Shriram Asset Management Co Ltd Management Discussions

Mutual Fund Industry Performance:

The Indian mutual fund industry marked a significant milestone in FY 2024, surpassing 50 lakh crore mark in total assets under management (AUM) for the first time. AUM increased by 33.3% from 40.05 lakh crores in March 2023 to 53.40 lakh crores in March 2024. Additionally, the number of folios grew to 17.79 crores, and SIP contributions amounted to 1,99,219 crores. This growth reflects the rising popularity and acceptance of mutual funds among investors in India.

The debt, equity, and hybrid schemes witnessed a cumulative net inflow of investments totaling 3.05 lakh crore during FY 24. Among debt schemes, money market funds attracted the highest inflow while overnight funds experienced a net outflow. In the equity category, small-cap and sectoral funds recorded the highest inflows (source:

Economic Overview: Overview of Global Economy:

The global economy exhibited resilience despite turbulence. Inflation,while gradually declining from multi-decade highs, still experiences sporadic upticks. Financial markets have been volatile due to shifting views on advanced economies central banks potential pivot leading to uncertain movements in the equity markets, the US dollar, and sovereign bond yields. Emerging market economies grapple with currency fluctuations amid volatile capital flows (source: RBI)

Overview of Indian Economy:

Indias economy has seen robust expansion in the past three quarters, with growth rates of 7.8% in Q1, 7.6% in

Q2, and 8.4% in Q3. Various institutions have upgraded their GDP growth forecasts for India reflecting global and domestic optimism driven by robust manufacturing activity and infrastructure spending. Domestic economic activity is strengthening. National Statistical Office (NSO) estimates real gross domestic product (GDP) to have grown by 7.3%

YoY in FY 24, underpinned by strong government led investment activity. On the supply side, gross value added (GVA) expanded by 6.9% in FY 24 with manufacturing and services sectors as the key (source: RBI)

On the inflationfront, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation.Geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation. CPI inflation is forecasted at 5.4% for FY 24, with some softening in input costs for manufacturing firms but higher pressures for services and infrastructure sectors.

The Indian corporate earnings began to show improvement, with companies benefiting from a softening in commodity prices, leading to enhanced profitability and margins. In the year India witnessed robust Industrial Production (IIP) growth and favorable PMI data, indicating an expansion in output at an above-trend pace.

The FY 2024-25 interim budget was presented on 1st February, emphasizing on economic growth, with substantial increases projected in tax revenue and capital expenditure. Highlights include an estimated tax receipt of 26.02 lakh crore and total receipts of 30.80 lakh crore for FY 24. For FY 25 Fiscal deficit target of 5.1% of GDP and Capital expenditure outlay is set to increase by 11.1% to 11.11 lakh crores, aiming at infrastructure development and job creation.

Equity Market Performance:

Global equity markets concluded FY 24 on a high note, with significant gains witnessed across major indices. Japans

Nikkei 225 reached a new all-time high, rising 44%, followed by Indias NIFTY 50 with a gain of 28.6%. Meanwhile, in the US Dow Jones index rose by 19.6%, the S&P500 index surged by 27.9% and NASDAQ rising by 34%. In Europe, the German DAX increased by 18.3%, the French CAC 40 by 12.1%, and the UKs FTSE100 by 4.2%. On the other hand, the Straits Times index of Singapore slipped (-1.1%) and the Chinese benchmark Shanghai Composite Index tanked (-7.1%) (source: investing.com) In India, while the NIFTY 50 saw a notable rise, the broader market indices outperformed, with the NSE Small cap 100 surging by 69.8% and the NSE Midcap 50 jumping by 59.8%. (NSE Cogencis)

Performance of the Sectorial Indices in FY 2024

In FY 2024, the Automotive, Real Estate, Public Sector Enterprises, and Pharmaceutical sectors emerged as outperformers, showcasing remarkable gains. The Automotive sector experienced a resurgence following a prolonged consolidation period, while real estate saw significant gains following a revival in housing demand. Meanwhile, the governments capex drive propelled segments within PSEs, Capital goods, Energy, Defense, and Railways. However, the banking sector underperformed with challenges stemming from increased deposit costs and pressure on net interest margins.

Outlook:

Indias strong macroeconomic fundamentals, marked by robust GDP growth, moderating inflation, stable rupee coupled with government spending and capex played a crucial role in making India one of the attractive investment destinations in FY 2024. As FY 2025 looms, anticipation surrounds the Lok Sabha elections, with hopes pinned on the continuity of economic reforms and policies under the incumbent government. Looking ahead, the RBI may consider rate adjustments in the latter half of FY 2025, subject to prevailing inflation dynamics and global monetary policy trends.

Mutual Fund Industry as it was in FY 2023-2024:

? Assets under Management (AUM) of Indian Mutual Fund Industry as on March 31, 2024 stood at 53.40 lakh crores.

? The SIP contributions for FY 2024 stood at 1,99,219 crores.

? The MF Industrys AUM has grown from 8.25 lakh crores as on March 31, 2013 to 53.40 lakh crores as on

March 31, 2024, more than a 5-fold increase in a decade.

? The total number of accounts (or folios as per mutual fund parlance) as at March 31, 2024 stood at 17.79 crores.

? Mutual Fund Industry- Steps taken by the Regulators in FY 2023-2024:

There were some important changes in the regulation pertaining to the mutual fund industry during FY 2023-2024; the highlights of some of the changes are as given below:

? Providing "ease of exit" to investors and standardization of transaction feed to be received from Electronic Platforms

SEBI vide letter no. SEBI/HO/IMD/MD-SEC-1/P/OW/2023/0000016783/1 dated April 26, 2023, addressed to AMFI on issue relating to "ease of exit" to investors and standardization of transaction feed to be received from Electronic Platforms, decided the followings:

1. AMCs shall advise all the Electronic Platforms to promptly upload / share all the relevant transaction feed / information including the SIP cancellation / pause details to RTAs/AMCs for updation of records maintained at RTA/AMC.

2. AMCs shall also ensure that the agreements entered into by AMCs with Electronic Platforms shall have clauses regarding the above and suitable penal clauses in case of failures on the part of Electronic Platforms.

3. AMCs/RTAs shall enable online SIP cancellation / Pause feature for SIPs registered either at AMCs/RTAs websites or any other Electronic Platforms.

? Investment in units of Mutual Funds in the name of minor through guardian

SEBI Circular no. SEBI/HO/IMD/DF3/CIR/P/2019/166 dated December 24, 2019 has prescribed the uniform process to be followed across Asset Management Companies (AMCs) in respect of investments made in the name of a minor through a guardian. In partial modification to the above SEBI circular, SEBI vide its recent

Circular SEBI/HO/IMD/POD-II/CIR/P/2023/0069 dated May 12, 2023 has brought the following changes in mutual fund transactions w.e.f. June 15, 2023: i. Para 1(a) shall read as under:

"Payment for the investment by any mode shall be accepted from the bank account of the minor, parent or legal guardian of the minor, or from a joint account of the minor with parent or legal guardian. For existing folios, the AMCs shall insist upon a Change of Pay-out Bank mandate before redemption is processed". ii. Irrespective of the source of payment for subscription, all redemption proceeds shall be credited only in the verified bank account of the minor, i.e. the account the minor may hold with the parent/ legal guardian after completing all KYC formalities. iii. All other provisions mentioned in the aforesaid circular shall remain unchanged.

? Contribution towards Backstop Facility - Corporate Debt Market Development fund (CDMDF)

This is in reference to the proposal on Corporate Debt Market Development fund (CDMDF) as a backstop facility for corporate bond market shared by SEBI through AMFI vide email dated January 27, 2023.

In this respect, SEBI vide its letter no. SEBI/HO/IMD-POD-2/P/OW/2023/20790/1 dated May 23, 2023, addressed to AMFI, informed that the backstop facility via CDMDF is proposed to be an Alternative Investment Fund (AIF) with contributions from debt oriented MF schemes (except overnight funds, GILT funds but including conservative hybrid schemes) amounting to 25 bps of AUM of the said schemes ( 3000 Cr as per 2021-2022 AUM) and from AMCs of Mutual Funds amounting to 2 bps of the AUM ( 240 Cr as per 2021-2022 AUM) of the said schemes. The support from the Government is proposed to be in the form of a Guarantee (max. of 30,000 Cr) for leverage of up to 10 times of unitholder (MF schemes and AMCs) contribution (25 bps and 2 bps) that may be undertaken by the proposed AIF for operating during times of Bond market distress. The tenure of AIF is proposed to be of 15 years which may be extended with approval from GoI and SEBI.

? Participation of Mutual funds in repo transactions on Corporate Debt Securities

SEBI vide circular no. CIR/IMD/DF/19/2011 dated November 11, 2011 and CIR/IMD/DF/23/2012 dated November 15, 2012 allowed mutual funds to participate in repo transactions on corporate debt securities.

In partial modification to the above circulars, SEBI vide circular no. SEBI/HO/IMD/IMD PoD-2/P/CIR/2023/85 dated June 08, 2023 has mandated the following: The Mutual Funds can participate in repos on following corporate debt securities: a) Listed AA and above rated corporate debt securities b) Commercial Papers (CPs) and Certificate of Deposits (CDs)

? New category of Mutual Fund schemes for Environmental, Social and Governance ("ESG") Investing and related disclosures by Mutual Funds

SEBI vide its Circular No. SEBI/HO/IMD/IMD-I –PoD1/P/CIR/2023/125 dated July 20, 2023 has permitted Mutual

Funds to launch multiple ESG schemes with different strategies. The said circular is in partial modification of clause 2.6.1(A)(9) of the SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/74 dated May 19, 2023.

Further, SEBI has introduced the following measures to facilitate green financing with thrust on enhanced disclosures and mitigation of green washing risk:

1. Thematic schemes on ESG Strategies

2. Investment criteria for ESG Schemes

3. Disclosure requirements for ESG Schemes

? Centralized mechanism for reporting the demise of an investor through KRAs

SEBI, vide Circular No. SEBI/HO/OIAE/OIAE_IAD-1/P/CIR/2023/0000000163 dated October 03, 2023, has introduced a centralized mechanism for reporting and verification in case of the demise of an investor and thereby smoothen the process of transmission in securities market. The circular spells out the operational norms including the obligations of regulated entities, including registered intermediaries that have interface with ‘investors / ‘account holders (used interchangeably) who are natural persons. The circular was applicable w.e.f. January 01, 2024.

Performance of your Company

The performance of the Company for year ended March 31, 2024 is given in brief below:

During the year 2023-2024, the Companys total income increased by 40.64% to 820.76 lakhs as compared to 583.61 lakhs in 2022-2023. However, since the Company is still in expansion mode investing in infrastructure & resources to augment future business revenue, loss before tax increased by 52.12% to 680.68 lakhs in 2023-2024, as compared to 447.48 lakhs in 2022-2023.

AUM of Shriram Mutual Fund has increased by 97.17% from 271.72 crores in FY 2022-2023 to 535.76 crores in FY 2023-2024 and corresponding Management Fees increased from 61.78 lakhs in FY 2022-2023 to 98.16 lakhs in

FY 2023-2024.

Performance of Schemes of Shriram Mutual Fund:

Shriram Hybrid Equity Fund, launched in November 2013, delivered return of 11.10% (at the end of March 2024 on a CAGR basis) since inception accompanied by lower levels of volatility. Shriram Flexi Cap Fund, launched in September 2018, delivered return of 13.58% (at the end of March 2024 on a CAGR basis) since inception. Shriram Long Term Equity Fund, launched in January 2019, delivered return of 14.94% (at the end of March 2024 on a CAGR basis) since inception. Shriram Balanced Advantage Fund, launched in July 2019, delivered return of 11.69% (at the end of March 2024 on a CAGR basis) since inception. Shriram Multi Asset Allocation Fund, launched in September 2023, delivered 18.76% (at the end of March 2024 on an Absolute basis) since inception. Shriram Overnight Fund, launched in August 2022, delivered return of 6.61% (at the end of March 2024 on a CAGR basis) since inception.

Risks and concern:

The Risk Management Manual sets out an enterprise wise risk management framework for Shriram Asset Management Company Limited and Shriram Mutual Fund. This Manual is intended to serve as a model, which will help the AMC and the Mutual Fund to monitor and mitigate the risks faced by the Company in the discharge of its business and also use risk management to increase value for investors.

Internal control system:

The Company has adequate system of internal controls commensurate with its size and level of operations to ensure that all assets of the Company are safeguarded and protected and that transaction of the Company are authorised, recorded and reported correctly, and also to ensure the efficiency of applicable laws and regulations as well as protection of resources. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by internal audits, regular reviews by management and standard policies and guidelines to ensure reliability of financials and all other records to prepare financial statements and other data. The Audit Committee of the Board reviews internal audit reports given along with management comments. The Audit Committee also monitors the implementation of suggestions given by the Committee.

Human Resources:

Employee Relations remained cordial throughout the year at all levels. Your Company would like to place its appreciation for all the hard work, dedication and efforts put in by all the employees. As on March 31, 2024, the Company had an employee strength of 51.

Details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in key financial ratios, along with explanations therefor, including:

(i) Debtors Turnover – 8.21 (ii) Inventory Turnover - NA (iii) Interest Coverage Ratio - NA (iv) Debt Equity Ratio - NA

(v) Operating Profit Margin (%) - (59%) (vi) Net Profit Margin (%) - (84%)

Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof: Return on net worth is (8.84%) for FY 2023-24 as compared to (6.14%) for FY 2022-23 since the Company is still in expansion mode investing in infrastructure & resources to augment future business revenue.