Small Cap Funds - To Own Now

Small Cap Funds
Small cap stocks, for the purpose of the fund are defined as stocks whose market capitalization is in between the highest & lowest market capitalization of companies on BSE Small Cap Index

Current Scenario
• In today's economic environment, individuals with entrepreneurial mindset are exploring new business opportunities that will not only survive in a recession but will also thrive
• Emerging India is offering various growth opportunities to entrepreneurs, be it first generation entrepreneur or otherwise
• In a developing economy like India, multiple sectors provide opportunities for growth.
• Emerging sectors are true reflection of entrepreneurial spirit, new opportunities and creation of global behemoths.
• These funds invest in the companies with high growth potential.
• Small cap companies have a consortium of educated and passionate management.
• Their niche focus and ability to attract talent in form of quasi entrepreneurs and stock options.
• Small caps are potential large caps of tomorrow because of their twin benefits of high growth prospects & relatively under valuation.
• Small caps are relatively under researched, under owned and undervalued as compared to large caps, thus providing an opportunity to be re-rated.
Small Cap Classification
• There is no scientific methodology to classify Large Caps, Mid Caps and Small Caps but there are pre-defined indices on BSE & NSE.
• Mentioned below is the categorization of the same on the basis of market capitalization as on August 2010.
The Indian Small Cap Opportunity
• 4300+ Cos. listed on Bombay Stock Exchange
• 1383 Cos. with Market Capitalization of over Rs 100 Cr
• 1065 Cos. with Market Capitalization of over Rs 200 Cr
• 664 Cos. with a Sales Turnover of over Rs. 200 Cr
• 613 Cos. with an Operating Profits over Rs 25 Cr
• 548 Cos. with net profits of over Rs 10 Cr
Risk Profile for Small Cap Funds
• Long Term Investment Horizon
• High Risk/High return
• These funds aim at creating alpha for the investors

Fixed Maturity Plan-FMP

Key Features of FMP

·         Fixed Maturity Plans (FMPs) are closed-ended debt funds with maturity of one month to five years.

·         Fixed Maturity Plan generates regular income and / or capital appreciation by investing in wide range of debt and money market instruments.

·         In Fixed Maturity Plan, each plan under the scheme will invest in a portfolio of securities normally having maturity duration in line with the maturity duration of the respective plan.

·         They invest in debt instruments such as certificate of deposits, commercial paper and corporate debentures with a maturity coinciding with that of the fund.

·         They usually invest in credit worthy instruments (AAA or equivalent rated) which takes care of credit risk.

·         The objective of fund managers is to lock into a certain rate of return on the assets at inception, thereby protecting the schemes against market fluctuations.

·         FMPs can be described as the mutual fund industry's alternative to fixed deposits.

·         FMPs are a good investment vehicle for investors who are targeting a return on their investments over a fixed period of time and are indifferent to market volatility within that period.

Advantages of Investing in FMP

·         Capital protection advantage: Less risk of capital loss than equity funds as investment is in debt and money market instruments.

·         Tax advantage: Being a debt-based scheme, dividend are tax free in the hands of investors, mutual fund has to pay Dividend Distribution Tax (DDT), while bank Fixed Deposits interest is fully taxable in investor's hands.

·         Double indexation: Hold an investment for a little more than one year but get the benefit of the index multiple of two years.

·         Low interest rate sensitivity: As securities are held till maturity, FMPs are not affected by interest rate volatility.

Why Invest now in FMPs

·         Uncertain interest rate scenarios, FMP are better investment option compared to Bank fixed deposits.

·         Debt Funds are exposed to interest rate, liquidity & credit Risk while FMPs are exposed to credit risk only which is taken care by investing in high Quality Papers.

·         A hedge against Interest Rate Volatility.

·         Good instrument as a portfolio diversifier.

·         Ideal for Investors with low risk appetite.

HDFC Equity Fund – Growth

Scheme Snapshot
• Inception: 1st January 1995
• Type: Open Ended Scheme
• Corpus: 6734.63 crores (30th June 2010)
• Fund Manager: Mr. Prashant Jain / Mr. Anand Laddha
• Benchmark Index: CNX500
• Minimum Investment: Rs. 5000
• Entry / Exit Load: NIL / Max. 1%
• Latest NAV: 267.05 (4th August 2010)
• 52 Week High / Low: 267.07 (3rd August 2010) /179 (10th August 2009)
• Asset Allocation (% of Net Asset)
Equity Exposure: 99.47%
Cash & Equivalent Exposure: 0.53 %
• Market Capitalisation (% of Net Asset)
Large Cap Stocks:79.45%
Mid / Small Cap Stocks: 16.18% / 3.39%
• Key Ratios*
Expense Ratio: 1.81
Portfolio Turnover: 60.3%
Standard Deviation / Beta: 0.51 / 1.09
Correlation: 0.98
Sharpe / Jensen: 0.43 / 6.39
Key Fund Analysis
• Market Cap Focus: Over the past one year the fund manager has increased the exposure to large cap stocks (70.15%) & small cap stocks (2.98%) and reduced the exposure to mid caps stocks (23.9%).
• Sector Focus: Fund Manager has maintained high exposure as well as reduced the exposure in sectors like Banks 18.89%, Pharma 13.23% and Software & Consultancy Services 9.33% over past 1 year.
• Company Focus: Fund Manager has maintained exposure of 6.81% in ICICI Bank, 4.62% in SBI and 4.07% in ONGC over last 1 year.
• Cash & Cash Equivalent exposure has reduced considerably from 2.97% over last 1 year.
Fund Analysis
• The scheme has 99.47% Equity exposure and 0.53% Cash & Equivalent exposure.
• It has the highest exposure to sectors like Banks, Petroleum, Gas & Petrochemical products and Pharmaceuticals.
• The Top 3 holdings in sector, account for 43% of the total net assets.
• The Top 10 holdings account for 39.17% of the total net assets, with highest exposure to SBI and ONGC 7.52% and 6.67% respectively.
• The scheme has consistently outperformed its benchmark index since inception.
• Being a large cap scheme, it has the highest exposure in large cap but at the same time it has exposure to mid and small cap creating a good balance of risk and return.
• High risk adjusted returns which are indicated from the positive Sharpe Ratio
• Positive Jensen Ratio shows Superior Stock Instruments Selection by Fund Manager

Scheme Objective

The scheme aims at providing capital appreciation through investments predominantly in equity oriented securities.

Ideal for Investors
• Investors looking for diversification
• Investment Horizon: Long Term
• Risk Appetite: Medium to High