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Potential comes in all sizes.

Even the small ones can pack a massive punch. HDFC Small and Mid Cap Fund hand-picks and invests in

stocks of promising small and mid-cap companies. It invests in companies that have the potential to make

a mark on the market over the next few years, so that you can reap the benefits of their growth. So invest
in HDFC Small and Mid Cap Fund today.

Toll Free No.: 1800 3010 6767/1800 419 7676

INVEST IN

SMALL AND
(An Open-Ended Equity Scheme)

HDFC Small and Mid Cap Fund


(An Open - Ended Equity Scheme)

This product is suitable for investors who are seeking*:


capital appreciation over long term

investment predominantly in equity and equity related instrument of

Small and Mid Cap companies

high risk

*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

ABOUT HDFC SMALL AND MID CAP FUND


(THE SCHEME)

The Scheme, launched in 2008 by Morgan Stanley was


known as the Morgan Stanley A.C.E. Fund. The fund
primarily focused on a multi-cap strategy. Since its
takeover in June 2014, the fund has been renamed as
the HDFC Small and Mid Cap Fund with a focus on Small
and Mid-cap companies.
INVESTMENT OBJECTIVE

To provide long-term capital appreciation by investing


predominantly in small-cap and mid-cap companies.
THE OPEN SECRET
GROWTH
MATURITY
DECLINE

INCEPTION

GROWTH
TIME

Focus on Small and Mid-Caps here

Small and Mid-cap stocks are often under-owned,


under-researched and misunderstood.
Stock picking with a long term fundamental view is a
tough skill to master especially in the mid-cap and
small-cap space.
Volatility in the short term can be high but a long term
perspective helps to buy on dips.
Increased familiarity, larger size, changing fundamentals
and better disclosures can result in a re-rating of
the business.
INVESTMENT STRATEGY

The Scheme seeks to provide long-term capital appreciation


by investing in Small-cap and Mid-cap companies.

Small-cap companies would be defined as those companies


whose market cap is equal to or lower than that of the stock
with the largest market cap in the CNX Small cap Index.

Mid-cap companies would be defined as companies


having a market capitalization equal to or lower than
that of the stock with the largest market cap in the CNX
Mid-cap Index.
The Scheme shall follow predominantly a small-cap
strategy with a minimum exposure of 50% to Small-Cap
stocks.
The Scheme may also seek participation in other
equity and equity related securities to achieve optimal
portfolio construction. The Scheme may also invest a
certain portion of its corpus in debt and money market
securities.
Small-cap and Mid-Cap companies offer higher return
potential than large cap companies on one hand but also
carry higher risk than large cap companies, particularly
over the short and medium term. The following are
some of the reasons why Small and Mid- cap companies
offer higher return potential.
1. Relatively less known by market participants / price
discovery by market is not full.

2. Better growth prospects due to presence in a new


segment/ area that is growing at a faster pace.

3. Ability to gain share due to new technology, better


product / service etc.

4. Room for P/E multiples to expand if the company


transitions from a small / mid cap to large cap, etc.
To reduce risk, the Scheme will maintain a well diversified
portfolio. While the portfolio focuses primarily on a buy
and hold strategy at most times, it will balance the
same with a rational approach to selling when the
valuations become too demanding even in the face of
reasonable growth prospects in the long run.

EQUITY MARKET OUTLOOK

India is one of the best placed economies among


the large economies of the world in terms of
demographics, demand, growth, etc. Lower
commodity prices, lower inflation and fiscal deficit
amongst others have led to investors taking a

positive view on India. With a focus on rejuvenating

HDFC Small and Mid Cap Fund


(An Open - Ended Equity Scheme)

growth, the government has undertaken a series of


policy measures. The Make in India initiative has
targeted manufacturing-led growth.
The government delivered a very pragmatic budget
with realistic financial assumptions. In our opinion,
the budget sets the economy on a higher and
sustainable growth path, desists from populism,
and aims to improve business conditions, improve
governments functioning and improve delivery of
services to citizens while maintaining fiscal discipline.
Improving growth prospects of the economy, especially
of the capex cycle, improving margin outlook of
corporates, likely lower interest rates and reasonable
valuations lead to a positive outlook for equity markets.
The budget reinforces our view of improving economic
conditions in India.
Historical Rolling Forward P/E for BSE Sensex

45

Roll PE (LHS)
BSE (RHS

40
35

35,000

average (LHS)

30,000
25,000

30

20,000

25
20

15,000

15

10,000

10

5,000
0

Feb 15

Feb 01

Feb 11

Feb 00

Feb 09

Feb 05

Feb 03

Feb 01

Feb 99

Feb 97

Feb 95

Feb 93

Feb 91

Source: Internal data

Despite the market run up, the P/Es are still below long
term averages. Hence markets are reasonably priced and
have further scope for growth in the medium to long term.

FEATURES
ASSET ALLOCATION
Sr.
No.

Type of
Instruments

Equity and Equity Related


Instruments of small-cap and
mid-cap companies of which
Small Cap Companies
Mid Cap Companies

Minimum
Allocation
(% of Net
Assets)
75

Maximum
Allocation
(% of
Normal
Allocation)
100

50
25

75
50

Risk
Profile

High

Equity & Equity related


instruments other than
those mentioned above

25

Medium
To High

Debt Securities and Money


Market instruments
(including securitized debt)

25

Low to
Medium

The scheme may seek investment opportunity in the ARD/GDR/Foreign securities


(max. 30% of net assets) and foreign debt securities (max. 20% of net assets)
subject to SEBI (Mutual Funds) Regulations, 1996. The scheme may use derivatives
(max 50% of net assets).

Currently, the scheme has been investing over 90% of


its corpus in equity and the balance in money market
securities. A scheme having an equity corpus of 65% and
above is treated as an equity oriented fund and is subject
to tax accordingly.
PLANS:

HDFC Small and Mid Cap Fund Direct Plan

HDFC Small and Mid Cap Fund Regular Plan


OPTIONS (UNDER BOTH PLANS)

Growth and Dividend The Dividend Option offers


Dividend Payout and Reinvestment facility.
MINIMUM APPLICATION AMOUNT
(UNDER EACH PLAN/OPTION)

Purchase: Rs. 5,000/- and any amount thereafter.


Additional Purchase: Rs. 1,000/- and any amount
thereafter.
FUND MANAGER

The scheme is managed by Chirag Setalvad.


LOAD STRUCTURE

ENTRY LOAD: Not Applicable. Upfront commission shall


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 2.00% is payable if units are redeemed /
switched-out within 12 months from the date of allotment.

In respect of each purchase / switch-in of Units, an


Exit Load of 1.00% is payable if Units are redeemed /
switched-out after 12 months but within 24 months
from the date of allotment.

In respect of each purchase / switch-in of Units, an


Exit Load of 0.50% is payable if Units are redeemed /
switched-out after 24 months but within 36 months
from the date of allotment.
No Exit Load is payable if Units are redeemed / switched
-out after 36months from the date of allotment.

For details, please refer to the Scheme Information


Document/Key Information Memorandum. In view of
individual nature of tax consequences, each client is
advised to consult their professional tax advisor.
3

HDFC Small and Mid Cap Fund


(An Open - Ended Equity Scheme)

SCHEME PERFORMANCE
Scheme

NAV as on
31, Dec 2014

HDFC Small and Mid Cap Fund#*

25.655

CNX Small-cap Index1


CNX Nifty Index2

Discrete Returns in %

31 Dec 2013 to
31 Dec 2014

31 Dec 2012 to
30 Dec 2013

30 Dec 2011 to
31 Dec 2012

Since Inception
CAGR (in %)

54.95

-8.28

36.58

5.43

51.48
31.39

7.52
6.76

31.38
27.53

Value of
investment of Rs.
10,000 Since
Inception (Rs.)

14.98

25,655

8.52

17,358

Other Funds Managed by Chirag Setalvad, Fund Manager of HDFC Small and Mid Cap Fund

HDFC Mid-Cap Opportunities Fund


CNX Mid-cap Index1
CNX Nifty Index

HDFC Capital Builder Fund#

CNX 500 Index1

CNX Nifty Index

36.093

195.844

HDFC Long Term Advantage Fund@@


S&P BSE SENSEX 1

CNX Nifty Index 2

HDFC Balanced Fund@

CRISIL Balanced Fund Index1


CNX Nifty Index2

HDFC Multiple Yield Fund-Plan 2005+^


CRISIL MIP Blended Index1

CRISIL 1 Year T- Bill Index2

HDFC Childrens Gift Fund- Investment Plan$@


CRISIL Balanced Fund Index1
CNX Nifty Index2

HDFC Childrens Gift Fund- Saving Plan$^


CRISIL MIP Blended Index1

CRISIL 10 Year GILT Index2

235.667

105.304

24.537

81.757

34.724

9.64

39.37

18.60

39.37

38.91

27.53

9.24

37.82

3.61

31.65

76.63
55.91
51.95
31.39

-5.10

10.37
6.76

44.68

10.96

31.39

6.76

29.89
51.47
25.34
31.39
20.43
16.83
8.56

8.98
8.78
6.05
6.76
6.65
4.41
5.86

6.76

10.78

28.24

15.28

27.53

9.54

9.25

28.65

25.31

27.53

14.32

25.54

14.72

14,288

36,096
21,595
19,446

1,95,844
63,733
67,343

2,35,667
68,426
65,126

17.88

1,05,304

27.53

12.91

56,873

12.05

8.28

21,089

26.40
21.15
11.77
8.06

N.A.

10.04
5.89

N.A.

24,537
17,100

43.10

12.96

27.15

18.62

1,06,284

31.39

6.76

27.53

14.28

63,403

12.05

N.A.

N.A.

25.34
24.68
16.83
14.14

6.05
5.53
4.41

-0.68

21.15
12.53
10.61

N.A.

11.50
N.A.

N.A.

45,141
N.A.

Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualized (CAGR). The above returns are of growth
option. $ Adjusted for bonus units declared under the scheme # The Scheme is co-managed by Chirag Setalvad and Miten Lathia. +The Scheme is co-managed by Chirag
Setalvad (Equities) and Anil Bamboli (Debt). @Scheme performance may not strictly be comparable with that of its Additional Benchmark in view of balanced nature of
the scheme where a portion of scheme's investments are made in debt instruments. ^Scheme performance may not strictly be comparable with that of its Additional
Benchmark in view of hybrid nature of the scheme where a portion of scheme's investments are made in equity instruments. @@ Open Ended Equity Linked Savings
Scheme with a lock-in period of 3 years. Load is not taken into consideration for computation of performance. #* Erstwhile Morgan Stanley A.C.E. Fund. Fund taken over,
at the end of business hours on June 27, 2014.
1. Benchmark. 2. Additional Benchmark. NAV at Inception for all the above schemes was Rs 10.

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
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