Thanks for explaining. Yes, Section 115UB of the Income Tax Act says that in Cat 1 and Cat 2 AIFs, the investor will have to declare and pay tax on income on accrual or receipt basis. Also, such income, if not paid, will be deemed to have been credited to the investor on the last day of the financial year. This is different from the redemption-based taxation of investors in mutual funds. This gives mutual fund investors a tax advantage. That said, if some AIFs are able to deliver high post-tax returns, of course with high risk and costs, that could still suit some deep-pocketed investors with the ability and willingness to take such risks in the pursuit of such returns. To each, their own. Post-tax returns are not guaranteed in either AIFs or in mutual funds.

Anand Kalyanaraman

Will try to write on REITs, Akshay.

Anand Kalyanaraman

"Pass-through" is what I wrote and meant. By "pass-through" I meant that incomes in the form of interest, dividend, capital gains, etc (except business income) are taxable not at the level of the AIF-Cat 2 fund, but at the level of the investor in the AIF-Cat 2 fund. As I understand (glad to be corrected), AIF - Cat 2 is considered a pooled investment vehicle and the pass-through tax treatment is similar to that in mutual funds. That is, internal transactions in both mutual funds and AIF - Cat 2 funds don't trigger capital gains tax. The tax is eventually paid by investors when they redeem their units in such funds). The links below offer clarity. https://www.lakshmisri.com/insights/articles/union-budget-2025-tax-treatment-of-securities-held-by-aif-cat-i-and-ii-in-india/# https://www.finnovate.in/learn/blog/aif-taxation-india

Anand Kalyanaraman

No, the surplus can be deployed across a variety of assets (including real estate) and instruments as mentioned in the story. It depends on the risk-reward expectations of the investor and the size of the surplus, among other factors.

Anand Kalyanaraman

Hi Vamsi, no, there is no skewed presentation in the graphic to force-fit into the overall story. We decided to use different axes for different companies including Groww, on the basis of the size and range of numbers in individual companies. The core and reported numbers for every company including Groww is clearly mentioned, so that a reader gets a picture of the movement from core to reported earnings.

Anand Kalyanaraman

Hi Akshit, no, there's no slipping of The Ken to the dark side. If anything, we are an equal opportunity offender, as seen by both the graphic and the story highlighting the adjustments in many new-age companies, not just one or two names. The team considered using 1 set of axes for all companies but the range of numbers across the companies was quite wide, and for companies with small numbers, the difference between core earnings and reported earnings was not coming out clearly. Hence, we decided to use different axes for different companies and the size and range of numbers decided the axis that was used. In most of the companies, adjustments helped companies move from deep core losses to lower reported losses, or from core losses to reported profits. In a couple of cases - Groww and Boat - the movement was from lower core profit to higher reported profit. It was difficult to show this range of movements using a single axes. The core and reported numbers for every company including Groww is clearly mentioned, so that a reader does not misread or is misled.

Anand Kalyanaraman

It was not there in FY23. It was there in FY24 and the June 2025 quarter of FY25. Both of these were reversed in FY25.

Anand Kalyanaraman

No, he didn't have a view on gold prices, given that it has its own cycle based on all sorts of factors (inflation, real interest rates, central bank buying, sentiment, speculation).

Anand Kalyanaraman

Thanks for your comment, Sanjeev. The story does talk about the irrational exuberance and greed of many retail investors. For instance, this quote, "There is irrational exuberance among retail investors. They are betting that these stocks would go public, list, and stay at prices higher than their unlisted market buys." this line, "Retail investors are very good at chasing momentum. But they are not good at reading ministry filings, parsing financials, or noticing post-listing lock-ins. And nobody seems to agree on what these shares are actually worth. this quote, “Despite advising against buying at high valuations, many retail investors insist on it.” this part, “Those who paid heed to investing fundamentals, such as buying at reasonable valuations, have made good money in the unlisted market,” added Doshi. Just not the ones chasing IPO halos with pocket-sized capital and starry-eyed expectations." While investors should be rational, there is also precedence of Sebi intervening when a large mass of retail investors starts behaving irrationally - like in the F&O market. My guess is Sebi will eventually have to intervene in the unlisted market too. Just that it should not be too late by then.

Anand Kalyanaraman

Surprised you didn't see the instances where the story questions the decision of the fund house and its CIO to allow SIPs in mid-caps and small-caps. Surprised also you think the story has been sponsored. We don't do that at The Ken. Giving credit where it is due is not sponsorship.

Anand Kalyanaraman

Thank you for pointing out the error, Pavana. We have rectified it.

Anand Kalyanaraman

Thanks Ashwin. The classification of stocks into large, mid and small caps is based on Sebi's rules from Oct 2017. Briefly, the top 100 stocks in terms of market capitalisation are considered large-cap, the next 150 are considered mid-cap and the remaining are small-cap. Market capitalisations of stocks keep changing with market movements, and the post-pandemic bull run over the past 4-5 years have seen a sharp upward shift in m-caps. AMFI, the mutual fund association, compiles and classifies stocks in m-cap buckets as per Sebi's rules every six months. As per the last categorisation (Jan to Jun 2024), the largest small-cap (K.P.R. Mill) has a market-cap of Rs 27,480 crore, and this goes all the way down to the smallest small-cap (Whitehall Commercial Co) with a market-cap of Rs 0 crore (likely in the few lakhs of rupees.) Below are the links to the rule and the list of stocks. https://www.amfiindia.com/research-information/other-data/categorization-of-stocks https://www.amfiindia.com/Themes/Theme1/downloads/AverageMarketCapitalization30Jun2024.pdf

Anand Kalyanaraman

Thanks for writing in, Kannan. The SPIVA data presented in the story shows that as of the end of two years (Dec 2022 and Dec 2021), most large-cap funds have underperformed the indices across 1, 3, 5 and 10 years. Also, SPIVA data as of Dec 2020 (not shown in the chart) shows that 80% of large-cap funds lagged the benchmarks across time periods. Agree, these are point-to-point returns. But these are point-to-point returns as of 3 dates, and there is a trend of large-cap funds' underperformance. Sure, there are many ways of looking at returns (point-to-point, rolling, discrete, best-worst, etc). I went with data that's compiled by a credible source annually. That said, I checked how some of the biggest large-cap active funds in India have performed vis-a-vis the benchmark (BSE 100 TRI) in every calendar from 2018 to 2022. All these funds underperformed in 4 out these 5 years or in 3 out of these 5 years. So, yes, large-cap active funds seem to be struggling.

Anand Kalyanaraman

Hi Aksvhaya, about 1% of the total market cap may be the answer to this. This is what Sebi said in its discussion paper in May, “Based on the data as of March 31, 2023, and on certain assumptions, we estimate that FPI AUM of around Rs 2.6 lakh crore (or around 6% of total FPI equity AUM and less than 1% of India’s total equity market capitalisation) may potentially be identified as high-risk FPIs that meet either of the 50% group concentration or the Rs 25,000 crore fund size thresholds.”

Anand Kalyanaraman

Thank you, Srivathsan. We deeply appreciate and look forward to the feedback of discerning readers like you. This is key to helping us do better. We may not always agree, but that's perfectly fine. We will get in touch with you to discuss more on this topic.

Anand Kalyanaraman

Hi Srivathsan, thanks for writing in. Sorry, but Kaushal and I disagree with your assessment. Here's why. 1.) Lakhs of folks in India do get pushed into poverty because they don't have health cover when they or their suffer medical emergencies. Experts such as the World Health Organisation say that. People will not take or renew their health covers if they have a bad experience or come across bad experiences of other folks with claims settlement. 2. Star Health as a market leader in the space sets the narrative. With power comes responsibility. Other players will tend to emulate it. 3.) India is a low income country with per capital income of $2500 (about Rs 2 lakh) approximately. If a claim is paid less to the extent of Rs 1 lakh, it matters a big deal to a large number of folks. Star Health is expanding business in the interiors of the country. So, this matters even more. 4.) Questions sent to the company went unanswered. We gave them a fair opportunity to put across their point of view.

Anand Kalyanaraman

Hi Abhindya, many unlisted stocks platforms facilitate the trade between buyer and seller through the escrow mechanism. Here's what an unlisted stocks platform founder told The Ken: A buyer who wants to buy unlisted shares has to first deposit the money, as per the agreed price, in an escrow bank account that's backed by a trustee. The seller is then told by the platform to transfer the shares, and the money is transferred to the seller after checks are done. Most of the unlisted share buying and selling happens through demat accounts. But trades can be done in physical shares too.

Anand Kalyanaraman

Thanks, Santosh. I checked. The number of shares in MRF haven't increased in many years. There has been a sharp rerating upwards in the valuation of the stock. As we mention in the story, the trailing price-to-earnings (PE) of MRF hovered at 25–30X For many years until early 2022, but this has now increased to 55X. Essentially, the stock price (the numerator) has zoomed, but the earnings per share (the denominator) has not risen as fast. So, the PE has risen sharply. For instance, over the past year for instance, the MRF stock price rose 47%, but the EPS of the company rose only 15%.

Anand Kalyanaraman

Thanks for writing in, Sahil. Respect your views, but I don't think open source articles have covered some of the key findings highlighted in this story - for instance, the fact that retail investors don't necessarily keep away from pricey stocks or that trading volumes in such stocks are not low, relatively speaking. Also, the findings on price-valuation dynamics and the split of such stocks across categories. These have implications for participants in the capital market and those interested in learning about it. This story involved a good deal of data crunching and analysis. It uses a data-driven story telling format, not a narrative one, but many of the findings are unique nonetheless, I think.

Anand Kalyanaraman

Hi Parag, NSE's near-monopoly in options trading enabled it to benefit from policy changes and other factors, and turn a bad year for India's stock market into a great one for itself. The story title is elaborated in the story details. The story predicts that risks lurk for options trading volumes and, by extension, for the NSE; the reasons are explained in the story. As to whether NSE's monopoly can and should be broken, this was written about in an earlier story in 2021 'How India's National Stock Exchange turned from solution to problem'. The link to the 2021 story has been put in the recent story which also says that "With plans to start new stock exchanges to increase competition going nowhere, the NSE domination continues. Except, the BSE is now putting on a brave face in the new battleground that is derivatives trading."

Anand Kalyanaraman

Hi Dhirendra, it is Rs about 700 crore and not Rs 7,000 crore. Below is the break-up of the ~Rs 29,000 crore as per NSE. Total Contribution to exchequer/SEBI (FY23) : Rs.28,989 crore STT: Rs 21,965 crore Income Tax: Rs 2,687 crore Stamp duty: Rs 1,987 crore GST: Rs 1,655 crore Sebi fees: Rs 695 crore

Anand Kalyanaraman

Fair point. The NSE in its presentation claims these to be contributions to exchequer/Sebi. The bottomline is that besides NSE, the government and Sebi also get income from the rise in options trading.

Anand Kalyanaraman

Noted. We think the story line is clear. It is about the regulatory squeeze on PMS, motivations and implications. To elaborate a bit, it's about the tighter new rules, reasons behind the squeeze (high growth despite underperformance, sneaky tactics of some players, etc), the angst in the industry (due to rising costs and unrepresentative benchmarks prescribed by the industry body), the fears of entry barriers and of PMS with a small corpus becoming unviable.

Anand Kalyanaraman

Thank you, Dinesh. Pertinent points.

Anand Kalyanaraman