The stated investment objective of this midcap equity fund is to provide long-term capital appreciation to its investors through a portfolio that primarily comprises equities and equity derivatives of select mid and small cap companies listed on the stock exchange. The fund management would, however, have the flexibility to invest a minority portion of its capital in various large cap equity schemes as well as debt and money market instruments. This would ensure diversification of the fund’s portfolio and liquidity of the scheme.
About HDFC Midcap Opportunities Fund
A midcap opportunities mutual fund is a unique type of equity mutual fund that primarily invests in mid and small cap companies. The selection of these investments also tends to be opportunistic in nature specifically because the fund management tends to select companies that have superior growth potential in the long term and can be considered as large cap companies of the future.
Investment Strategy Overview of HDFC Midcap Opportunities Fund
Among the multitude of equity mutual funds currently available for investment, the HDFC Midcap Opportunities Fund holds a special position. The reason - it has consistently been among the best performing mutual funds for close to a decade. Though a majority of the fund’s investments have been made in medium and small capitalization companies till date, up to 25% of the portfolio of this fund has consisted of leading large-cap companies. This minority investment has seemingly shielded the company from major losses during bear runs, while the majority investment in mid and small cap companies has ensured high growth during market highs. Historically, the investment flexibility has been used pretty judiciously by the fund management and the company has mostly selected companies growing at around 15 to 20% annually for investment. Another trait these companies shared was a good cash flow, which is also considered to be vital for potentially high equity returns in the long term.
Risk Profile of HDFC Midcap Opportunities Fund
- Volatility risk is inherent to all equity schemes and equity derivates as these are market-linked. Thus there is the probability of everyday price fluctuations in case of the scheme. Thus the scheme may not be suitable for risk-averse investors.
- Liquidity risk is also applicable to this scheme as a portion of the scheme’s capital may be invested in securities that are not listed on stock exchanges. Such investments would thus increase the overall risk of the scheme significantly.
- The liquidity risk in case of stock-exchange listed securities originates from the fact that high redemption pressure typically observed during market bear runs can limit trading volumes. Thus in such extraordinary situations, the probability of loss from these investments can be significantly high till it is finally sold.
HDFC Midcap Opportunities Fund Information and Statistics
Launch Date: The HDFC Midcap Opportunities Fund was first made available for investment by the individual investor on the 25th of June 2007.
Fund Type: This mutual fund is designated as an open-ended mid-cap equity scheme. Hence, investors are free to invest in or exit from the scheme at their convenience. Additionally, the fund is mainly focused on making equity and equity derivatives investments in small as well as mid-capitalisation companies listed on the stock exchange.
Minimum Investment: For a new investor of this mutual fund scheme, the minimum investment amount on offer is Rs. 5000. Higher amounts are also allowed in multiples of Re.1. In the case of an existing investor, the minimum amount for making an additional investment in the scheme is fixed at Rs. 1000, while higher amounts can be in multiples of Re. 1 over this amount. The minimum application amount for making a SIP investment into this scheme is Rs. 500 each month, while in the case of quarterly SIP, this minimum amount is increased to Rs. 1500.
Risk Category: The fund invests mainly in equities of companies that are designated mid-cap due to the fact that they feature a capitalization value which is less than that beyond which a company is designated as large cap. Many mid-cap companies are emerging ones that can witness further growth to become a large-cap company at a later date. However, not every mid-cap company is a success and as per past track record, a small percentage of companies actually manage to grow to be large cap companies. Thus, the investment in this scheme would be subject to a moderately high level of risk and this extends to not just the potential returns but also the principal amount invested into the scheme.
Entry/Exit Load: As per the SEBI mandate to all mutual fund houses, entry loads for all mutual funds including the HDFC Mid-cap Opportunities Fund have been abolished. However, though entry load is currently zero, exits loads may be applicable at the time of switching or redemption from the scheme. As per existing rules, in case an investor switches or redeems his/her units up to less than 1 year from the date the units were officially allotted to the investor. In case the investor holds units of the scheme for more than 1 year from the date of allotment, the exit load is set at zero.
Fund Manager: Mr. Chetal Setalvad is the current fund manager for the HDFC Midcap Opportunities Fund and he has been operating in this capacity since May 2007. Prior to joining HDFC Mutual Fund AMC, he worked with leading players in the finance sector including ING Barings N.V., HDFC Mutual Fund AMC, and New Vernon Advisory Services Ltd. He is a BSC graduate and an MBA degree holder from the University of North Carolina, United States. The co-manager of this fund is Mr. Rakesh Vyas who holds the position of Fund Manager for Overseas Investments with HDFC Mutual Fund AMC. He has a total experience of 13 years in the financial sector of which 10 years was in equity research, while the remaining 3 years was in Application Engineering (Control & Automation).
Taxation Rules for HDFC Midcap Opportunities Fund
The HDFC Midcap Opportunities Fund is an equity mutual fund hence it is subject to the current short-term capital gains tax rules as mandated by the Government of India. Short term capital gains refer to any profit made from mutual fund investment prior to completion of 12 calendar months from the date of scheme units allotted. Short term capital gains occur when there is a profit from the sale of equity mutual funds. Such short-term capital gains from HDFC Midcap Opportunities Fund are subjected to 15% capital gains tax. This is, however, not a TDS deduction, so it has to be declared by the investor under the long-term capital gains section at the time of filing income tax.
Long-term capital gains in case of an equity fund like HDFC Midcap Opportunities Fund refer to profits earned from the sale of units after completion of 12 months from the date of allocation. These gains at present are completely tax exempt therefore your returns including profits generated through the sale of HDFC Midcap Opportunities Fund units are completely tax-free. Dividends distributed by an equity mutual fund scheme are also currently complete exempt from tax, which makes dividend reinvest a viable option for investment into the scheme.
Plans and Options Available with HDFC Midcap Opportunities Fund
The HDFC Midcap Fund is offered in multiple variants for an individual investor. The broad classification is Direct Plan and Regular Plan. Additionally, each of these plans is available with options of dividend and growth.
Regular Plan: The regular plan sometimes referred to the retail plan is the most commonly available variant for individual investors. These can be opted for by an investor through a range of third party brokers and brokerage houses as well as from the HDFC Mutual Fund AMC. The regular plan features a slightly higher expense ratio as compared to the direct plan. Hence the unit NAV, as well as returns offered, may be slightly lower than those offered by the direct plan.
Direct Plan: The direct plan of the HDFC Midcap Opportunities Fund is available to investors choosing to invest directly with the HDFC Mutual Fund AMC. This plan features a lower expense ratio along with a slightly higher NAV and investors can look forward to marginally higher returns in this case as compared to the regular plan. This is plan can be availed by an investor through the online as well as the offline route.
Growth Option: The growth option is available to investors of both the direct plan and the regular plan of the HDFC Midcap Opportunities Fund. In the case of this variant, the investor does not receive a dividend even if there are profits or distributable surplus available with the fund. Any and all such profits of the scheme are invested back into the scheme to increase the NAV of the fund as well as the AUM or assets under management. The growth option is considered ideal for investors seeking long-term capital appreciation at the time of redemption/switching the mutual fund units.
Dividend Option: The dividend option provides investors with a payout depending on the profits made and distributable surplus available with the scheme. The payouts do lead to a decrease in the NAV of the mutual fund units specifically because they are calculated on the basis of the individual mutual fund units. This makes the dividend option slightly less viable for investors seeking medium to long term capital gains. There are two variants of the dividend option – dividend reinvests and dividend payout. In the case of payout the dividend declared is sent to the investor either through cheque or bank transfer. In the case of dividend reinvest, the dividend earned is automatically converted into units of equal value and added to the existing number of units available to the investor.
Top Holdings of the HDFC Midcap Opportunities Fund
In the following table we have a list of the top equity holdings of the HDFC Midcap Opportunities Fund *:
|Investment Sector||Top Holdings|
|Banking and Financial Services||IndusInd Bank, Yes Bank, Federal Bank, Indian Bank, Punjab National Bank, Bank of Baroda, Cholamandalam Investment and Finance Company, Axis Bank, Bajaj Finance, City Union Bank, Power Finance, Union Bank, Karur Vysya Bank, Capital First, Allahabad Bank, Delta Corp, etc.|
|Engineering and Capital Goods||Adani Ports and Special Economic Zone, Carborundum Universal, SKF India, Lakshmi Machine, FAG Bearings, Cummins, Havells India, AIA Engineering, Sadbhav Engineering, Grindwell Norton, Thermax, KEC International, CG Power and Industrial Solutions, etc.|
|Pharmaceuticals||Aurobindo Pharma, Torrent Pharma, IPCA Labs, Divis Labs, Strides Shasun, Wockhardt, etc.|
|Chemicals||UPL, Aarti Industries, Atul, Solar Industries India, Dhanuka Agritech, etc.|
|Oil and Gas||Hindustan Petroleum Corporation Limited, Petronet LNG, Oil India, etc.|
|Information Technology||Hexaware Technologies, Redington (India), NIIT Technologies, Oracle Financial Services Software, Persistent Systems, eClerx Services, etc.|
|Manufacturing||Sundram, Bharat Electronics, Supreme Industries, Vardhman Textiles, Max Financial Services, Huhtamaki PPL, etc.|
|Automotive||Balkrishna Industries, Madras Rubber Factory, Exide India, Apollo Tyres, etc.|
|Miscellaneous||Tube Investment, Voltas, VST, Navneet, Blue Star, Trent, Jagran Prakashan, KNR Construction, Greenply Industries, Whirlpool, DB Corporation, Greenlam Industries, Mahindra Holidays, Bata India, Zee Entertainment, etc.|
*The above list is for illustrative purposes only and is subject to periodic change.
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