Why “Small and Midcap” Companies GrowthSuperior Growth Presence in generally new MATURITY & faster growing segments Ability to gain share due to DECLINE new technology, better GROWTH products / services etc. Small base INCEPTION Time Focus on Small and Mid Caps here 2
Small in size, big on stature! Did you know India’s…. Company Market Cap. Category (INR crore) Largest Batteries Company Exide Industries Ltd. 12,913 Mid Cap Largest AC and Commercial Blue Star Ltd. 3,341 Mid Cap Refrigeration Company Market leader in specialty ceramics Vesuvius India Ltd. 662 Mid Cap and refractory products Largest manufacture & exporter of Solar Industries India Ltd 1,010 Mid Cap Explosives in India One of India’s largest ceramics and Carborundum Universal 2,153 Mid Cap abrasives manufacturers Ltd. Source: NSE ( www.nseindia.com)Exide Industries Ltd: Largest power storage solutions company in India. Company website – www.exideindustries.comBlue Star Ltd: Indias largest air conditioning and commercial refrigeration company. Company website – www.bluestarindia.comVesuvius is a world wide leader in developing, manufacturing and marketing high performance specialty ceramics and refractorysupplier. Company website- www.vesuvius.comSolar Industries Limited. company website – www.solarexplosives.comCarborundum Universal Ltd. company website – www.cumi-murugappa.comMarket capitalization as on March 31, 2011 (NSE India).Stocks referred above are purely illustrative and are not recommended by HDFC Mutual Fund/ HDFC Asset Management Company 3Ltd. The Fund may or may not have any present or future positions in these stocks.
Relative Index Performance (January 1, 2001 – March 31, 2011) Over a longer period of time, the performance of mid-caps (represented by CNX Midcap) compensates for their inherently greater volatility relative to large-caps (represented by BSE SENSEX). 900 B SE SENSEX CNX M idcap 800 BSE SENSEX Return: 700 16.81% CAGR 600 500 400 300 200 CNX Midcap Return: 100 20.92% CAGR 0 Jan-01 May-01 Jan-02 May-02 Jan-03 May-03 Jan-04 May-04 Jan-05 May-05 Jan-06 May-06 Jan-07 May-07 Jan-08 May-08 Jan-09 May-09 Jan-10 May-10 Jan-11 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10Source: www.bseindia.com, www..nseindia.com.All returns are calculated by HDFC Asset Management Company Ltd.Returns are of March 31, 2011.Past Performance may or may not be sustained in the future 4
Product RationaleProvide investors with exposure to a portfolio constituted primarily of small andmid – cap companiesSuch a portfolio offers a higher return potential than one comprising primarilylarge cap companies but also carries relatively higher risk, particularly over theshort and medium termSmall and mid – cap companies offer the potential of higher returns due to thefollowing reasons: Relatively less known by market participants / price discovery by market is not full Better growth prospects due to presence in a new segment / area that is growing at a faster pace Ability to gain market share due to new technology / better product / service etc. Room for P/E multiples to expand if the company transitions from a small / mid – cap to a large cap 6
Market Capitalization Breakup (As on March 31, 2011) HDFC Mid – Cap Opportunities Fund offers investors greater exposure to small and mid caps relative to broad based market indices.Source: National Stock Exchange (www..nseindia.com.) & Bombay Stock Exchange (www.bseindia.com)Mid – Cap Companies: Those companies that are either a constituent of CNX Midcap Index or companies that havemarket capitalization of Rs. 500 crore or more but do not exceed the market capitalization of the largest constituent ofthe CNX Midcap Index.Small – Cap Companies: Those companies whose market capitalization is lower than Rs. 500 crore. 7Large – Cap Companies: All stocks other than the above two categories.
Industry Allocation - % of Net Assets (As at March 31, 2011)Others include: Pesticides (1.28%), Power (1.01%), Ferrous Metals (0.56%), Textile Products (0.51%), Software (0.40%), Agro-Tea & Sugar (0.01). 8
Portfolio Composition (As at March 31, 2011) % to Net AssetsTotal Equity & Equity Related Holdings 93.74Cash, Cash Equivalents and net Current Assets 6.26Grand Total 100.00Net Assets (INR Crore) 1,221.22No. of companies in the portfolio 55Average Market Capitalization (INR Crore) 5,641.50Market Capitalization of Largest Company (INR Crore) 37,778Market Capitalization of Smallest Company (INR Crore) 140 9
Risk Management Small and Mid – Cap companies may carry higher risk than large cap companies, particularly over the short and medium term The Scheme endeavors to control risk by adopting the following investment strategy: Aims to maintain a well diversified portfolio (55 stocks as on March 31, 2011) Portfolio Concentration (%) Scheme CNX Midcap# BSE SENSEX Top 5 stocks 17.97 17.14 40.20 Top 10 stocks 31.86 28.01 63.31 The investment in small cap stocks to be restricted to 15% of net assets The scheme permits investments in companies other than small and mid – cap companies and in Debt and Money Market Instruments up to 25% of the net assetsPortfolio concentration (%) as on March 31, 2011. # Benchmark indexComparison with BSE Sensex is for illustrative purpose only. 10
Relative Performance (HDFC Mid – Cap Opportunities Fund – Growth Option) As on March 31, 2011 The Scheme has outperformed its benchmark in all of the following time periods^ Period Scheme Returns (%) ^ CNX Midcap Index Returns (%) # Last 1 Year (365 days) 15.33 4.35 Last 3 Years (1095 days) 16.74 8.81 Since Inception 11.55 8.92 (1375 days)^ Past performance may or may not be sustained in the futurePerformance of the Dividend Option for the investor would be net of Distribution Tax as applicable.Above returns are compounded annualized (CAGR)# Benchmark IndexInception Date – June 25, 2007 11
Why HDFC Mid – Cap Opportunities Fund?Opportunity to invest in a diversified portfolio of small and mid sized companieswith faster growth potentialProvides diversification to an investor’s overall equity mutual fund portfolioAttractive valuations of small and mid cap companiesOne of the most experienced fund management and research teams in thecountry with a track record of managing equity assets across market cyclesStrong emphasis on risk management to mitigate the inherently greater volatilityof a portfolio dominated by small and mid cap companies 12
Fund Rating HDFC Mid- Cap Opportunities Fund – Growth Option was assigned ‘CRISIL Mutual Fund Rank 1’ # in the ‘Open End Small and Mid Equity Schemes’ Category (out of 31 schemes) for the 2 year period ending March 31, 2011 by CRISIL. CRISIL Mutual Fund Rank “1” means that the composite performance of the Scheme is “Very Good performance “and ranks within the Top 10 percentile in the category. Value Research Rating - * * * * (Four Stars) in Equity – Multi Cap Category (57 schemes) for 3 and 5 year periods ending March 31, 2011# Four – stars indicate that the fund is in the 11 to 32.5% of its category in terms of historical risk – adjusted returns^Past performance is no guarantee of future results. Please refer to the slide : 17 on Rating methodology and disclaimer. 13
Fund Rating HDFC Mid-Cap Opportunities Fund has been rated 4 - Star by Morningstar in the Morningstar India Open Ended Small/ Mid Cap category (from amongst 147 schemes) for the 3 year period ending March 31st, 2011#. Five- stars indicate the fund is in the top 10 percent of its category in terms of historical risk – adjusted returns. Four – stars indicate that the fund is in the next 22.5% of its category in terms of historical risk – adjusted returns# Past performance is no guarantee of future results.Please refer to the slide: 17 on Rating Methodology and disclaimer. 14
Product Features Type of Scheme Open-ended Equity Scheme Inception Date (Date of allotment) June 25, 2007 Investment Objective To generate long – term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of small and mid – cap companies Fund Manager $ Mr. Chirag Setalvad (since June 25, 2007) Options Growth and Dividend. Dividend option offers payout and reinvestment facility. Minimum Application Amount Purchase: ` 5,000 and any amount thereafter (Under Each Option) Additional Purchase: ` 1,000 and any amount thereafter Load Structure Entry Load: Not Applicable. Pursuant to SEBI circular no. SEBI/IMD/CIR No.4/ 168230/09 dated (Applicable to purchase/switch-in made June 30, 2009, no entry load will be charged by the Scheme to the investor. Upfront commission shall on or after June 25, 2010) be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors’ assessment of various factors including the service rendered by the ARN Holder. Exit Load: In respect of each purchase / switch-in of units, an exit load of 1.00% is payable if units are redeemed / switched – out within 1 year from the date of allotment No exit load is payable if units are redeemed / switched – out after 1 year from the date of allotment Benchmark CNX Midcap Index$ Dedicated Fund Manager for Overseas Investments: Mr. Miten Lathia (Since August 5, 2010) 15
Asset Allocation Pattern Under normal circumstances, the asset allocation of the scheme’s portfolio will be as follows: Type of Instruments Minimum Allocation Maximum Risk Profile of (% of Net Assets) Allocation the Instrument (% of Net Assets) Equity and equity related securities of Small and Mid-Cap companies of which 75 100 Small-Cap companies 5 15 High Mid-Cap companies 70 95 Equity and equity related securities other 0 25 High than above Debt and Money Market Securities 0 25 Low to MediumThe investment in Securitised Debt will not normally exceed 25% of the net assets of the SchemeThe Scheme may seek investment opportunity in the ADR / GDR / Foreign Equity and Debt Securities (max. 25% of netassets) subject to SEBI (Mutual Funds) Regulations, 1996. The Scheme may use derivatives mainly for the purpose ofhedging and portfolio balancing (max. 20% of net assets) based on the opportunities available subject to SEBI (MutualFunds) Regulations, 1996. 16
Disclaimer & Risk FactorsCRISIL MUTUAL FUND RANKING METHODOLOGY AND DISCLAIMERThe criteria used in computing the CRISIL Mutual Fund Rank are Superior Return Score based on NAVs over the 2-year period ended 31 March 2011,Sectoral concentration, Company concentration and Liquidity of the scheme. The methodology does not take into account the entry and exit loadslevied by the scheme. The CRISIL Mutual Fund Rank is no indication of the performance that can be expected from the scheme in future. Ranking Source: CRISIL FundServices, CRISIL LimitedValue Research Fund Ratings – Rating MethodologyValue Research Fund Ratings are a composite measure of historical risk-adjusted returns. In the case of equity funds the rating is based on theweighted average monthly returns for the last 3 and 5-year periods. These ratings do not take into consideration any entry or exit load. Eachcategory must have a minimum of 10 funds for it to be rated. Effective, July 2008, an additional qualifying criteria, has been included whereby a fundwith less than ` 5 crore of average AUM in the past six months will not be eligible for rating.Five stars indicate that a fund is in the top 10 per cent of its category in terms of historical risk-adjusted returns.Four stars indicate that a fund is inthe next 22.5 per cent of its category based on the weighted average monthly returns for the last 3 and 5-year periods ending March 31, 2011. Thenumber of schemes in the Equity Multi Cap Category is 57. The Value Research Ratings are published in Monthly Mutual Fund Performance Reportand Mutual Fund Insight. The Ratings are subject to change every month. The Rating is based on primary data provided by respective funds, ValueResearch does not guarantee the accuracy.MorningStar Rating – Rating Methodology: The Morningstar fund rating methodology is based on a fund’s risk-adjusted return within a given Morningstarcategory. For each fund with at least a three-year history, Morningstar ratings are calculated every month for the 3 year, 5 year and 10 year period. The OverallMorningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three, five and 10 year (if applicable) MorningstarRating metrics. Within each rating period, the top 10% funds receive a five star rating, the next 22.5% earn a four star rating, the next 35% get three stars, the next22.5% receive two stars, and the bottom 10% get one star. Loads are not considered for the rating purpose. The rating is based on NAV provided by respectivefunds. The current fund rating is for the 3 year period as of March 31, 2011. HDFC Mid- Cap Opportunities Fund has been rated 4-Star by Morningstar in theMorningstar India (India Open Ended Small / Mid Cap Category). 147 funds which completed 3 years of performance were considered for rating. Rating Source andPublisher: Morningstar. The ratings are subject to change every month. Please refer www.morningstar.co.in for detailed information on the Rating Methodology 17
DISCLAIMER: This presentation has been prepared and issued on the basis of internal data, publicly available information and other sources believed to be reliable. Theinformation contained in this document is for general purposes only and not a complete disclosure of every material fact and terms and conditions and features of HDFCMid-Cap Opportunities Fund. The information/ data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy.It should not be construed as investment advice to any party. The statements contained herein may include statements of future expectations and other forward-lookingstatements that are based on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance orevents to differ materially from those expressed or implied in such statements. The recipient alone shall be fully responsible / liable for any decision taken on the basis ofthis presentation. The content of this presentation is confidential and intended solely for the use of the addressee. If you are not the addressee, or the person responsiblefor delivering it to the addressee, any disclosure, copying, distribution or any action taken or omitted to be taken in reliance on it is prohibited and may be unlawful. Nopart of this document may be duplicated in whole or in part in any form and/or redistributed without prior written consent of the HDFC Mutual Fund/ HDFC AssetManagement Company Limited. The recipient(s) should before investing in the Scheme(s) make his/their own investigation and seek appropriate professional advice.Risk Factors: All mutual funds and securities investments are subject to market risks and there can be no assurance that the Scheme’s objectives willbe achieved and the NAV of the Scheme may go up or down depending upon the factors and forces affecting the securities market. Past performance ofthe Sponsors and their affiliates / AMC / Mutual Fund and its Scheme(s) do not indicate the future performance of the Scheme of the Mutual Fund. There is no assuranceor guarantee to unit holders as to the rate of dividend distribution nor that dividends will be paid regularly. Investors in the Scheme are not being offered any guaranteed/ assured returns. Scheme Specific Risk Factors: Small & Mid Cap Stocks can be riskier and more volatile on a relative basis. The NAV of the units issued under theScheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. TheNAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. HDFC Mid-Cap Opportunities Fund, an open-ended equity scheme is only the nameof the Scheme and does not in any manner indicate either the quality of the Scheme, its future prospects and returns. Please read the SchemeInformation Document and Statement of Additional Information before investing. In view of individual nature of tax consequences, each investor is advised toconsult his/ her own professional tax advisor. HDFC Mid-Cap Opportunities Fund benchmarked to CNX Midcap Index is not sponsored, endorsed, sold or promoted by IndiaIndex Services & Products Limited (IISL). IISL is not responsible for any errors or omissions or the results obtained from the use of such index and in no event shall IISLhave any liability to any party for any damages of whatsoever nature (including lost profits) resulted to such party due to purchase or sale or otherwise of such productbenchmarked to such index. Investment Objective: To generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equityrelated securities of Small and Mid-Cap companies. Asset Allocation Pattern: Equity and Equity related securities of Small and Mid-Cap companies (min. 75%; max100%) of which Small Cap Companies (min 5%; max 15%); Mid-Cap Companies (min 70%; max 95%); Equity and Equity related securities other than that of Small andMid-Cap companies (min. 0%; max 25%) and Debt and Money Market Securities (min. 0%; max 25%). Investment in securitised debt not to exceed 25% of the netassets of the Scheme. Load Structure: Entry Load : Not Applicable. Pursuant to SEBI circular dated June 30, 2009, no entry load will be charged by the Scheme to theinvestor. Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI Registered Distributor) based on the investors’ assessment of various factorsincluding the service rendered by the ARN Holder. Exit Load: In respect of each purchase / switch - in of units, an exit load of 1.00% is payable if units are redeemed /switched out within 1 year from the date of allotment. No exit load is payable if units are redeemed / switched - out after 1 year from the date of allotment. Terms ofIssue: Applications for subscriptions /redemptions /switches would be accepted at official points of acceptance on all Business Days at NAV based prices. The AMC willcalculate and publish NAVs on all Business Days. Statutory Details: HDFC Mutual Fund has been set up as a trust sponsored by Housing Development FinanceCorporation Limited and Standard Life Investments Limited (liability restricted to their contribution of `1 lakh each to the corpus) with HDFC Trustee Company Limited asthe Trustee (Trustee under the Indian Trusts Act, 1882) and with HDFC Asset Management Company Limited as the Investment Manager. 18