As per the SEBI regulatory guidelines, promoters of the fund have invested the minimum required amount of Rs.5.0 Crores, as anchor investors. Going ahead, due to the confidence in the investment proposition the contributions from the promoters will get more substantial.
ArthVeda STAR does not intend to invest in projects promoted by the parent group companies.
Venture Capital Trust will invest money in SPV’s (Special Purpose Vehicles) in the form of Equities and OFCD’s (Optionally Fully Convertible Debentures). The income accrued to the Venture Capital Trust will be in the form of Long Term Capital gains, Dividend on Equity and Interest from OFCD’s. Currently, tax on income from Dividend is zero, income from Interest is taxed at 30% (plus other charges) & income from Long Term capital gains (being unlisted equity) is taxed at the rate of 20% with indexation and at the rate of 10% without indexation. The investor will get returns after tax is deducted at source. We strongly recommend our investors to take independent advice on the nature of tax liabilities.
Calculation of returns to clients in their portfolio investment will begin from the day of effective closure of the fund.
In every project SPV – Arthveda STAR will have more than 51% stake. Arthveda will have full operational & monetary control over the projects. The primary account of the SPV will be with the Arthveda STAR Fund and the money/s will be released to the developers after the submission of budget proposals by the developers and after being evaluated by the Investment Committee.
The minimum amount of investment in ArthVeda STAR Fund is Rs. 10 lakhs and there is no limit to the maximum amount.
All Indian resident Individuals, HUF’s, Corporates, Financial Institution and Trusts are allowed to invest in Arthveda STAR fund.
Post subscription into the ArthVeda STAR Fund, all investors will get quarterly reports. The reports will detail the investments, work in progress, each project valuations, Investment manager & Investment management committee comments and the status of the projects. All projects will be valued by independent auditors and valuers. Also, all Investors will get valuations of their investments as NAV on quarterly basis.
As per regulations governing Venture Capital Funds & Portfolio Management Services in India, we cannot guarantee returns but ArthVeda targets to deliver Best Risk Adjusted Returns. Moreover, we have tied up with CARE, rating agency to rate the investee projects to increase investor confidence. It has been seen, that a well-managed Investment portfolio can yield more than 20% IRR in Indian conditions. Similarly, we also endeavour to maximize returns on the investments.
Since the Venture Capital Fund is managed by an asset management company / investment manager, the Investor will have no say in any part of the investment decision process.
Should a contributor default, investment manager shall have a final say in deciding the appropriate course of action. It can range from either providing additional period to pay the amount at the specified interest rate or to completely withhold any payments to the defaulting contributor (detailed in the contribution agreement). However, in case of exceptional circumstances such as a contributor’s death, an alternative strategy may be adopted.
Investment Manager expects that the target gross IRR (Internal Rate of Return) will be 30%. The IRR can be in the form of Dividend, Interest Income or Long Term capital gains. Returns can be in one form or in the combination of any three of these options. However, as per regulations governing Venture Capital Funds & Portfolio Management Services in India, we cannot guarantee returns and investors run the risk of losing their entire investment.
The target of 30% gross IRR has been reached after following a very comprehensive and rigorous research process in selecting the investments. Summary of the methodology is mentioned below:
Margin of safety- ArthVeda STAR aims to provide superior risk-adjusted returns vs. its peers i.e. it doesn’t believe in taking significant risks to ensure high returns. Instead, it focuses on identifying “pockets of inefficiencies” with substantially reduced risk and hence, high “margin of safety”.
Comprehensive research and Analysis- ArthVeda Fund Management followed a systematic approach to identify such pockets in the residential real estate market.
- It excluded metros on the grounds that actual demand by house-dwellers has either been satisfied or unfeasible at current prices.
- The research showed that DHFL (Dewan Housing & Finance Ltd) managed to grow at around 30% even during 2008-09 when the global economy was going through a severe financial crisis. Given the demand slump in tier-I cities, it was imperative that smaller cities had posted a higher growth. This goes to show the strong resilience of housing demand in Tier-II and III cities even during the crisis.
- However, smaller cities with population less than 8.5 lakhs were excluded due to insufficient target group.
- Further analysis was used to filter the cities with high affordability, unsatisfied demand and growth rate.
- In addition, AVFM (ArthVeda Fund Management Pvt Ltd) chose the cities where DHFL had a branch, which gave the benefit of an already existing network of agents with experience and expertise in the local market.
- Finally, the investment team visited all the shortlisted cities and interacted with local players to gauge ground-level realities.
Strict evaluation of projects- Based on the above mentioned research and analysis, we feel confident of providing the target IRR of 30%. Nonetheless, final selection of projects will be done after further analysis and stringent cash-flow evaluation to ensure achievement of targeted returns.
Investors will receive distributions as and when the Fund receives investment earnings. For further details please refer to the Private Placement Memorandum of the Fund.
Real estate projects generally have long-gestation periods and we believe it should take around three years to exit any project. While, an additional year is to account for unforeseen regulatory delays in the approval processes, one more year has been added to give more flexibility in timing the exit, such that the returns are not compromised by a temporarily erratic market. We expect to exit most of our projects in maximum four years.
NAV of the fund will be available on a quarterly basis. All investors will receive quarterly reports which will provide the status of the projects with investment manager’s comments and will also state the valuations of the investments as NAV.
In a pooled or co-mingled investment scheme, every investor’s fund is considered allocated proportionately in each project. There is no discretion of the fund manager involved in this aspect. All the investors get a return related to the NAV of the fund.
Yes, the investors will be sent quarterly reports about the current projects, amount invested in each and the progress on the same with the most recent available valuations.