SBI FUNDS MANAGEMENT PRIVATE LIMITED
ANNUAL REPORT 2011-2012
DIRECTOR'S REPORT
TO,
THE MEMBERS
The Directors have pleasure in presenting the twentieth annual report
together with the Statement of Profit and Loss of SBI Funds Management
Private Limited for the year ended March 31, 2012 and the Balance Sheet as
at that date.
The highlights of the financial results are as under:
I. FINANCIAL RESULTS:
(Rs. in lacs)
PARTICULARS YEAR UNDER PREVIOUS
REPORT YEAR
2011-12 2010-11
Total Income 24,758.25 25,524.22
Profit before depreciation 8,669.15 11,934.84
Less: Depreciation 290.21 244.37
Profit before tax 8,378.94 11,690.47
Less: Provision for tax 2,327.03 3,805.71
Profit after tax 6,051.91 7,884.76
Balance brought forward
from previous year (net) 18,017.54 14,293.63
Amount available for Appropriation 24,069.45 22,178.39
APPROPRIATIONS:
Transfer to General Reserve 605.19 788.47
Proposed Dividend - -
Interim Dividend 2,900.00 2,900
Dividend Distribution Tax (Net) 470.46 481.65
Excess Provision of Dividend
Distribution Tax for Previous
Year written-back - (9.27)
Balance/(Loss) to be carried forward 20,093.80 18,017.54
II. DIVIDEND:
An interim dividend of Rs. 58 per Equity Share, subject to tax, was
declared on 26th March, 2012 on the paid-up equity share capital of the
Company, involving a total outgo of Rs. 3,370.46 lac on account of dividend
inclusive of dividend distribution tax. The Directors recommend that the
interim dividend paid during the year, be declared as the final dividend
for the year 2011-12.
III. CAPITAL:
During the year under review, the Company has not made any fresh issue of
capital. However, consequent upon Societe Generale S.A. and Credit Agricole
S.A. entering into an agreement to undertake a global merger of their
fundamental asset management businesses, 18,50,000 equity shares
constituting 37% of the paid-up equity share capital held by Societe
Generale Asset Management have been transferred to Amundi India Holding, a
wholly owned subsidiary of Amundi on 30th May, 2011 after obtaining
relevant regulatory approvals.
The net worth of the Company increased to Rs. 30,439.37 lac as at the end
of March, 2012 from Rs. 27,757.92 lac as at the end of March, 2011.
IV. BUSINESS ENVIRONMENT:
THE ECONOMY
Managing growth and price stability are the major challenges of
macroeconomic policymaking. In 2011-12, India found itself in the heart of
these conflicting demands. The GDP growth rate crashed to a nine-year low
of 6.5% in FY 2011-12, and to 5.3% during the January-March 2012 quarter,
the worst in 36 quarters. However, India did manage to stand out in global
comparisons as most of the other economies are facing challenges.
With agriculture and services continuing to perform well, India's slowdown
can be attributed almost entirely to weakening industrial growth. The
manufacturing sector grew by 2.7 per cent and 0.4 per cent in the second
and third quarters of 2011-12, but contracted by 0.3% during the fourth
quarter, confirming the apprehensions about the failure of the higher
interest rates to tame price rise but having serious side-effects on
growth. Inflation as measured by the wholesale price index (WPI) was high
throughout the fiscal year. The year-end numbers though witnessed marginal
improvements. Food inflation, in particular, came down to around zero, with
most of the remaining WPI inflation being driven by non*food manufacturing
products. Monetary policy was tightened by the Reserve Bank of India (RBI)
during the year to control inflation and curb inflationary expectations.
The global economic environment turned sharply adverse in September 2011
owing to the turmoil in the euro zone, and questions about the outlook on
the US economy provoked by rating agencies. These external factors, coupled
with a lower than expected growth and sluggish policy response, did put the
currency under pressure. Rupee touched a low of 54.30 against US$, to
rebound on the back of strong foreign portfolio flows. Going forward, the
economic situation in Europe, global commodity prices and India's ability
to calibrate its policy response remain critical levers. A strong policy
response is required to address some of the structural problems like high
fiscal deficit and current account deficit.
CAPITAL MARKETS
Indian equity markets ended lower in 2011-12 with the BSE Sensex losing 10%
to end the year at 17404. The first nine months of the year ended
negatively, with the Sensex losing 20% by the end of December 2011 at 15455
as against the Sensex level of 19455 at the end of March 2011. Most of the
losses were sustained in the 3rd quarter, with FII outflows due to concerns
about situation in Europe as well as high inflation, tight liquidity and
elevated interest rates. However, the 4th quarter saw the Sensex rally by
13% due to renewed FII inflows on higher global risk appetite. Interest
rates remained elevated due to RBI's hawkish stance and high government
borrowing. The RBI seems to have changed the stance given the inflation
trajectory and fall in growth momentum. They cut CRR and embarked on open
market operations (OMOs) to release liquidity.
MUTUAL FUND INDUSTRY
During the year, the following important developments took place in the
Mutual Fund Industry:
a) SEBI advised the Asset Management Companies to provide an option to the
investors for receiving Mutual Fund units in their demat accounts.
b) Additional disclosures pertaining to indicative portfolio or yield for
close-ended debt oriented mutual funds were introduced.
c) SEBI liberalized the portfolio investment route by permitting the Asset
Management Companies(AMCs) to accept subscriptions for equity schemes from
foreign investors meeting the KYC requirements.
d) Mutual Funds are allowed to charge a transaction charge per subscription
of Rs. 10,000 and above, to be paid to the distributors for increasing the
reach of mutual fund products.
e) Norms for disclosing information on performance were prescribed for
ensuring greater transparency.
f) SEBI advised all Mutual Funds to put in place and establish a system for
carrying out the due diligence process for distributors to help achieve
greater investor protection.
g) Provisions for Infrastructure debt fund schemes were notified.
h) Norms for issuing consolidated account statement across all mutual fund
to investors in whose folios transactions have taken place were prescribed.
i) With an objective to bring about uniformity in securities markets and in
KYC requirements, SEBI permitted use of the uniform/same KYC form and
supporting documents by all SEBI registered intermediaries.
j) The Reserve Bank of India enabled mutual funds to participate in repos
in corporate debt securities subject to the approval of SEBI.
k) KYC Registration Agency (KRA) Regulations, 2011 were notified.
l) SEBI revised the advertisement code and the investment valuation norms.
m) SEBI advised AMCs to disclose all details of debt and money market
securities transacted (including inter scheme transfers) in its schemes
portfolio on AMCs' website.
During the year, the total assets mobilized by the mutual fund industry
stood at Rs. 68,19,679 Crore (Previous year Rs. 88,59,515 Crore) while the
total repurchase/redemption amount was Rs. 68,41,702 Crore (Previous year
Rs. 89,08,921 Crore) (Source: AMFI website). The industry thus saw a net
outflow of Rs. 22,023 Crore (Previous year net inflow of Rs. 49,406 Crore)
during the year.
The total assets under management as on 31st March, 2012 stood at Rs.
5,87,217 crore (Previous year Rs. 592,250 Crore). PERFORMANCE OVERVIEW
More than 70% of total assets managed by the Company were in the top two
quartiles for all time periods up to 1 year.
1) Performance of Equity Schemes:
a) 67% of our equity assets under management are in top 2 quartiles on a
one year horizon
b) Most of our equity schemes outperformed their respective benchmarks by
more than 200 basis points
c) SBI Magnum Emerging Business Fund continues its top decile performance.
d) Most of the equity funds have shown improvement in annual rankings
during the year.
2) Performance of Fixed Income Schemes:
a) More than 90% of the fixed income AUM lies in top two quartiles across
time periods up to 3 years
b) SBI Dynamic Bond Fund remained a top Performer and attracted large
inflows. AUM of SBI Dynamic Bond Fund has increased from Rs. 42.55 Crore to
Rs. 924.53 Crore in last 5 months of the financial year.
SBI Mutual Fund saw a total inflow of Rs. 3,53,035 Crore (Previous year
Rs.4,65,364 Crore) in the domestic open and close-ended funds during the
year. The inflows took place predominantly in the liquid and debt funds.
The total redemption amounted to Rs. 3,51,510 Crore (Previous year
Rs.4,61,658 Crore), leaving a net inflow of Rs. 1,525 Crore (industry net
outflow Rs. 22,023 Crore) as against a net inflow of Rs. 3,706 Crore
(industry net outflow Rs. 49,406 Crore) in the previous year.
The closing assets under management of the domestic schemes of SBI Mutual
Fund as on 31st March, 2012 were Rs. 43,449 Crore as against Rs. 42,019
Crore as on 31st March, 2011 signifying a growth of 3.40%. The average
assets under management, which were Rs. 41,672 Crore for the quarter ended
31st March, 2011, increased to Rs. 42,042 Crore for the quarter ended 31st
March, 2012 signifying a modest growth of 0.89% with increase in market
share by 0.37% during the quarter ended 31st March, 2012 as against the
market share of SBI Mutual Fund for the quarter ended 31st March, 2011.
During the year, SBI Mutual Fund launched fifty eight funds under SBI Debt
Fund Series, SBI Gold Fund, SBI Capital Protection Fund Series III and SBI
Tax Advantage Fund - Series II. The schemes received good response from the
investors and total funds mobilized under these schemes amounted to
Rs.14,764 Crore.
The value of assets under Portfolio Management/Advisory Services went up by
25.03% in the financial year 2011-12 with Rs. 9,467 Crore as on 31st March,
2012 as against Rs. 7,572 Crore as on 31st March, 2011. In the retail
portfolio management service activity, we had 512 clients with assets under
management of Rs. 56 Crores.
Resurgent India Opportunities Fund, the off-shore fund managed by the
Company, witnessed a decline in the assets under management from Rs. 43
Crore as on 31st March, 2011 to Rs. 37 Crore as on 31st March, 2012 due to
weakening of Indian Rupee against dollar coupled with low appetite by
offshore investor for India based funds. The fund showed an improved
performance during the year.
We had 31,516 AMFI certified Agents as on 31st March, 2012 as against
39,173 AMFI certificates Agents as on 31st March, 2011. The number of AMFI
certified Agents had come down as the number of Agents has not renewed
their ARNs and New Agents enrolment has also come down due to changed
regulatory environment making retail IFA model unviable . The number of
AMFI certified employees in State Bank Group, however, increased to 19,559
as on 31st March, 2012 from 18,791 as on 31st March, 2011.
During the year, 2 new Investor service Desks were added. As on 31st March,
2012, SBI Mutual Fund had 29 Investor Service Centres, 66 Investor Service
Desks, 11 Investor Service Points and 1 Overseas Points of presence. As on
31st March, 2012, 34 Business Associates for improving customer service and
providing more contact points to the investors were functional.
NEW INITIATIVES
To improve the quality of our customer service and operational efficiency,
we have put in place the following initiatives during the year:
a) An upgraded Online Transaction Module for investors to help them make
Purchase, Switch, Redemption, source Statement of Account (SOA) and view
the entire portfolio summary online.
b) The facility of getting the valuation of folio through the interactive
voice response was introduced for better investor servicing. With this
facility we have NAV, SOA and Valuation through our IVR which is a 24/7
facility.
c) Continued our efforts of contacting investors whose units are still live
in redeemed schemes to send their redemption requests.
d) Introduced outbound calling through our Customer Contact Centres to
advise the reason for rejection of application to investors for better
customer servicing.
e) An engagement with Franklin Covey, a globally front running training and
consultancy organization, for drawing upon their consultancy services on
the subject of Execution, based upon their world famous 4 Disciplines of
Execution (4DX) solution. The engagement is being implemented at three of
our zones viz. Mumbai, Delhi and Pune on a pilot basis. The 4 DX principle
is aimed at recording a quantum leap in our business levels during the year
2012-13.
f) We continued our efforts to increase the volume of centralized direct
debits through SBI CMP for all investors banking with the State Bank Group
core banking branches to give a major boost to Systematic Investment Plans
(SIP) business.
g) Redemptions and income distribution through direct credits with forty
eight banks including SBI core banking branches, which account for about
85% of daily pay-outs. We are in touch with the banks to convert investors'
non-core bank mandates to core banking mandates in a phased manner on an
ongoing basis.
h) Increase in e-communication (Statement of Account, Scheme Balance
Sheets, Direct Credit Confirmations and other communications) to reduce
costs and to increase customer satisfaction.
FUTURE PLANS
The Mutual Industry has been in the mode of asset acquisition through
payment of up-front brokerage for assets acquired, which will continue to
impact the revenue of the AMCs in the first year in which the assets are
acquired. As the AMCs have been paying upfront brokerages based on future
management fee expectations, the additional revenue generation is getting
deferred till the asset base increases to a level without impacting current
year's profit. As such, in years of sharp AUM growth, profits will be low.
Whereas, if the AUM remains flat, profits will see a rise, though at the
cost of future year profits.
Abolition of entry load has made us re-think on the drivers of our
business. Equity markets have been volatile for the past few months and
though the investors have refrained from taking exposure to equity, the
strengths of Indian economy are intact. In a shorter term, we expect bond
funds to attract investments. Due to the current high interest rate regime,
investors are willing to invest in a fixed income funds for a decent return
at a relative low risk premium to equity. Our funds like SBI Dynamic Bond
Fund and FMP's are experiencing huge inflows. Over next 3 to 5 years,
Indian equity mutual funds still look attractive.
* We would like to grow our market share to 10% in next 2 years. We have an
ambition to be among top 3 players in the next 2 to 3 years.
* Our primary objective is to grow our business in retail segment by
creating awareness among investors and we are investing significantly in
investor awareness programmes.
* We plan to strengthen and grow our distribution base by increasing
engagement with IFAs, National distributors and private banks , developing
alternative distribution channels and creating products to suit wealth
managers.
* We will continue to innovate in the product catergory to provide
attractive investment opportunity across the risk and asset segments.
We plan to augment our distribution network to tier 3 towns and extend the
market coverage in rural markets through SBI's business correspondents/
facilitators with Micro SIP options. The other steps for improving investor
services include increasing the electronic payout of redemption/dividends
to around 90%, introduction of centralized management of SIPs of all
associate banks by direct debits to further increase our SIP reach and
improve efficiency, increasing e-communications and fine tuning of our
Contact Centre services to reduce call waiting time. We are also trying to
start a campaign to popularize online investments through net banking
solutions.
AWARDS AND RECOGNITIONS
* CRISIL CNBC Award - Magnum Emerging Businesses Fund (EBF) was among the 3
nominees in Midcap Funds category. We were nominated among 3 best funds in
Ultra-short Term Fund and also in the Liquid Fund category. SBI Mutual Fund
was also nominated for the Best Fund House of the year in Fixed Income
category.
* Bloomberg UTV Awards - SBI Mutual Fund was nominated for the Best Fund
House of the year in the Fixed Income category.
* A full page article on the 'Turnaround Story of SBI Mutual Fund' in the
Mint Newspaper waspulished in March, 2012.
* SBI Gold Exchange Traded Scheme was adjudged as the 4th best performer in
the world on products based on Gold - Bloomberg.
* SBI Mutual Fund won five awards at the ICRA Awards ceremony for Magnum
Tax Gain Scheme, Magnum FMCG (2 awards), Magnum EBF and SBI Dynamic Bond
Fund.
* ET Mutual Fund Tracker - SBI Mutual Fund had 3 platinum funds and entered
the list of 10 best Fund Houses at number 6, ahead of some of the larger
fund houses, with 17 medallions.
* CPR 1: SBI Dynamic Bond Fund and SBI Short Horizon Debt Fund - Ultra
Short Term Fund - Institutional, for the quarter ended December 2011. All
Fixed Income Funds (Liquid, Ultra short, Short Term, Income and Gilt
category) are now in CPR 1 and CPR 2.
* Indian Express ranked our Chief Investment Officer at number 3 among the
top 10 Fund Managers in India on the basis of superior risk-adjusted
returns.
* Our Head of Equity was ranked as the Best Fund Manager by Business Today-
Value Research study.
V. COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF THE BOARD OF
DIRECTORS) RULES 1988:
In terms of the above rules issued by the Central Government the following
information is furnished.
i) CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION
Since the Company does not own any manufacturing facility, the disclosure
under this head is not applicable. Further, the other particulars in the
Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules 1988 are also not applicable.
ii) FIXED DEPOSITS
During the year, the Company has not accepted any deposits from the public
under Section 58-A of the Companies Act, 1956.
iii) FOREIGN EXCHANGE EARNINGS AND OUTGO
During the financial year under review, the Company earned Rs. 1,316.15 lac
in foreign exchange as portfolio management fee. The foreign exchange outgo
on account of traveling and business promotion was Rs. 183.23 lac.
VI. SUBSIDIARIES:
SBI Funds Management (International) Private Limited, a fully owned
subsidiary of the Company provides investment management services to the
SBI Resurgent Opportunities Fund.
The audited statement of accounts of SBI Funds Management (International)
Private Limited for the year ended 31st March, 2012, together with the
Report of Directors and Auditors, as required under Section 212 of the
Companies Act, 1956, are attached.
VII. DIRECTORS:
During the year under review, the following changes took place in the Board
of Directors of the Company:
a) Mr. Shyamal Acharya was appointed as an associate director on 22nd
August, 2011.
b) Mr. Didier Turpin, who had been appointed as an Alternate Director to
Mr. Jean Paul Mazoyer resigned w.e.f. 20th July, 2011 consequent upon his
secondment from Amundi to the Company coming to an end.
c) Mr. Philippe Batchevitch was appointed as an alternate director to Mr.
J. P. Mazoyer on 22nd August, 2011.
d) Dr. Hira Sadhak was appointed as an independent director on 22nd
September, 2011.
e) Mr. Rajas Doshi resigned as director with effect from 30th September,
2011.
f) Mr. Thierry Mequillet was appointed as an associate director on 12th
November, 2011.
g) Mr. Shishir Joshipura was appointed as an independent director on 12th
November, 2011.
h) Mr. Jean Paul Mazoyer resigned as Director on 5th March, 2012.
Consequent to his resignation, Mr. Philippe Batchevitch also vacated the
office of alternate director.
i) Mr. Fathi Jerfel was appointed as an Associate Director on the Board and
Mr. Philippe Batchevitch as an Alternate Director to Mr. Jerfel with effect
from 26th March, 2012.
The Board places on record its appreciation of the valuable contributions
made by Mr. Jean Paul Mazoyer, Mr. Didier Turpin, and Mr. Rajas Doshi
during their tenure as Directors of the Company and extends a warm welcome
to all the new Directors, who have joined the Board of the Company.
BOARD MEETINGS
Seven board meetings were held during the financial year under review - on
27th April, 2011, 11th June, 2011, 26th July, 2011, 27th August, 2011, 17th
October, 2011, 23rd January, 2012 and 26th March, 2012.
The attendance of each director at the meetings of the Board of Directors
is as under:
Name/Category of Directors Number of meetings
attended
Mr. Pratip Chaudhuri, Chairman 6
Mr. Deepak Kumar Chatterjee, Managing Director 7
Mr. Jean Paul Mazoyer 2
Mr. Didier Turpin, (As alternate to Mr. J.P. Mazoyer) 2
Mr. Philippe Batchevitch,
(As alternate to Mr. J.P. Mazoyer) 2
Mr. Jayesh Gandhi 6
Mr. H. K. Pradhan 4
Mrs. Madhu Dubhashi 7
Mr. Rajas R. Doshi 2
Mr. R. Sridharan 1
Mr. Shyamal Acharya 4
Mr. Thierry Mequillet 1
Mr. Shishir Joshipura 2
Dr. Hira Sadhak 3
Mr. Fathi Jerfel Nil
Mr. Philippe Batchevitch, (As Alternate
Director to Mr. Fathi Jerfel) Nil
VIII. AUDIT COMMITTEE OF DIRECTORS:
The Committee reviews the reports of internal and statutory auditors placed
before them from time to time. An independent director who is a Chartered
Accountant chairs the audit committee. The Committee met seven times during
the year.
IX. MODEL CODE OF CONDUCT:
The Directors confirm that all Board members and Senior Management have
affirmed compliance with the Company's code of conduct for the financial
year 2011-12.
X. DIRECTORS' RESPONSIBILITY STATEMENT PURSUANT TO SECTION 217 (2AA) OF THE
COMPANIES ACT, 1956:
The Directors hereby confirm:-
(i) That in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures;
(ii) That reasonable and prudent accounting policies have been selected and
applied consistently and reasonable and prudent judgments and estimates
have been made so as to give a true and fair view of the state of affairs
of the company at the end of the financial year and the profit or loss of
the company for that period;
(iii) That proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of this Act
for safeguarding the assets of the company and for preventing and detecting
fraud and other irregularities;
(iv) That the annual accounts have been prepared on a going concern basis.
XI. PERSONNEL:
Employee relations remained cordial during the year. The Directors place on
record their appreciation of the dedicated work put in by all the
employees.
XII. PARTICULARS OF EMPLOYEES:
The details of employees covered by Section 217(2A) of the Companies Act
1956 read with Companies (Particulars of Employees) Rules 1975 are given in
the annexure to the Directors' Report. In terms of the provisions of
Section 219(1)(b)(iv) of the Act, the Directors' Report is being sent to
the shareholders of the company excluding the annexure. Any shareholder
interested in obtaining a copy of the said annexure may write to the
Company Secretary at the registered office of the Company.
XIII. AUDITORS:
The Comptroller and Auditor General of India, New Delhi appointed M/s.
Haribhakti & Co. as the Statutory Auditors of the Company, who will retire
at the conclusion of the Twentieth Annual General Meeting.
Under Section 224(8)(aa) of the Companies Act, 1956, the remuneration of
Auditors appointed under Section 619 by the Comptroller and Auditor General
of India, shall be fixed by the Company in the General Meeting.
Accordingly, Notice of the Annual General Meeting will include an item
pertaining to remuneration of the Auditors for the year 2011-12.
XIV. ACKNOWLEDGMENTS:
The Directors take this opportunity to express their gratitude for the
continued support and co-operation extended by the Securities and Exchange
Board of India, Reserve Bank of India, State Bank of India, Societe
Generale Asset Management, Amundi, the Registrars & Transfer Agents, the
Custodians, the Bankers, Market Intermediaries and Distributors, Government
Agencies, Auditors, Association of Mutual Funds of India and the Boards of
Directors of SBI Mutual Fund Trustee Company Private Limited and SBI Funds
Management(International) Private Limited.
The Directors also express their gratitude to the large body of investors
of various schemes of SBI Mutual Fund for the faith reposed in the Fund and
look forward to their continued patronage.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
Sd/-
Place: Mumbai PRATIP CHAUDHURI
Dated: 12th June, 2012 CHAIRMAN
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