SPA Capital Services Ltd Management Discussions.

1. INDUSTRY STRUCTURE AND DEVELOPMENTS

The Mutual Fund industrys dosing AUM as of March 31, 2020 fell by 6% to INR 22.3 Lakh Corner as against a closing AUM of INR 23.8 Lakh Crore as of March 31, 2019. During this period, the equity oriented AUM fell from INR 10.2 Lakh Crore to INR 8.3 Lakh Crore while the non-equity oriented AUM grew from INR 13.6 Lakh Crore to INR 14.0 Lakh Crore. As can be seen from above, the fall in overall AUM can be attributed to the fall in equity oriented AUM, which fell by l9% due to the fall in market, primarily in the month of March 2020. The Quarterly Average Assets Under Management (QAAUM) for the industry rose by 10% to INR 27.0 Lakh Crore for the quarter ended March 2020, as against INR 24.5 Lakh Crore for quarter ended March 2019. QAAUM for equity-oriented assets grew by 7% for the quarter ended March 2020 over the quarter ended March 2019, and QAAUM for non-equity assets grew by 13% for the quarter ended March 2020 as against the quarter ended March 2019. During FY19-20, industry saw net inflows to the tune of INR 0.67 Lakh Crore in equity assets, INR 0.64 Lakh Crore for others (including Arbitrage funds, Exchange Traded Funds (ETF) and Fund of Funds (FoF)), while debt saw outflows to the tune of INR 0.37 Lakh Crore. This means that on overall basis, industry saw net inflows of INR 0.87 Lakh Crore.

As of March 2020, individual investors contributed to 52% of the industry monthly average AUM (MAAUM) adding up to INR 12.9 Lakh Crore, while institutional investors contributed to the tune of INR 11.8 Lakh Crore which is 48% of industry MAAUM. The number of individual live accounts for the industry as of March 31, 2020 stood at 8.93 Crore versus 8.21 Crore as of March 2019. During FY 19-20, the MF industry saw inflows of INR 1 Lakh Crore through systematic investment plans. For the month of March 2020, MAAUM for the industry was split in the ratio of 84-16 between the top 30 cities (T30) and beyond the top 30 cities (B30). The total MAAUM for the industry in March 2020 stood at INR 24.7 Lakh Crore.

2. Opportunities and Threats

(a) Opportunities

Indias mutual fund (MF) industry is currently experiencing a state of flux; while ample opportunities are knocking at the door, its equally concerned with the numerous challenges. However, as Albert Einstein states, in the middle of difficulty lies opportunity, the dictum is equally applicable to Indias mutual fund industry.

Low mutual fund penetration

The above image indicates that despite the mutual fund industry registering a growth by over 20 per cent, it has only 2 crore investors. The numbers indicate the huge opportunity lying ahead. Industry leaders should focus on the B30 category cities (Tier 2 and 3), where nearly 90 per cent of Indias population resides and accounts for nearly 16 per cent. Its time that smaller cities are brought under the wings of the industry.

? Rising middle class incomes

Middle class population in India has increased manifold. While 2005, one in 15 households were considered upper middle class, by 2018 it moved to one in five households. Today, India has 6.1 crore upper middle class households with disposable income. However, only 2 core choose to invest

in mutual funds. How to tap in the remaining four crore? Probably, a new kind of marketing strategy can be the answer.

? Move to market-linked products

The chart below shows that there is movement from-physical (gold, real estate) to financial assets. There is also a shift from traditional products to market-linked ones. Today, people realise that with rising expenses and declining interest rates, some level of market risk is a must, and this is best taken via products like mutual funds.

Millennials and retirees, two ends of the age spectrum

Millennials form a third of our population. According to a Deloitte report they contribute 70 per cent of total household income and account for 46 per cent of the workforce. There is no doubt that this segment provides a significant growth opportunity.

However^ with the proportion of senior citizens increasing, India will have INR 3.5 crore such individuals by 203 0. With increasing life expectancy, lack of social security, rising medical expenses, senior citizens need solutions that not only beat inflation, but also support their golden years. The opportunity lies in offering accumulation solutions to millennials and decumulation solutions to seniors, both of, which mutual funds are well suited to do.

? Fixed income products

Mutual funds have played a key role in developing Indias debt market and have emerged as a key source of funding. However, despite the variety of fixed income products, investors have shown preference for equity funds vis-a-vis debt funds.

(b) Threats

? Shifting from awareness to education

The industry spends two basis points or about Rs.500 crore per annum on investors education. 50 per cent of which was via AMFIs pretty successful Mutual Funds Sahi Hai campaign. However, need of the hour is to transform mutual funds from a push to a pull product. For example, adding financial investment (mutual funds) in high-school or college curriculum. Such efforts will help in instilling the habit of early savings.

? Need for more distributors

There is a need for far more distributors and advisors to spread the message of investing in mutual funds far and wide. Indians are usually risk averse and lacks sound financial literacy, thus refrain from investing in market-linked products owing to a lack of understanding.

To address this, we need an army of well-trained financial advisors who can help educate investors about modern investment tools such as mutual funds.

? Mutual Funds will have a tough Job to maintain the growth in SIP accounts

Many new investors that have participated in the markets through mutual fund SIPs over the last few years havent seen any extended bearish phase of the market. If the markets fail to generate attractive returns even in 2019, some investors might consider discontinuing their SIPs. Thats the real challenge mutual fund houses may have to deal with this year.

? Simplified operational processes

While the mutual fund industry has made significant strides in standardising processes, but few challenges still remain: such as a simplified KYC to make on boarding hassle-free; making Aadhar inter-changeable with PAN; and allowing investments on the basis of Bank KYC.

3. Segment-wise or product-wise performance of the Company

The business activities of the Company is engaged in one segment (i.e. Financial Services) only, hence segment wise reporting is not required to be given.

4. Outlook

The AUM of the mutual fund industry in India has grown at a CAGR of 15.5% over the past five years, with the equity AUM growing at a CAGR of 17.3%. Rising awareness about benefits of investing in equity markets, growing popularity of ways of investing, such as SIP, are some of the factors contributing to the increased participation of domestic individual investors in the Indian mutual fund industry. The MAAUM of individual investors in the industry has reached INR 12.9 Lakh Crore in March 2020 and has recorded a growth of 18.2% since March 2015. The number of individual folios have increased from 4.14 Crore to 8.93 Crore in this period. Net inflows into the industry over the past five fiscal years were INR 9.46 Lakh Crore, of which INR 6.47 Lakh Crore have been in equity-oriented schemes. On the other hand, fixed income products including liquid funds have seen increased popularity amongst corporate, as well as retail and high net-worth investors.

The monthly SIP flows grew 2.8 times from April 2016, to INR 8,641 Crore in March 2020. The number of SIP transactions processed in March 2020 was 3.12 Crore as compared to 1.01 Crore in April 2016. SIPs offer the benefit of regular investing coupled with benefits of rupee cost averaging and are typically sticky long term inflows and lend visibility and predictability of AUM growth.

In this period, Indian equity markets achieved a healthy balance between the domestic institutional investors (largely Mutual Funds) and Foreign Portfolio Investors (FPIs), thereby significantly reducing the skew towards reliance on FPI inflows, lending more stability to the Indian markets.

We believe we are well-poised to capitalise on the healthy prospects of the industry and further solidify our position in the market Our strong brand equity, disciplined investment philosophy and robust process, customer-centric approach and expansive reach should facilitate our future growth.

5. Risks and Concerns

Risk Management is the continuous process of systematically identifying, quantifying, prioritizing and responding to all risks and opportunities that can affect the achievement of the Companys strategic and annual objectives. Accordingly the risk Management Policy of the company elaborates the various methods in identification, assessment, monitoring and mitigation of various risks that the company may face in its business. The companys objective is to achieve a balance between acceptable levels of risk and reward in effectively managing its operational, financial, business and other risks.

6. Internal control systems and their adequacy

An effective internal control mechanism is imperative to good corporate governance. The Company has put in place robust internal control systems and procedures in line with the scale of operations and business to ensure timely and accurate recording of financial transactions and adherence to applicable accounting standards; optimum utilisation and safety of assets; compliance with applicable laws & regulations; and an effective management information system & reviews of other systems. The Company also has in place well-defined organisational structures to facilitate clearly established roles and responsibilities for effective discharge of duties in a smooth manner.

7. Discussion on financial performance with respect to operational performance

Our revenues primarily consist of revenue from sale of securities, brokerage income from distribution of Mutual Fund and other financial products, income from interest and dividend. The Company is also registered with Reserve Bank of India as Non deposit accepting Non Banking Financial Company [NBFC).

During the year under review the Company has obtained registration as Point of Presence - Sub entity (POP- SE) from Pension Fund Regulatory and Development Authority (PFRDA) for providing various facilities to the Subscribers under the National Pension Scheme (NPS) and rendering other services as specified under the Pension Fund Regulatory and Development Authority Act, 2013.

During the year, the brokerage Income has decreased from Rs. 398,990,195/- in the Financial Year 2018-19 to Rs. 320,767,264/- in the financial year 2019-20.

It is submitted further that the profit before tax decreased from Rs. 1,09,51,783/- in the Financial Year 2018-19 to Rs. 68,94,267 in the financial year 2019-20.

8. Material developments in Human Resources / Industrial Relations fronts including number of people employed

Employees are our vital and most valuable assets. We have created a favorable work environment that encourages innovation and meritocracy. It is important for us that organization culture and organization strategy are well aligned. Over a period we have developed a strong culture of transparency through constant employee communication and have developed strong performance management practices wherein best class rewards and recognition systems are deployed. We have also set up a scalable recruitment and human resources management process which enables us to attract and retain high caliber employees.

9. Cautionary Statement

The statements describing the Companys outlook, estimates or predictions may be forward- looking statements based on certain assumptions of future events. Actual results may differ materially from those expressed or implied, since the Companys operations are influenced by external or internal factors. Your Company closely monitors all major developments likely to affect the operations and will respond to meet the potential threats and to gain from any possible opportunities.