Edelweiss Discovery Fund Series – I FAQ

Investment Strategy

1. Describe the investment strategy & approach adopted by the fund.

A. Discovery’s strategy is to be sector-agnostic. However, we will focus on mid-stage
investments. Discovery seeks to maximize returns from early participation in these companies
but minimize risk by ensuring we invest only after the company has demonstrated enough
traction to convince us of its sustainability.

2. What would be the initial investment and maximum follow-on investment per Investee
Company?
A. The total deal size per Investee Company will be between Rs.50 – 500 Cr. An investment may
also be made in a phased manner – with the Discovery fund investing additional capital basis
the growth needs of the investee company.

3. Describe the screening process to be undertaken by the fund?

A. The Fund will consider investments in both technology-enabled companies & broader
consumption theme that will meet the characteristics of our STAR frame work i.e.
Sunrise Sectors ,
Trusted Market Leaders,
Attractive financial profile,
Reasonable Entry Valuation.
These companies are selected based on their potential to deliver long-term sustainable
growth driven by combination of favourable position vis a vis macro and industry tailwinds,
high quality management execution, strong competitive position and high governance
standards.

4. What timelines would you assign to build the portfolio?

A. We will seek to build the portfolio within 18-24 months of the first close.

5. For what period would you typically hold your interest in an investment?
A. As per the investment strategy, the fund will closely monitor performance of the portfolio
companies on a regular basis & also track market conditions to enable planning of exits with
optimized valuations & target exit of the portfolio companies in public markets.
Our typical holding period will be 3 – 4 years.

6. What is the firm’s approach to valuation? How would you carry out the valuation of your
investment portfolio & how frequently?
A. The AIF Regulations require Category II AIFs to undertake valuation of their investments, at
least once in every six months, by an independent valuer appointed by the AIF. Fund will get
the valuation done from external valuer independently.

7. Will the Fund conduct annual investor meets / conferences?

A. We will do quarterly concall or webinar for the existing investors to provide in detail update
about the portfolio and outlook, if any with the Fund Manager.
 8. Is any of your research outsourced? Do you depend on any external entities for your
research?
A. The commercial diligence will be done primarily in-house by the investment team. From time-
to-time, the team might complement their work by engaging management consultants for
commercial DD.
In all cases, the accounting, tax, legal, forensic and ESG diligence will be conducted by reputed
third party specialists in their respective fields.

9. How is the fund looking for exits in the portfolio?

A. Discovery fund will look to exit via (i) secondary transactions to financial sponsors (ii) sale to
strategics and (iii) IPOs.

10. Describe Investment restriction for the Fund

A. There are no pre-defined sector level limits for the fund.
Maximum investment in a single company is 25% of the investable funds.
Minimum Investment in unlisted companies is 51% of the investable funds

Terms & Structure

11. What is the Target Size of the Fund?

A. The target size of the Fund shall be an amount of up to INR 1000,00,00,000 (Indian Rupees
One Thousand Crores), with a green shoe option, exercisable at the discretion of the
Investment Manager, of up to INR 1000,00,00,000 (Indian Rupees One Thousand Crores),
totalling to INR 2000,00,00,000 (Indian Rupees Two Thousand Crores).

12. What is the tenure of the fund?

A. The Fund is a close ended fund and the term of the Fund shall be a period of 5 (five) years
from the date of Final Closing, provided that the Investment Manager may extend the term of
the Fund by up to two periods of 1 (one) year each with the approval of Two-thirds Majority
of the Contributors, in accordance with the provisions the AIF Regulations.

13. How is the commitment period defined?

A. The Commitment Period of the Fund will begin on the date of Initial Closing and terminate
upon the expiry of 30 (Thirty) months from the date of Initial Closing, provided that the
Investment Manager may at its discretion extend the Commitment Period by up to 12 (twelve)
months.

14. What is the intended drawdown schedule and notice period given to investors for
drawdown?
A. Unitholders may be required to contribute initial drawdown up to 30% of their respective
aggregate Capital Commitment to the Fund and the fund will complete the drawdown during
the commitment period basis the opportunity for deployment Drawdown Period – 15 business
days from the date of issuance of drawdown notice.

15. Please describe the intended leverage levels

A. The fund may use leverage for not more than 30 days, not more than 4 occasions in a year,
and not more than 10% of the investable funds.
16. When and at what rate will the management fee be charged to the investor?
A. The management fee shall be charged as below: -
Class A1: 2.00% p.a.
Class A2: 1.75% p.a.
Class A3: 1.50% p.a.
Class A : 2.00% p.a. (Class A is applicable only for accredited investors)
The Management Fees will be accrued monthly on aggregate Daily Net Assets.

17. What is the entry load, Hurdle rate & performance fee applicable to the investor?
A. Entry Load – upto 2% of the Commitment Period.
Hurdle Rate – 10% pre-tax & post expenses on XIRR basis.
Performance Fee – 20% over a hurdle rate of 10% charged at the end of the tenure.

18. What are different share classes available for the investors?
A. Share classes are defined as per the amount invested as mentioned below:-
Class A1: Rs. 1 crore and < Rs. 5 crore commitment.
Class A2: => Rs. 5 crore and < Rs. 10 crore commitment.
Class A3: => Rs. 10 crore commitment.
Class A: => Rs. 50 Lakhs commitment (Class A is applicable only for accredited investors).

19. What is the minimum sponsor commitment?

A. 2.5% of the Fund size or INR 5 crores, whichever is lower.

20. How much will be the Operating and Organisational charges amount to?
A. Operating Expenses and Establishment Expenses shall collectively be referred to as “Fund
Expenses” and shall be subject to a cap of 0.30% per annum of the average NAV per unit of
the Fund.

21. What interest shall be liable on delay in payment of drawdown amount?

A. Any Contributor failing to contribute any portion of its Capital Commitment pursuant to a
Drawdown Notice, within 15 (Fifteen) Business Days from the date of Drawdown Notice
(which may be extended by the Investment Manager in its discretion), shall be required to
contribute such outstanding portion of its Capital Commitment along with an interest of 8%
(Eight Percent) p.a. calculated on the outstanding portion of its Capital Commitment from the
date on which such contribution was due until the date of actual payment.

22. Is Lein on investments allowed for investors? If yes, please provide the details in that respect
A. Yes, it is allowed only for fully paid drawdown cases. However, lien on partial investment and
multiple pledgees is not allowed. All distributions will be paid to the financiers for investments
under lien.

23. How does the concept of co-investment be applicable?

A. If it is decided that the Fund will not fully subscribe to any investment opportunity offered to
it, the Investment Manager may at its discretion, offer the remainder of the opportunity to
the eligible Contributors in the Fund (“Co-investor(s)”).
The Co-investor(s) will have an agreement signed with the Investment Manager through the
PMS license and will be liable for below fee structure

Management Fee : As paid by the investor in the original Fund

 Entry Load – upto 2% of the Commitment Period.
Hurdle Rate – 10% pre-tax & post expenses on XIRR basis.
Performance Fee – 20% over a hurdle rate of 10% charged at the end of the tenure.

24. Would the proceeds of exits be reinvested in other opportunities? Or would it be returned
the investors?
A. During the Commitment Period and a for a period of 12 months post the expiry of the
Commitment Period (“Reinvestment Period”), proceeds arising from the partial or complete
disposal of Portfolio Investments by the Fund, for an amount up to the acquisition cost of each
such concerned Portfolio Investment, may be reinvested by the Investment Manager or
restored to unfunded Capital Commitments and therefore be subject to recall for
reinvestment during the Reinvestment Period by the Investment Manager.
The proceeds post the completion of 12 months from the commitment period will be
distributed after deducting relevant fees, expenses, tax etc.

25. Who are class AC investors?

A. Class AC are Accredited Investors.

26. Who is eligible to be an Accredited Investor (Class AC)?

A. (i) Individuals, HUFs, Family Trusts and Sole Proprietorships, which meet the criteria as
under: a).Annual Income >= INR 2 Crore; OR
b).Net Worth >= INR 7.5 Crore, out of which at least INR 3.75 Crore is in the form of financial
assets; OR
c).Annual Income >= INR 1 Crore+ Net Worth >= INR 5 Crore, out of which at least INR 2.5
Crore is in the form of financial assets.
(ii) Partnership Firms set up under the Indian Partnership Act, 1932 in which each partner
independently meets the criteria for accreditation.
(iii) Trusts (other than family trusts) with net worth greater than or equal to INR50 Crore.
(iv) Body Corporates with net worth greater than or equal to INR 50 Crore.

27. How to Claim Certificate of Accredited Investors (AI)?

A. For accreditation, the prospective AI (“Applicant”) shall make an application to the
Accreditation Agency in the manner specified by the Accreditation Agency.
Accreditation Agency shall verify that ,at the time of accreditation, the Applicant is ‘fit and
proper’ to participate in the securities market, including absence of any convictions or
restraint orders, not being a willful defaulter, etc.
The Accreditation Agency shall issue a certificate to the Applicant as an AI
(“AccreditationCertificate”).Each Accreditation Certificate shall have a unique accreditation
number,name of the Accreditation Agency, PAN of the Applicant and validity of accreditation
(start date and end date).

28. Will the amount be deployed in liquid funds if the investor gets money in-between the NAV
Date?
A. Since we have weekly NAV dates, the amount will not be deployed in the liquid funds.

29. Every new drawdown, units will be issued at cost or NAV?

A. Units will be issued at prevailing NAV for every new drawdown.

30. When will the performance fee be charged to the contributors?

A. The Performance fee will be charged to the contributors at the end of the tenure.
31. Will there be an option for Co-Investment?
A. Yes, there will be an option for Co-Investment.

Taxation

32. What would be the taxation impact of the various kinds of income earned by the Fund?
(Interest, Dividends, Capital Gains) under the normal provisions of Income-Tax?
A. The Fund should be eligible to avail the ‘tax pass-through status’ accorded under section
115UB of the Income-tax Act, 1961 (‘Act’) to investment funds set up inter alia as trusts, which
hold certificate of registration as Category I/ Category II AIFs and are regulated under the AIF
Regulations.
The tax pass-through should be available with respect to any income [other than income
chargeable under the head ‘Profits and Gains of Business or Profession’ (‘Business Income’)].
Such income should be exempt in the hands of the Fund and be chargeable to tax in the hands
of the investors in same and like manner on a pass-through basis.

33. What would be the treatment for unrealized gains/losses both at Fund & Investor level?
A. Only realized gains arising on the transfer of a capital asset should be chargeable to tax under
the head Capital Gains. The provisions of the Act do not provide for taxation of interim
unrealized gains/ losses on account of appreciation/reduction in value, if any, that may arise
prior to transfer of a capital asset.

34. What would be the tax implications in case of transfer of units of Fund?
A. The units of the Fund would be held as capital assets in the hands of investors and hence, any
gain/ loss arising on the transfer of units of the Fund should be taxable in the hands of the
investors under the head Capital Gains.
In computing such Capital Gain/Loss, the investor should be able to claim deduction of the
cost of acquisition (with indexation, wherever applicable) of the units and any expenses
incurred wholly and exclusively in connection with such transfer.

35. What would be the additional requirements/implications in case of non-resident

investors?
A. Non-resident taxpayers need to obtain a Tax Residency Certificate from the government of
the country or specified of which it is a resident to claim any relief under the Tax Treaty l.
Further, the non-resident investor should be required to furnish such other information or
document as prescribed. In this connection, the CBDT vide its notification dated 1 August 2013
amended Rule 21AB of the IT Rules prescribing certain information in Form No 10F to be
produced along with the TRC, if the same does not form part of the TRC.

36. What is the withholding tax required to be deducted for investors, the time of such
deduction and the rate?
A. Allocation / credit to investor’s account or distributions of income earned by the Fund
(whichever is earlier) to the investors will be liable to tax withholding at the rate of 10 percent
(in case of resident investors) and rates in force (in case of non-resident investors); such tax
will be creditable against the tax liability of the investors. Given that this is a tax withholding,
the tax will be deposited against the permanent account number (‘PAN’) of the investors by
the Fund.
 In absence of investor furnishing his / her PAN, the Fund will be required to withholding tax
at 20 percent or applicable tax rates, whichever is higher. The tax so deducted would be
reflected in the Form 26AS of the investors. Further, as per section 203 of the Act, the Fund
is also required to issue a withholding tax certificate in Form 16A which provides, amongst
other things, the details of the amount on which tax is deducted, rate of deduction, tax
deducted at source, etc.

37. How is the period of holding computed for listed shares, unlisted shares which are listed at
time of sale and unlisted shares and the rates of taxation thereof?
A. The period of holding of shares to be calculated from the date of acquisition until transfer /
sale of securities. The period of holding to determine whether securities are long-term or
short term in nature differs.

Short Term Capital Asset Long Term Capital Asset

Asset Period of Rate of tax Period of Rate of tax
holding holding
Listed 12 months or 15% More than 12 10%
Securities less months
Unlisted 24 months or 30% More than 24 20%
Shares less months
Any other 36 months or 30% More than 36 20%
security less months
In order to determine the category in which the securities being sold fall, the nature of the
securities on the date of sale is to be considered

38. How can the investor report the income from the Fund in one’s Tax Return?
A. The investors should be required to report the income received by them from the Fund on a
pass-through basis under Schedule PTI of the respective Income-tax forms.

Investor Eligibility/ Requirement

39. What are Documentation/Signup requirement for the domestic investors?

A. The documentation should be as per checklist for individuals and non individuals.

40. What are Documentation/Signup requirement for NRIs investing in the Edelweiss Discovery
Fund?
A. The documentation should be as per checklist for NRIs.

41. What are the additional requirements and Tax implications for NRIs ?
A. Proceeding on the basis the income earned by Fund is the nature other than Business Income,
the tax rates applicable to non-resident investors will be in accordance with the Act or
applicable tax treaty, whichever is more beneficial. A non-resident seeking to be taxed in
accordance with the applicable tax treaty must possess a valid tax residency certificate (‘TRC’)
issued by the Revenue authorities of its country of residence. If all required information is not
contained in the TRC, the non-resident is also required to furnish prescribed details in Form
10F issued by the IRA. The above will be in addition to furnishing of (a) PAN copy, and (b)
 general applied KYC documents including declaration for no PE / no business connection in
India. Also refer details in the Tax opinion issued for the fund.

42. Can they invest from both NRE and NRO?

A. Yes. But a single folio can only have one account either NRE or NRO. An Investor can have 2
folios with one folio of NRE account and other folio of NRO account.
For every drawdown the amount should be transferred from the same type of account used
for initial contribution. Also the payout will be done to the same type of account (i.e NRE or
NRO)

43. Any additional requirements which NRI needs to submit annually

A. A non-resident seeking to be taxed in accordance with the applicable tax treaty must submit
annually a valid tax residency certificate (‘TRC’) issued by the Revenue authorities of its
country of residence. If all required information is not contained in the TRC, the non-resident
is also required to furnish prescribed details in Form 10F issued by the IRA

44. Also if a client is an NRI and client signs up while he is in India, for future drawdown’s can
we take cheques from the client with a signature of the POA holder?
A. Cheque can be signed by any person which investor has authorised / given POA to sign with
the bank. Our requirement is only that that the cheque should have investor name, account
no and account type printed on it.

45. Any restriction on the countries?

A. NRI’s based in all countries are permitted to invest into the fund, except the following
jurisdictions:-
Iran, North Korea, Algeria, Ecuador, Indonesia, Myanmar, Ethiopia, Pakistan, Syria, Turkey,
Yemen, Nigeria & Sudan.
The above list is subject to change & alternately – the updated list should be checked at
http://www.fatf-gafi.org/countries/#high-risk

46. What type of investors can invest in the fund?

A. The Fund will seek to raise monies from Indian resident investors and/or non-resident investors
(as permitted under applicable laws) including but not limited to financial institutions, pension
funds, family offices, estates, banks, insurance companies, high net worth individuals, non-
resident Indians (“NRI(s)”), trusts, partnerships, limited liability partnerships, body corporate,
corporate, Hindu Undivided Families, a Government body (Central or State) or an agency or
instrumentality thereof and any other person permitted by law.

47. What documents can the POA holder sign on behalf of the investor?
A. POA holder can sign all the documents except KYC-KRA / CKYC documents, FATCA.

48. How many joint holders are allowed?

A. Two holders can jointly commitment minimum of Rs.1.00 Crore provided the holders are
parent and son/daughter or spouse. Others can jointly invest provided for each holder the
commitment shall not be less than Rs.1.00 Crore.
49. Whether drawdown amount can be transferred from the third party (i.e. other than the
holders)
A. No

50. For investment can the investor use bank accounts other than mentioned in the application
form? Also whether multiple cheques can be accepted by a single investor?
A. Yes, multiple cheques and bank account different from that mentioned in the application
form can be used, subject to investor being the account holder in all bank accounts.

51. Where I can obtain the documentation?

A. Physical account opening kits can be obtained from the distributor you work with, or from
Edelweiss.

52. Where do I submit documentation?

A. All documentation should be couriered to the AMC branches.

53. Can funding be done via cheque or RTGS?

A. Yes both means are acceptable. Refer Account opening process note for further details.

54. Who do I contact for questions?

A. For documentation and operations queries kindly email on
Client.Service@edelweissmf.com
For product related queries kindly email on Alts.Product@edelweissmf.com

Reporting

55. How the communication for the same shall be sent to the investors and at what frequency?
A. The reporting shall be issued on quarterly basis which shall highlight the recent deals and
transactions. Valuation for the listed portion is done by taking prices from the exchange and
Unlisted portion will be done from external agencies on a quarterly basis.

56. How and when will contributors receive required reports, capital drawdown notices, and
tax information?

Report Name Frequency

Factsheet Monthly
Monthly, post drawdown
Statement of Accounts and at every distribution
Annual Report and Audited Financial Statement Annually
Form 16A (Withholding Tax Certificate) Quarterly
Form 64C ( Total income statement) Annually
Advance Tax Letter Quarterly

Disclaimer –
For investor level taxation, the investor should take independent advice from their tax advisors.
For more detailed taxation, refer Tax opinion from Deloitte which will be available on request
(Kindly mail on MSFCoverage@edelweissmf.com for the same)

Key Terms:

Committed Capital: The amount that the investor agrees to invest in the fund.

Drawdown Amount: The amount that the fund manager may call from time to time based on
the opportunities available.

Commitment Period: The period in which all drawdown needs to be completed (i.e., 100%
drawdown)

Initial Close: The release of first NAV/ Allocation of units.

Final Close: No further investment/commitment can be taken post the final close date.