. Further, as on March 31, 2023, the Company had a total AUM of $ 245 Million or g 2,012 Crores as international advisory mandates.

NAM Singapore acts as an investment manager for the recently launched fixed-income fund Xtrackers India Government Bond Fund, which was launched in collaboration with Xtrackers (dws)- one of the largest European AMC.

6. Opportunities and Threats Opportunities

— Under-penetration of mutual funds in India

— Ongoing financialisation of savings in India

— Increasing per capita GDP

— Increase in investors for SIPs

— Larger allocation by informed investors towards passive products

— Rise in flows from smaller cities/towns

— A strong owned distribution network with extensive reach across India

— Deepening digital channel distribution contributing to disintermediation and de- risking of sales and distribution

— Leveraging Nippon Lifes global network for international tie-ups and partnerships

— On-going consolidation in the industry

— New frontiers of growth in emerging areas of business such as AIF and international markets

Threats

— Impact of rising Inflation on household savings and corporate earnings

— Longer term financial impact due to COVID-19 virus (global pandemic)

— Rise in the culture of direct investing may have a short-term impact on equity flows

— Intense competition amongst MFs to garner higher AUMs can lead to increase in commissions, and consequently impact revenue

— Impact of regulatory intervention on fees, charges, reduction of exit loads

7. Financial Performance

The financials statements of the Company for the year ended March 31, 2023, have been prepared in compliance with the Companies Act, 2013 and Indian Accounting Standards, Rules 2015. The Company has adopted Indian Accounting Standards (Ind AS) - IFRS Converged Standards.

Consolidated Financial Performance Revenue

The Companys consolidated total revenue stood at g 1,517 Crores compared to g 1,536 Crores in the previous year. Other income stood at g 167 Crores compared to g 229 Crores in the previous year.

Expenditure

Total consolidated total expenditure for the year increased by 8%, to g 589 Crores, as against g 547 Crores in the previous year. Fee and Commission expenses for the year amounted to g 50 Crores as against g 51 Crores in the previous year - a decrease of 2%. Employee benefit expenses for the year were g 300 Crores as against g 290 Crores in the previous year, up by 3%.

Depreciation for the year recorded a 9% increase to g 30 Crores, as against g 27 Crores in the previous year. Other expenses for the year were g 205 Crores as against g 174 Crores in the previous year - an increase of 18%. Profit for the year stood at g 723 Crores as against g 744 Crores in the previous year - a decrease of 3%. Total Comprehensive Income for the year saw a 3% decrease and stood at g 721 Crores as against g 744 Crores in the previous year.

Utilisation of IPO Proceeds

As part of the IPO conducted in October 2017, NAM India had raised g 617 Crores from fresh issue of equity shares. These funds were to be utilised towards various objectives, including branch network expansion, IT infrastructure, advertising, brand building, seed investment in AIF schemes and MF schemes, and inorganic growth as well as strategic initiatives.

The Company utilised g367 Crores out of these proceeds by March 31, 2023, as per the specified objectives. The amounts raised, utilised till date and pending utilisation, is detailed in Note no. 39 in the Notes to the Accounts of the Consolidated Financial statements.

Due to the dynamic and evolving nature of the industry, ever- evolving digital ecosystem and the pandemic, volatile global capital markets, NAM India has been prudent in deploying its IPO funds. Also, the opportunities for inorganic growth and strategic initiatives have been limited. Due to the exponential surge in digital transactions after the IPO, there has been a diminishing need for rapid expansion in physical presence and opening of new branch offices. Hence, the Company continues to be cautious with regards to branch expansion in Tier 3 and Tier 4 cities.

The AIF subsidiary launched fewer schemes than what was envisioned at the time of IPO due to the volatile capital market in the last few years, slow down in economic growth, and the pandemic. These factors resulted in the underutilisation of the proceeds earmarked for seed investment in new AIF schemes.

Given the lack of inorganic openings at a reasonable cost, which could support NAM Indias current business, the Company has been constantly evaluating multiple opportunities for potential synergies. However, no actual acquisitions have come to fruition. The Company remains open to evaluate opportunities for strategic partnerships.

Against this backdrop, NAM India will continue to explore the deployment of its IPO proceeds towards value accretive and strategic initiatives in the future. However, unless the opportunities have value-accretive potential for shareholders, add to the profitability, or complement the existing businesses, it will not take risks with the available resources. NAM India will review the strategy on the deployment of these funds in the light of these factors, without diluting the stated intent that any utilisation must have value accretion for shareholders at the forefront.

8. Compliance

I n the context of NAM In dia , complian ce pl a ys a very significant role. On the one hand, it acts as an interface between the Company and various regulators; on the other, it serves as the Companys compliance and legal conscience.

With a steadfast focus on strong compliance and robust corporate governance principles and processes, the Company remains a completely compliant corporate citizen by choice. NAM Indias compliance team keeps itself as well as the organisation duly updated on new regulatory requirements and developments. For many years now, the Compliance team has concentrated on imparting training and spreading awareness on various aspects that are relevant to the organisation. As a part of its periodic training initiatives, the Compliance team engages with employees to educate, sensitise, and educate them about their obligations under the Companys codes/policies.

The Companys management is not only committed but has always been fully geared up to comply with the applicable laws in letter and spirit, and strictly follow the ethical principles that govern business. Being fully aware of the stated regulatory requirements, the Company strives to remain ahead of the curve when it comes to compliance and governance. The interests of its unitholders, shareholders, and other relevant stakeholders are always at the forefront while taking decisions regarding business planning and execution.

The Board of Directors of the Company as well as that of the Trustee company also have a strong sense and flair towards compliance and governance standards. The Board periodically reviews and approves the various policies and processes of compliance, which forms an integral part of the organisational DNA. Matters of compliance and governance are given undivided and focused attention at the meetings of the Board. In addition to this, the Company continues to improve its underlying policies, documentation, and internal processes through a seasoned and experienced in-house Compliance Team that has an independent line of reporting to the Board.

We strongly believe that a world-class ethics and compliance programme not only protects an organisation from internal and external threats, but also enhances its brand and strengthens its relationships with all stakeholders.

9. Risks and Concerns

NAM India is exposed to specific risks that are particular to its businesses and the environment in which it operates, including credit risk, operational risk, competition risk, regulatory risk, human resource risk, outsourcing risk, information security risk, cyber security risk, and macro-economic risk.

Competition risk

The financial sector industry is becoming increasingly competitive, and the Companys growth will depend on its ability to keep up with competition effectively. The Companys main competitors are Domestic Mutual Funds, Portfolio Management Services, Alternate Investment Funds, investment products offered by insurance companies, savings schemes operated by Government as well as bank Fixed Deposits. Further liberalisation of the Indian financial sector could lead to a greater presence or entry of new foreign asset managers offering a wider range of products and services. This could significantly toughen the competitive environment. With its strong brand image, wide distribution network, diversified product offering, and quality management, the Company has a strong competitive advantage.

Market risk

The Company has quoted and unquoted investments in equity, debt and mutual funds, all of which are exposed to fluctuations in the prices of underlying assets. The portfolios are reviewed for market risks on a periodic basis. The Company also applies stress-testing to the portfolio monitor to manage the market risks.

Credit Risk

The Company has quoted and unquoted investments in bonds and debt-oriented mutual funds. Therefore, there is a risk of default or failure on the part of borrowers in meeting their financial obligations towards repayment of principal and interest. Hence, credit risk is a loss because of non-recovery of funds both on principal and interest counts. This risk can be addressed through diversification, by spreading investments into multiple bonds and mutual funds across multiple issuers.

Liquidity and Interest Rate Risk

The Company is exposed to liquidity risk principally due to the investments for periods that may differ from those of its funding sources. However, this risk is mitigated as all the investments are made though accumulated surpluses and equity infusion.

The Company has quoted and unquoted investments in bonds and debt-oriented mutual funds, thus the risk arising out of interest rate movements exists. This risk is comprehensively addressed by duration management across the portfolio.

Human Resource Risk

The Companys success depends largely upon the quality and competence of its management team and key personnel. Attracting and retaining talented professionals is therefore a key element of the Companys strategy and a significant source of competitive advantage. While the Company has a salary and incentive structure designed to encourage employee retention, a failure to attract and retain talented professionals, or the resignation or loss of key management personnel, may impact the Companys business and its future financial performance.

Operational Risk

The Company may encounter operational and control difficulties when venturing into new markets. In new markets, the rapid development and establishment of financial services businesses may pose unexpected risks. Such risks could have a materially adverse effect on the Companys financial position and the results of its operations.

The Companys operations have been automated to a great extent, which minimises the risk arising out of human errors and omissions. A robust system of internal controls is adhered to by NAM India (ISO 9001:2008 certification). This ensures all its assets are safeguarded and protected against loss from unauthorised use or disposition, and all its transactions are authorised, recorded, and reported accurately.

The Company conducts Risk & Control SelfAssessment (RCSA) periodically, whereby all potential risks are identified, and mitigating controls are put into place.

The Audit Committee of Board reviews the adequacy of the internal controls regularly. The Company is focused on quality parameters and has a dedicated quality team to proactively identify and address operational issues. The mandate of the quality team is also to work closely with various business teams to achieve operational efficiencies and effectiveness through Six Sigma initiatives.

Information and Cyber Security Risk

NAM India has robust Information Security Risk monitoring systems and tools to protect sensitive customer data and guard against potential leaks. The Board of Directors have constituted a Technology Committee that comprises experts proficient in technology to oversee and review the information security and cyber security aspects on a regular basis. Robust governance, controls and sophisticated technology is adopted across lines of business to ward off cyber threats and protect information. Information security has been brought under the Enterprise Risk Management Framework to enhance data protection, thereby making the overall Risk, Control and Governance framework more resilient.

Regulatory Risk

As an entity in the financial services sector, the Company is subject to regulations by Indian governmental authorities, including the Securities and Exchange Board of India. The laws and regulations impose numerous requirements on the Company, and any future changes in the regulatory system or in the enforcement of these regulations could have adverse effects on the Companys performance.

Outsourcing Risk

The Company has outsourced certain activities that are non-core in nature. This has been done to provide better services to clients and provide the benefit of lower transaction costs to them. Outsourcing does not diminish or eliminate the Companys obligations to customers and regulators, as a thorough evaluation and due diligence on the partners is done before outsourcing critical services. Thereafter, performance of the outsourced partner is monitored through the Service Level Agreements.

Pandemic risk

While COVID-19 is largely under control, the company still maintains a Business Continuity Policy that enables remote working for employees, should the need arise. The necessary internal controls to facilitate the same are in place.

10. Training and Investor Education

The Company has active in raising awareness on mutual funds through its Investor Awareness/ Education Programmes.

These initiatives aim to create awareness about mutual funds across the country to attract new investors.

NIMF has adopted 19 districts in India as part of SEBIs adopt districts programme. A total of 42 of Investor Awareness Programmes were conducted across these 19 districts covering 1,800+ investors.

During FY23, the Company conducted 249 Investor Awareness and Engagement programmes reaching approximately 14,900+ investors across India. In a mission to reach more locations, 50 programmes were conducted in the Northeast Region at various CBSE Schools for teachers. Seven states ( Assam, Tripura, Manipur, Arunachal Pradesh, Meghalaya, Nagaland & Sikkim) were covered and a total 3000+ attendees were reached.

11. Digital Business

The journey of digital is an ongoing and constantly evolving process rather than a fixed endpoint, which is why we refer to its as Perpetual Beta. We at NIMF realised the power of digital early on, and hence, we have been relentlessly treading this path, year on year, covering one significant milestone after another in the pursuit of digital dominance. After studying the distinct patterns that were becoming evident worldwide five years ago, we had made the decision to make significant investments, both in terms of capital and human resources. This helped us outline a distinct strategy around the core philosophy of the 3Fs (Friendly, Futuristic and Frictionless) to make digital the keystone of NIMFs long-term growth and sustainability.

NIMF Digital has experienced significant growth by centring efforts around a comprehensive digital roadmap that prioritises business objectives, relentless partner engagement, and innovative solutions for enhancing operations. NIMF Digital has established new benchmarks on the road to profitability and has become a powerful pillar of growth for the Company.

Investor Focus- Keeping the Real Stakeholders First in addition to covering numerous business categories and serving a wide range of consumers from different socioeconomic stratas, e-commerce has helped make consumers more receptive to adopting digital ways of life for more serious issues, such as finance, healthcare, and others. The arrival of new-age, digital-native millennials and zillennials, who are eager to explore, fast to learn, and confident to invest, was always going to be a watershed moment for Financial Services as a whole, and for us as a Mutual Funds organisation. This year, after years of groundwork and planning, we added speed to our engine that will fuel our growth over the long-term.

Over the years, we have established a robust 360o integrated framework that helps us obtain, onboard, engage, and reengage with digital investors while keeping our millennial and zillennial investors at the centre of our efforts. Behind this is a science that has evolved over time thanks to the product suites from digital behemoths like Google, Meta, and Adobe. Our integrated framework is supported by three main pillars:

— A solid data science foundation that enables us to categorise clients intelligently based on their interests, shopping habits, and demographics

— A system for precise segmentation that distributes pertinent funds that compete with that segments interests through their preferred channels, journey customisations, and interventions

— A comprehensive campaign structure that spans the entire scope of the enormous digital world and integrates both internal and external channels enabling us to attract investors to our digital assets and to achieve our targeted business goals

The entire process is supported by Machine Learning and advances over time as the results of each campaign are assessed using integrated data and fed back into the segmentation step. To increase cross-selling and upselling efforts, we continue to develop efficient propensity models for affinity items and channels.

Digital Distribution-The Preferred Choice on any Investors Platform With technology and user experience, the next generation of nontraditional distribution models, such as Fintech platforms and financial e-marketplaces, are causing a major upheaval. At NIMF, we foresaw the emergence of such platforms, and thus were prepared with a creative, two-pronged strategy to collaborate with them and emerge a strong player in this market.

— Our strong API tech stack makes it possible to adopt digital procedures at every point of the investor lifecycle, from onboarding to transactions and subsequent servicing to repeat business. These APIs are highly adaptable when it comes to connecting with a variety of platforms and technological stacks and are entirely self-sufficient to meet the needs of our partners and their end users.

— Our unrivalled advantage to connect with our partners at an even deeper level and assist them in setting up and growing their businesses comes from our competence in the core business of asset management and our prowess in digital business. By sharing our expertise with our partners and their clients on platforms of their choice, our Fund Managers and Investment Specialists have assisted our investors in making the right decisions.

Alongside improving our equity with our partners, this strategy and focused execution has also helped us gain investor confidence, resulting in an increase in business volume on these platforms which is beneficial to us and them. We have a distinct advantage in the field of digital partnerships, and we have established NIMF as a "preferred partner" for these players.

Innovative and Intelligent Digital Asset Suite - Agile, Adaptive and Encompassing In a country where mobile phones have taken over personal computers as a mode to access the internet, mobile-first is the de facto concept when it comes to constructing our digital assets.

As investors transact on our digital assets, our priority is to enable them to make quicker, wiser, and more informed decisions about how and where to spend their money in crucial times. We are working on strengthening our ability to crunch and do real-time analysis on the vast number of on-asset and offline data points we have about our customers, their past purchases, and their potential propensities, to bring them the most suitable solutions.

Our data-driven, intelligent digital assets have the ability to learn from user behaviour and predict it using both real-time frameworks and archived analytical frameworks powered by cutting-edge neural networks. This helps in the e-serving of highly personalised experiences to our millennial, zillennial, and legacy investors or partners, by delivering accurate recommendations, suggestions, on-the- spot nudges, predictive service, and much more as they move forward in their journey.

12. Internal Controls

The Company maintains a system of internal controls designed to provide a high degree of assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguarding of assets, the reliability of financial controls, and compliance with applicable laws and regulations.

The organisation is well structured, and the policy guidelines are well documented with pre-defined authority. The Company has also implemented suitable controls to ensure that all resources are utilised optimally, financial transactions are reported with accuracy and there is strict adherence to the laws and regulations.

The Company has put in place systems to ensure that assets are safeguarded against loss from unauthorised use or disposition and that transactions are authorised, recorded and reported. There is also an exhaustive budgetary control system in place to monitor all expenditures against approved budgets on an ongoing basis.

The Company uses information technology extensively in its operations. It ensures effective controls besides economy, and helps the Company providing accurate MIS and prompt information/ services to its customers and other stakeholders. The Company has implemented enhanced level of Information System Security controls with monitoring systems to address technology risks.

The Companys internal audit function is dedicated to assessing the suitability of policies, plans, regulations, and statutory requirements. Furthermore, audits follow a risk-based approach. Internal audit also evaluates and suggests improvement in effectiveness of risk management, control and governance process. The Audit Committee of Board provides necessary oversight and directions to the internal audit function and periodically reviews the findings and ensures corrective measures are taken.

13. Human Resources

The year gone by has been an interesting one with multiple positive outcomes of our efforts.

We achieved some great milestones and was the "Employer of Choice", which is a validation of our efforts and focus towards developing an all-round and holistic employee experience, promoting leadership development and encouraging employees learning and development.

We are delighted and proud to have won in all categories, the Global Employees Choice Award 2022 by WE Matter. We were chosen as one of the top organisations, from amongst the 160+ companies across all the sectors who participated and with whom we proudly shared this elite platform. The W.E. Global Employees Choice Award stands out from other awards as it is based on a multigenerational model that gives you the engagement and experience feedback of Gen Zs, millennials, Gen Xs and baby boomers.

The Company has won across the following awards

Company Awards	Leadership Awards
Global Employees Choice	Best CEO Award 2022
Award	Sundeep Sikka
Diversity & Inclusion Award
Company with Best State	Best CHRO Award 2022
of Well-Being	Rajesh Derhgawen
Best Company for Gen Z
Best Company for Millennial	Employees Choice 2022 for Best Leader
Best Work from Home Company	Saugata Chatterjee II Aashwin Dugal II Milind S Nesarikar

We are delighted and proud that we won the Kincentric Best Employer Award for 2022, making it our 5th award in the last 7 years. We are amongst only 10 Best Employers for 2022 in the country, recognised across all the sectors. An even valuable recognition is our inclusion in the elite Kincentric Best Employers Club, which is an exclusive and prestigious group comprising organisations across industries who have been awarded Best Employers consistently in the last 3-5, years and have been consistent in delivering superior employee experiences across all key and critical value propositions.

NAM India also won the Outstanding Employee Engagement Award from Ekincare under the Corporate Health & Wellbeing Awards 2023. This recognition is a testament to the hard work and dedication of all our employees who have contributed to creating a healthy and supportive workplace. Moving forward, we will continue to invest in our health and well-being programmes and will strive to create an environment that fosters collaboration, creativity, and productivity while prioritising our employees physical, mental, and emotional well-being.

The previous year was a significant one for our ESG initiative. Thanks to the hard work of the ESG Core Committee, we were able to initiate and develop several policies pertaining to employee experience, health and safety, compliance, and corporate accountability. This has set us on track towards achieving our ESG goals.

Our focus on gender diversity continues to be at the center of our talent management and sourcing strategy. This is evident in our gender diversity numbers growing from 16% to 20% in the last four years and we plan to take this to 25% by the end of FY25.

With our Hiring for the Future agenda in mind, we continue to develop our strength in the core and critical functions and our hiring strategy. Our hiring philosophy is simple: We are an equal opportunity employer and we hire for what people can do and not what they have done. We assess talent based on their potential and not past results. The impact of this approach is seen in the successful succession and management pipeline we have created.

Training and Development is a key area of focus, with the goal of achieving business excellence, process perfection and a better understanding of business acumen. This year we sought to train and equip our talent in product knowledge with initiatives such as Pitch IT and peer-to- peer learning programmes; also providing training in behavioural, communication and leadership skills, strategic planning and team management for success.

At an organisation level, our employees underwent more than 13,000 hours of training and development interventions with an average of 14-man hours of training in the year. This is in addition to the on-the-job and peer-to- peer learning and training interventions that all employees of NAM India experience.

Some Key Employee Engagement Interventions at NAM India:

# Quizzard 2022 : We launched Quizzard2022 with the aim of enabling employees to come together and demonstrate teamwork and competitive drive. This event, which saw great enthusiasm and long-lasting team bonding, concluded with three teams winning.

#Leadership Reach Out: In August 2022, we launched this initiative with the clear mission of establishing efficient two-way communication. Leaders were assigned to respective locations to ensure that everyone in the organisation, from employees to customers and partners, had a platform to connect.

#Womens Day: Every year, we celebrate Womens Day with our female employees across India to celebrate womanhood and the exceptional contribution they make to the Company and they role they play in helping NAM India become an Employer of Choice.

#Mothers Day and Fathers Day: NAM India, to showcase deep gratitude, sent personalised gift hampers to the parents of our employees. Each gift was delivered with love and respect.

#Childrens Day: This day was celebrated with the employees family and child/children.

#Festival Celebrations

#NAM India Talent Hunt: Hunarbaaj: This corporate initiative was launched to encourage employee engagement across India where employees and their families could showcase their extraordinary abilities in singing, dancing and poetry. The activity was highly appreciated by our employees.

#Photography Contest

#Trekking

#Grow Trees

#Donate & Spread Happiness #NGO Visit and donation by employees

#Beach Clean Up Drive: As a part of our CSR project, NAM India conducted drive to

#Clean Beach - Juhu, which saw good participation from our corporate and Mumbai Region offices.

#Extra Miler Award and Rising Star Award: Under our Reward & Recognition vertical for the employees, we launched the Extra Miler Award and Rising Star Award. The idea behind these awards is to celebrate young aspirants and their spirit, for the exceptional performance they demonstrated in their first six months at the Company. It also appreciates those who demonstrate the NAM values of joining, and employees who crossed over a year in the organisation and contribute to the environment as well.

#Young Achievers Award: At the 2021-22 Young Achiever Awards, we celebrated the achievements of the children of our staff members who scored 80% and above in their 10th and 12th examinations.

We have continued and increased our engagement levels through HR-driven and employee-led interventions to create an enhanced employee connect and experience for FY23. Here is look at the various activities undertake: NAM India Talent Hunt - Hunarbaaj

• Cherishing employees loved ones on Childrens Day

• Felicitation ceremony for the Rising star and Extra Miler Award winners of the Corporate Office

• Ongoing HO high-tea gatherings

• Winning Celebrations for Kincentric Award with NAM Family over snacks

• #NAM India Sports League - Cricket and Football

• Launched and Concluded Mega Stepathon for 2022 under 5 categories

• Continued focus on employee care, health and well-being.

• Womens Day celebration across Branches and Corporate Office

• Festival Celebrations- Diwali, Navratri, Christmas, Independence Day, Republic Day

Along with this, we have a list of awards NAM India and respective departments have won:

Award Name	Won By	Forum/Award Name & Year
Exchange4media Mobile Awards	Digital Team	The Maddies 2022
Gold in Innovation for the Real-time Sensex Movement Campaign	Nippon Mutual Fund	The Maddies 2022
Silver in Mobile Apps for the All-New NIMF Investor App	Nippon Mutual Fund	The Maddies 2022

 

Award Name	Won By	Forum/Award Name & Year
Bronze in Most Effective Tech Platform for the AllNew NIMF Investor App	Nippon Mutual Fund	The Maddies 2022
Top 200 CFOs in India	Prateek Jain	StartUp Lane 2023
Top 60 CTOs in India	Abhijit Shah	StartUp Lane 2023
Best Fund House	Nippon Mutual Fund	Asia Asset Management Awards2022
CEO Of the Year	Sundeep Sikka	Asia Asset Management Awards2022
ETF Manager of the Year	Nippon Mutual Fund	Asia Asset Management Awards2022
Most Innovative Product	Nippon Mutual Fund	Asia Asset Management Awards2022

14. Corporate Social Responsibility

The Company continues to shape its strategy and action towards creating a long-term impact in the community. Through CSR initiatives, the Company has been facilitating diverse interventions to encourage the socio-economic upliftment of marginalised and vulnerable communities across India.

We adopt a multi-stakeholder approach covering social, environmental, and economic aspects as per Schedule VII (Companies Act 2013) thematic areas, such as promoting education and livelihood enhancement projects, rural development, promoting gender equality, ensuring environmental sustainability, support to armed forces veterans and training to promote sports. The Company contributed of S14 Crores in FY23, inter-alia, through non-profit centres engaged in the areas of healthcare, education, sports, rural development, climate and environment.

Access to the Healthcare Facility and Treatment

In collaboration with Vision Foundation of India, the Company has supported eye surgeries for senior citizens and individuals from socioeconomically weaker sections of society. In collaboration with the Adjutant Generals Branch of the Indian Army, support has been given to the detection of birth defects and developmental delays among children of the armed forces. Through Tata Memorial Centre-Advanced Centre for Treatment, research and education in cancer support was done to optimise the treatment given to children and other cancer patients.

Need-based Livelihood Opportunities and Rural Development

The Company, in collaboration with NGOs such as The Energy and Resources Institute, Tata Institute of Social Sciences, Swades Foundation, and EdelGive Foundation, extended support to the tribal and rural communities in Jharkhand, Maharashtra and Odisha. Through a multidisciplinary strategy, the projects facilitated women empowerment, climate- resilient agriculture, improvement of education facilities in rural parts of the country, skill-building and micro-entrepreneurship. Initiatives were also taken to address prominent issues such as access to safe drinking water, healthcare facilities and government schemes and basic sanitation facilities.

Supporting Education

In collaboration with Ekam Foundation, the Company committed support for education of children, young and women members who had to drop out of formal education due to economic migration.

Support towards Sports and Indian Athletes

In collaboration with the Foundation for Promotion of Sports and Games, we offered our support to Indian athletes headed to the 2024 Paris Olympics and Paralympics, through sports science, training, and coaching support.

Our offices are fitted out and maintained keeping in mind the mission of energy conservation and environment protection. Through several initiatives, our consistent and ongoing endeavour is to minimise our carbon footprint.