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Potential Comes in all Sizes

Riskometer

This Fund is suitable for investors who are seeking*:


Capital appreciation over long term.
Investment predominantly in equity and equity
related instruments of Small-Cap and Mid-Cap
companies.
* Investors should consult their financial advisers if in
doubt about whether the product is suitable for
them.

December 2015

The Open Secret

Small & Midcap 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 midcap 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.

Several examples in the past give us confidence that these secrets can be found Again.

Finding the next opportunities/niche companies.


A Specialty Textile
Manufacturer

A Stable Agri-chemicals
Provider

Attractively valued

Niche textile manufacturer with a


strong export focus.

A rural business model focused on


distribution of agriculture inputs.

Niche Players.

Rapidly growing business across


multiple geographies.

Follows an asset light business model


resulting in higher return on capital.

Good business models.

Capacity addition to cater to


domestic & international markets
completed.

Approach of "solutions for farmers"


rather than manufacturing/selling to
farmers .

Substantial scope for financial


performance improvement once
capacity utilization increases.

Tie ups with global players for R&D


gives the company access to new
specialty products.

Common Characteristics
of good Small cap stocks.

Scope for rapid growth


in business.

Stocks/sectors referred above are illustrative and are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have any present or future positions
in these stocks.
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Finding the next opportunities/niche companies.


A Fast Growing NBFC

A Leading Auto Ancillary


Manufacturer

High quality.

Well diversified NBFC focused on


urban customers

Market leader in specific automotive


components.

Market Leaders.

Significant
improvements
in
operations management through
effective technology usage.

Company has a high ROCE and free


cash flow generating capability. The
company has a low debt/equity ratio.

Developed new business lines to


diversify loan book and expand
domestic footprint.

Long standing relationships with


OEM`s and a strong distribution
network across the domestic market
as well as rising export opportunities.

Expected
to
grow
while
maintaining good profitability.

Strong engineering skills and stable


management.

Common Characteristics
of good midcap stocks.

Good Growth
Prospects.
High Return ratios.

Stocks/sectors referred above are illustrative and are not recommended by HDFC Mutual Fund/AMC. The Fund may or may not have
any present or future positions in these stocks.
4

Indian Economy On the Move...


A stable, proactive, long term focussed Government, Coal & telecom auctions, gas pooling, DBT, GST (FY16),
Bankruptcy act likely, diesel deregulation, resolving stalled projects, roads and railway spending increased, etc.

Falling inflation low commodity


prices, stable INR, improving
supplies; Real rates of 3% indicate
lower yields going forward
Recent IIP readings are encouraging
Further, IIP capital goods growth
(10.5%) faster than IIP Consumer
durables. (8.4%)
Steadily improving growth; Capex
should revive in FY16

FY 13

FY 14

FY 15

FY 16E

FY 17E

CPI (Avg %)

10.2

9.5

5.9

5.0

4.8

WPI (Avg %)

7.5

5.9

2.1

-0.5

2.0

GDP Growth
(%)

5.1

6.9

7.3

7.5

7.8

Fiscal Deficit (%
GDP)

4.8

4.6

4.1

3.9

3.6

CAD (% GDP)

-4.8

-1.7

-1.4

-1.0

-1.3

By 2020, India is expected to be 5th largest economy in the


world and fastest growing as well

Source: Morgan Stanley, Citi *Actual Figures.


IIP Figures as of September 2015
CPI Consumer Price Inflation, WPI Wholesale Price Index, CAD Current Account Deficit, MSP Minimum Support Price

Equity Market Outlook

India is one of the biggest beneficiaries of lower


commodity prices especially crude oil.
45

Further, low inflation, improving CAD and fiscal


outlook and rising order backlogs in some key
infrastructure related industries point to a
steadily improving growth prospects of the
economy, especially of the capex cycle.

Roll PE (LHS)

40

35,000

average (LHS)

30,000

BSE (RHS)

35

25,000

30
25

20,000

20

15,000

15

The policy direction is right and economy is


making good progress on most fronts.

10,000

10
5,000

Merit in increasing allocation to equities (for


those with a medium to long term view) in a
phased manner and stay invested.

Oct 15

Oct 13

Oct 11

Oct 09

Oct 07

Oct 05

Oct 03

Oct 01

Oct 99

Oct 97

Oct 95

Improving margin outlook of corporates, likely


lower interest rates, soft commodity prices and
reasonable valuations lead to a positive outlook
for equity markets over the medium to long
term.

Oct 93

Oct 91

Source: CLSA

Reasonable P/Es at cyclically low margins leads to


positive outlook for equities

Presenting

Investment Philosophy
Growth Investing Growth at a reasonable price

Combination of attractive growth and reasonable valuations.

Metric based investing looking at industry & company specific pointers.

Involves higher risk and higher returns.

Focus on well managed small & midcap companies operating in a niche environment
and those that are relatively at an early stage in their life-cycle.

Investments are made in companies valued lower than their intrinsic worth with the
hope of growth in intrinsic value and a narrowing of the gap to intrinsic value.

Investments are typically made in growth companies with expanding businesses and
profitability.

HDFC Small & Midcap Fund


A Small & Mid Cap Focused Investment Strategy
The Fund invests in a mix of Small (50-75%) and Midcap companies (25-50%)
The Fund targets less discovered, high quality small and midcap companies that are growing well and available at
reasonable valuations
Superior Growth to be driven by
Presence in generally new & faster growing
segments
Ability to gain share due to new technology,
better products / services etc.
Small base and niche presence
To identify less discovered companies
Small Cap Mid Caps Large Caps
Research Available

Limited

Selective

Good

Institutional
Ownership

Low

Selective

High

For further details on investment strategy refer Scheme Information Document/Key Information Memorandum

HDFC Small & Midcap Fund


Current Investment Strategy
Focus on creating a portfolio on a bottom up basis.
Sector allocation: currently overweight Banks, Pharma, Auto and Industrial.
Fund maintains a diversified portfolio of 50-70 companies.

Risk

Mitigants

Management risk is high

Focus on competent and quality management

Access to funds is limited

Focus on companies with strong balance sheets

Business quality
Suitable for specific market phases

Focus on companies with a strong business focus


and niche businesses models
Maintain a diversified portfolio

The current investment strategy is subject to change depending on the market conditions
10

Taking the SIP Route


Slow & Easy
Why SIP ?

Why an SIP in HDFC Small & Midcap ?

Imbibes financial discipline.

An open ended Fund with a well defined


portfolio strategy.

Drops of water help fill a glass Small and


regular investments build a corpus over time.

Targeted allocation to small and midcap stocks


with good growth and earnings potential.

While the Fund offers a good risk reward


proposition in the medium to long term, short
term volatility is high.

Eliminates the need to time the markets.

Enables setup and plan financial goals.

Option to stop at anytime thus providing


flexibility.

Aids in long term wealth creation.

Disclaimer: SIP does not assure a profit or guarantee protection against a loss in a declining market. HDFC Asset Management Company Limited/ HDFC Mutual
Fund/ are not liable for any financial decisions arising out of the use of this calculator and also they do not take the responsibility, liability, for any error or
omission or inaccuracy or for any losses suffered nor undertake the authenticity of the figures calculated on the basis of calculator. The user before acting on
any information herein should make his/her/their own investigation and seek appropriate professional advice and shall along liable for any decision taken on
the basis of information contained herein. In view of individual nature of tax consequences each investor is advised to consult his/her own professional tax
advisor.
11

Fund Facts
Type of Scheme

Open-ended Equity Scheme

Inception Date
(Date of allotment)

April 3, 2008

Investment Objective

To provide long-term capital appreciation by investing predominantly in Small-Cap and Mid-Cap companies

Fund Manager $

Mr. Chirag Setalvad

Plans

HDFC Small and Mid Cap Fund Direct Plan, HDFC Small and Mid Cap Fund Regular Plan

Options

Under Each Plan: Growth & 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

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 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 Index

Nifty Smallcap 100

$ Fund Manager Overseas investment Rakesh Vyas


For further details, refer SID and KIM available on www.hdfcfund.com and at Investor Service Centres of HDFC Mutual Fund

12
12

Asset Allocation Pattern


Under normal circumstances, the asset allocation of the schemes portfolio will be as follows:
Type of Instruments

Equity and equity related instruments of


Small and Mid-Cap companies of which

Minimum Allocation
(% of Net Assets)

Maximum Allocation
(% of Net Assets)

75

100

Risk Profile of the


Instrument

High

Small-Cap companies
Mid-Cap companies

50
25

75
50

Equity and Equity related instruments


other than the above

25

Medium to High

Debt and Money Market


(Including securitized debt*)

25

Low to Medium

Securities

*Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the Scheme.
The scheme may seek investment opportunity in the ADR / GDR / Foreign Securities (max. 30% of net assets) &
Foreign Securities (max 20% of net assets) subject to SEBI (Mutual Funds) Regulations, 1996. The scheme may use
derivatives (max 50% of net assets). Refer Disclaimer on Slide 18.
13

Performance
Scheme
HDFC Small and Mid Cap Fund# *

NAV as
30 Sep 2014 to
on 30
30 Sep 2015
Sept 2015
25.785
11.06

Nifty Smallcap 100 Index 1

5.87

Value of investment of
Discrete Returns in %
30 Sep 2013 to 30 28 Sep 2012 to 30 Since Inception
Rs. 10,000 Since
Sep 2014
Sep 2013
CAGR (in %)
Inception (Rs.)
55.38
0.87
13.47
25,785
80.47

-20.54

4.77

14,180

Nifty 50 Index
-0.20
38.87
Other Funds Managed by Chirag Setalvad, Fund Manager of HDFC Small & Midcap Fund
HDFC Balanced Fund @
107.414
11.65
60.86

0.56

7.05

16,659

-3.66

17.07

1,07,414

CRISIL Balanced Fund Index 1

4.38

28.89

1.86

NA

NA

Nifty 50 Index 2
HDFC Mid- Cap Opportunities Fund

-0.20
17.32

38.87
91.44

0.56
-6.26

11.93
17.29

54,581
37,403

13.72

63.17

-10.69

10.17

22,283

193.804

-0.20
7.59

38.87
61.63

0.56
-2.21

7.83
14.66

18,662
1,93,804

Nifty 500 Index 1

3.59

46.08

-2.48

8.83

62,533

Nifty 50 Index 2
HDFC Long Term Advantage Fund @@

225.068

-0.20
-0.93

38.87
61.80

0.56
-0.73

8.99
23.50

64,629
2,25,068

S&P BSE SENSEX 1

-1.79

37.41

3.27

13.54

65,080

Nifty 50 Index 2
HDFC Children's Gift Fund - Investment Plan $ @

82.166

-0.20
7.71

38.87
51.81

0.56
3.45

13.23
17.63

62,501
1,06,816

CRISIL Balanced Fund Index 1

4.38

28.89

1.86

NA

NA

Nifty 50 Index 2
HDFC Children's Gift Fund - Savings Plan $ ^

36.275

-0.20
10.59

38.87
24.74

0.56
1.23

13.18
11.22

60,848
47,157

10.72

15.45

3.20

NA

NA

13.76
6.31

6.85
22.93

2.43
3.33

NA
9.54

NA
25,168

37.403

Nifty Midcap 100 Index 1


2

Nifty 50 Index
HDFC Capital Builder Fund#

CRISIL MIP Blended Index

CRISIL 10 Year Gilt Index 2


HDFC Multiple Yield Fund- Plan 2005 +^

25.168

CRISIL MIP Blended Index 1


10.72
15.45
3.20
8.23
22,282
CRISIL 1 Year T - Bill Index 2
8.86
8.35
5.66
6.09
18,202
Past performance may or may not be sustained in the future. Returns greater than 1 year period are compounded annualised (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 lockin 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
14
hours on June 27, 2014 1. Benchmark 2. Additional Benchmark . NAV at Inception for all the above schemes was Rs 10.

Glossary
ROCE

Return On Capital Employed

OEM

Original Equipment Manufacturers

R&D

Research & Development

PPAC

Petroleum Planning and Analysis Cell

G Sec

Government Securities

Smallcap

Companies whose market cap is equal to or lower than that of the stock with the
largest market cap in the Nifty Smallcap 100.

Midcap

Companies having a market capitalization equal to or lower than that of the stock
with the largest market cap in the Nifty Midcap 100.

P/E

Price to Earnings

EBIDTA

Earnings before interest depreciation taxes and amortization

CPI

Consumer Price Inflation


15

Disclaimer
The presentation is dated 10th December 2015 and has been prepared by HDFC Asset Management
Company Limited (HDFC AMC) based on internal data, publicly available information and other sources
believed to be reliable. Any calculations made are approximations, meant as guidelines only, which you
must confirm before relying on them. The information contained in this document is for general
purposes only and is not an offer to sell or a solicitation to buy/sell any mutual fund units/securities. The
document is given in summary form and does not purport to be complete. The document does not have
regard to specific investment objectives, financial situation and the particular needs of any specific
person who may receive this document. The information/ data herein alone are not sufficient and
should not be used for the development or implementation of an investment strategy. The same should
not be construed as investment advice to any party. The statements contained herein are based on our
current views and involve known and unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or implied in such statements. Neither
HDFC Asset Management Company (HDFC AMC) and HDFC Mutual Fund (the Fund) nor any person
connected with them, accepts any liability arising from the use of this document. The recipient(s) before
acting on any information herein should make his/her/their own investigation and seek appropriate
professional advice and shall alone be fully responsible / liable for any decision taken on the basis of
information contained herein.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED
DOCUMENTS CAREFULLY.
16 16

Thank You

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