Shriram Asset Management Co Ltd Management Discussions.

The benchmark Nifty index rose 10.25% in FY 2018, a moderate growth compared to more than 18% growth in the previous year. The much awaited implementation of biggest tax reform in India, GST, is now a reality though the roadmap hasnt been quite smooth. On the positive side, the year also witnessed first upgrade by Moodys in over a decade. However, factors such as imposition of LTCG tax, rising bond yields, more-than-expected number of interest rate hikes in the US and emergence of trade war like situation resulted in the 8% drop in the equity market in the last two months of the fiscal.

Barring Pharma (down 19%) and PSU Banks (down 18%) all sectors were in the positive, the best performing being Realty (up 37%) benefitting from governments thrust on affordable housing. The Pharma sector has been witnessing several headwinds such as declining sales in the key US market, stringent US FDA quality norms putting some of the manufacturing facilities out of action. PSU Banks, already reeling under concerns of rising non-performing assets and lower credit growth came across the mega PNB fraud case which perhaps acted as a catalyst for investors to move to other safer places within the BFSI segment.

FIIs pumped in 26,000 crores in Indian equities during FY 2018, well below 55,703 crores in the previous year because of discouraging corporate earnings, rising dollar and increasing geopolitical tension. However, huge inflow in equity mutual funds was the highlight of last fiscal year.

Investors pumped in a record 1.4 lakh crores in equity mutual funds in 2017-2018 on the back of low bank deposit rates and uncertain real estate environment. The strong inflows have pushed the asset base of equity MFs up 38% to 7.5 lakh crores.

The macro economic scenario has been stable though rise in crude prices can be a threat to inflation. Crude oil prices touched a high of around $70 per barrel (Brent Crude), up from around $45 in July 2017. This sharp rise in crude price has been a cause for concern as India imports around 70% of its crude oil requirement. Retail inflation eased to 4.44% in February 2018 compared to 5.1% in the previous month. The RBI lowered retail inflation target for 1HFY19 to 4.75.1% (previous estimate of 5.1-5.6%) on sharp moderation in food price rise and likelihood of a normal monsoon. In addition, stability in domestic currency and governments resolution to stick to the fiscal consolidation path are factors favoring the economy.

2018 is significant politically as five states are scheduled for polls with Karnataka to be the earliest (in May 2018) followed by Chattisgarh, Madhya Pradesh, Mizoram and Rajasthan; all in December.

We expect that India will continue to remain one of the leading investment destinations owing to its robust macroeconomic fundamentals. The initiatives taken by the government so far such as implementation of GST, financial inclusion of all and focus on infrastructure augurs well for long term prospects of the economy. GDP growth in 1HFY18 was languishing (1Q18 at 5.7% which is a 3-year low, 2Q18 GDP growth at 6.3%) due to de-stocking ahead of the implementation of GST and demonetization backed slowdown. However, second half of the year picked up with 7.2% GDP growth for the third quarter as the economy was on a recovery path post the impact of twin disruptions waned. In addition the Economic Survey 2018 has estimated that the Indian economy will grow by 7-7.5% in 2018-2019, thereby re-instating India as the worlds fastest-growing major economy.

Indias entry into the top 100 rankings on World Banks Ease of Doing Business Index (from 130 in the previous year) has been helping build optimism in Indias story and is consequently attracting more investors to the country. Implementation of GST is steadily taking Indian economy towards more formalization. Average monthly GST collection has stabilized in the range of 86,000 crores though lower than 90,000 crores collected in the first three months of implementation. However, implementation of e-way bill from April 1,2018 is expected to boost GST collections going ahead.

Meanwhile, governments focus on infrastructure development also deserves special mention. The government in the Budget 2018 allocated a massive 5.97 lakh crores for infrastructure development. Under the ambitious ‘Bharatmala project 83,677 km of national highways are to be built by 2022 at a whooping investment of 6.92 lakh crores. During FY18, NHAI awarded 150 road projects comprising 7,400km and worth 1.2 trillion. All these measures will go a long way in steering ahead growth of Indian economy.

Mutual Fund Industry as it was in FY 2017-2018:

Mutual funds assets base surged to over 23 lakh crore in 2017-2018, adding 4.75 lakh crore to the kitty.

Moreover, a sharp rise in systematic investment plans (SIPs) promoted more sustainable growth for the industry as more people moved away from the concept of large lump sum investments.

The industry has seen an overall addition of 32 lakh new investors over the last one year, while the total number of folios grew by 1.05 crore or 26 per cent during the period.

The SIP accounts grew by 70 lakh to 2.05 crore in the fiscal 2018. Besides, the average monthly SIP contribution for the industry stood at 6,425 crore from 2.05 crore SIP accounts during the year.

Mutual Fund Industry- Steps taken by the Regulators in FY 2017-2018:

There were some important changes in the regulation pertaining to the mutual fund industry during FY 2017-2018; the highlights of some of the changes are as given below:

• Categorization and Rationalization of Mutual Fund Schemes: The Board has issued circular requiring all Mutual Funds to clearly distinct their different schemes (existing as well as future) in terms of asset allocation, investment strategy etc. in order to bring in uniformity in the characteristics of similar type of schemes launched by different Mutual Funds.

The Schemes need to be broadly classified in the following groups:

a. Equity Schemes

b. Debt Schemes

c. Hybrid Schemes

d. Solution Oriented Schemes

e. Other Schemes

Further, the details of the scheme categories under each of the aforesaid groups along with their characteristics and uniform description were also been given by the Board in a separate annexure to the said circular.

• Benchmarking of Schemes performance to Total Return Index: With an objective to enable the investors to compare the performance of a scheme vis-a-vis an appropriate benchmark:

(a) Mutual Funds are now required to disclose the name(s) of benchmark index/indices with which the AMC and trustees would compare the performance of the scheme in scheme related documents.

(b) Selection of a benchmark for the scheme of a mutual fund shall be in alignment with the investment objective, asset allocation pattern and investment strategy of the scheme.

(c) The performance of the schemes of a mutual fund shall be benchmarked to the Total Return variant of the Index (TRI) chosen as a benchmark instead of benchmarking to the Price Return variant of an Index (PRI), the practice which presently most of the mutual fund follows to compare their schemes (other than debt mutual fund scheme)

(d) Mutual funds shall use a composite CAGR figure of the performance of the PRI benchmark (till the date from which TRI is available) and the TRI (subsequently) to compare the performance of their scheme in case TRI is not available for that particular period(s).

• Review of additional expenses of up to 0.30% towards inflows from beyond top 15 cities (B15): Earlier the Board had allowed additional TER to be charged up to 30 basis points on daily net assets of the scheme as per Regulation 52 of SEBI (Mutual Funds) Regulations, 1996, if the new inflows from beyond top 15 cities were at least (a) 30% of gross new inflows in the scheme or (b) 15% of the average assets under management (year to date) of the scheme, whichever is higher.

The additional TER for inflows from beyond top 15 cities (B15 cities) was allowed with an objective to increase penetration of mutual funds in B15 cities. Since more than five years have elapsed and on review, SEBI has now decided that the additional TER of upto 30 basis points would be allowed for inflows from beyond top 30 cities instead of beyond top 15 cities.

* Charging of additional expenses of upto 0.20% in terms of Regulation 52 (6A) (c) of SEBI (Mutual Funds) Regulations, 1996

1. Regulation 52 (6A) (c) of SEBI (Mutual Funds) Regulations, 1996, allowed an AMC to charge additional expenses, incurred towards different heads mentioned under Regulation 52 (2) and Regulation 52 (4), not exceeding 0.20 per cent of daily net assets of the scheme.

2. In this respect, it is clarified that Mutual Fund schemes including close ended schemes, wherein exit load is not levied / not applicable, the AMCs shall not be eligible to charge the above mentioned additional expenses for such schemes.

3. Further, existing Mutual Fund schemes including close ended schemes, wherein exit load is not levied / not applicable, shall discontinue, with immediate effect, the levy of above mentioned additional expenses, if any.

* Total Expense Ratio - change and disclosure: SEBI has issued circular bringing the following changes

(a) AMCs are now required to disclose on a daily basis, the TER of all schemes under a separate head - "Total Expense Ratio of Mutual Fund Schemes" on their website in downloadable spreadsheet format.

(b) Any change in the base TER (i.e. TER excluding additional expenses provided in Regulation 52(6A)(b) and 52(6A)(c) of SEBI (Mutual Funds) Regulations, 1996) in comparison to previous base TER charged to any scheme shall be communicated to investors of the scheme through notice via email or SMS at least three working days prior to effecting such change.

However, any decrease in TER due to decrease in applicable limits as prescribed in Regulation 52 (6) (i.e. due to increase in daily net assets of the scheme) would not require issuance of any prior notice to the investors. Further, such decrease in TER needs to be immediately communicated to investors of the scheme through email or SMS and uploaded on the website in terms of clause (a) above.

Further, the mutual fund is now required to update the current expense ratios on the website at least three working days (instead of 2 working days) prior to the effective date of the change. Additionally, AMCs shall provide the exact weblink of the heads under which TER is disclosed in their website."

Performance of your Company:

The performance of the Company for year ended March 31,2018 is given in brief below:-

During the year 2017-2018, the Companys total income decreased by 9.91% to 18,872,844/- as compared to 20,949,050/- in 2016-2017. Consequently the Companys loss increased by 188.52% to 19,825,973/- in 2017-2018, as compared to 6,978,995/- in 2016-2017.

The above increase in total income in financial year 2016-2017 was mainly due to interest income of 1.07 crores (shown under the head other income) against pending arbitration tribunal award of BSE Limited which was finally disposed off during the previous financial year. During the year the Company also earned Management Fees from Shriram Mutual Fund amounting to 9,021,223/- (from April 2017 to March 2018).

Performance of Maiden Scheme "Shriram Equity and Debt Opportunities Fund"

The performance of our maiden Scheme "Shriram Equity and Debt Opportunities Fund" as on March 31,2018 is given below:

# Date of Inception/ Allotment November 29, 2013

@ Benchmark Index: 70% of Nifty Plus 30% CRISIL Composite Bond Fund Index. As per SEBI circular no. SEBI/HO/ IMD/DF3/CIR/P/2018/04 dated January 04, 2018 in Benchmark Nifty value is taken as Total Return Index.

Above returns are compounded annualized (CAGR).

Past Performance may or may not be sustained in the future and may not necessarily provide a basis for comparison with other investments.

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 operations, compliance with internal policies and 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:

During the financial year ended March 31,2018, the human resources aspects and built in Management Team of the Company remain unchanged.