(an open ended equity scheme predominantly investing in

This product is suitable for investors who are seeking*:

• Investment predominantly in equity and equity related Instruments of dividend yielding companies

• Capital appreciation over long term/regular income

Investors understand that their principal will be at moderately high risk

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

Riskometer

Note: For further details, refer to the Scheme information Document/Key Information Memorandum available on www.hdfcfund.com or with ISCs or Distributors.

(An open ended equity scheme predominantly investing in dividend yielding stocks)

Dividend Yield FundHDFC

Index

Dividend Yield and its Importance ..................................3

Why Dividend Yielding Stocks? .......................................5

Why Now?..........................................................................9

About HDFC Dividend Yield Fund (”the Fund”) .............15

2

Index

Dividend Yieldand its Importance

4

Dividend Yield

Dividend yield is a financial ratio that shows how much a company pays out in dividends/buyback each year relative to its stock price.

What is Dividend yield?

Why look at Dividend paying companies? Dividend Yield (DY) peak – A sign of market bottom

Dividend Yield - a good valuation indicator

High Dividend Yielding Stocks represent good cash flow in business and management commitment towards Shareholders

Financial health of the company and higher Return on Equity (ROE)

Dividend payment requires cash which cannot be manipulated

Dividend can be an additional source of return

0.75

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3.25

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NIFTY 50 NIFTY 50 DY

Data Source: MFI

Refer Disclaimer on page 26

Why Dividend Yielding Stocks?

56

Characteristics of Typical Dividend Paying Companies

Mature and less volatile businesses

Healthy Cash Flow generating companies

Capital intensive businesses like utilities, mining, etc. and annuity cash flow type businesses(Example: A tower company)

Management Commitment towards Shareholders and supports higher Return on Equity (ROE)

DividendYielding Stocks


A clever accountant can make earnings appear good or not so good, depending on the season or the objective. There can be no subterfuge about a cash dividend. It is either paid or it is not paid.

-Geraldine Weiss

7

Dividend is an important source of returnfor Shareholders

The difference between Price Returns Index and Total Returns Index (which includes dividends) is approximately 25% for major indices in last 10 years

For NIFTY Dividend Opportunities 50 Index, the difference is as high as 45%

Data Source: MFI, Absolute Return as on 30th Oct 2020; PRI – Price Return Index, TRI – Total Return Index

NIFTY 50 PRI

NIFTY 50 TRI

Difference

-1.7

-0.7

1.0

12.3

16.7

4.4

44.3

53.8

9.4

86.2

103.0

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93.4

118.7

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-2.1

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43.7

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-5.2

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-7.0

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46.8

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96.8

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Indices 1 Year 3 Years 5 Years 7 Years 10 Years

NIFTY 100 PRI

NIFTY 100 TRI

Difference

NIFTY 200 PRI

NIFTY 200 TRI

Difference

NIFTY 500 PRI

NIFTY 500 TRI

Difference

NIFTY Dividend Opportunities 50 PRI

NIFTY Dividend Opportunities 50 TRI

Difference


Dividend - An Important Source of Return

Revenue is vanity, Profit is sanity and cash flow is reality. Dividend is cash flow

for a Shareholder.

-Anonymous

8

CAGR : Compounded Annual Growth RateData Source: MFI

As on 30th Oct’2020, market value of investment in NIFTY Dividend Opportunities 50 Index was ~25% higher than a comparable investment made in NIFTY 50 Index (assuming investment made on 1st Oct’07)

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NIFTY Dividend Opportunities 50 TRI NIFTY 50 TRIIndex rebased to 1000


NIFTY 50 vs NIFTY Dividend Opportunities 50

3361/9.70% CAGR

2683/7.83% CAGR

Difference: 1.87% CAGR

Why now?

10

Low Interest Rates Favorable for Dividend Yielding Stocks

Lower interest rate generally makes high dividend paying companies attractive (Graph 1)Further, with RBI cutting policy rates over the past few months and maintaining its accommodative stance in the Oct’20 policy meeting, such stocks have become attractive going by the recent history (Graph 1)Currently, 1 year G-sec rate is 3.47% and average dividend yield of NIFTY Dividend Opportunities 50 Index is 3.86% (Graph 2)

Data Source: Bloomberg, MFI

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NIFTY Dividend Opportunities 50 TRI 10 Year Gsec

Dividend received in the hands of investors directly from companies are taxed at their marginal income tax rate while the dividend received by MF scheme is tax free .


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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Dividend Yield 1 year Gsec

Graph 1 Graph 2

11

Attractive Valuations

Historically, NIFTY Dividend Opportunities 50 Index has traded at discount to NIFTY 50 Index

However, the valuations tend to converge, as seen in 2016-17

Currently, high dividend yieldIing stocks are trading at attractive valuations compared to NIFTY 50; thus providing a decent investment opportunity

Data Source: www.nseindia.comRefer Disclaimer on page 26

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NIFTY Dividend Opportunities 50 Index NIFTY 50

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2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

NIFTY 50 NIFTY Dividend Opportunities 50 Index

Price to Earnings Price to Book

12

Buy Back Opportunities

With dividends being taxed in the hands of shareholders, buy backs have become tax effective means of rewarding Shareholders

Other Benefits of Buy backs include: Tend to improve company valuations Returns cash to the shareholders Shows promoters confidence in the company

Recently many IT companies have opted for buy backs in conjunction with dividend payments


13

Opportunity in Utilities, Mining and Financial Sectors

05

10152025303540 NIFTY 50 PE vs NIFTY PSE PE

NIFTY PSE P/E NIFTY 50 P/E

Data Source: MFI and www.nseindia.com The above statements / analysis should not be construed as an investment advice or a research report or a recommendation to buy or sell any security covered under the respective sector/s

For 17 years between 2000 and 2017, BSE PSU Index yielded the same return as those of the SENSEX

S&P BSE PSU Index (which comprises of high dividend yielding stocks) has underperformed significantly in the recent past despite stable or improving financial performance of some of these companies, thus creating opportunity in this space

PE for NIFTY PSE Index is at 9.54 compared to 32.69 for NIFTY 50 on FY20 basis

Dividend Yield for NIFTY PSE Index is at 6.68% compared to 1.41% for NIFTY 50


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S&P BSE PSU S&P BSE Sensex

Rebased to 1000

Polarized performance over the last 2 years

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NIFTY PSE Div Yield NIFTY 50 Div Yield

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NIFTY 50 DY vs NIFTY PSE DY

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14

Tax Arbitrage via Mutual Fund Route

*Assuming the investor falls into highest tax bracket$ In case of Individual, HUF, AOP, BOI, AJP- (a) surcharge at 10% where income exceeds Rs.50 Lakh but does not exceed Rs.1 Crore and surcharge at 15% where income exceedsRs.1 Crore but does not exceed Rs.2 Crore (including dividend income on shares or capital gains u/s 111A and 112A); (b) surcharge at the rate 25% where income exceeds Rs.2 Crore but does not exceed Rs.5 Crore and surcharge at 37% where income exceeds Rs.5 Crore (excluding dividend income on shares or capital gains u/s 111A and 112A); (c) surcharge at 15% where income exceeds Rs.2 Crore (including dividend income on shares or capital gains u/s 111A and 112A) and not covered in (b)## The cost of acquisition of an asset acquired before 1 April 2001 shall be allowed to be taken as fair market value as on 1 April 2001LTCG on units of equity MF is exempt upto INR 1 lac per annum

Investors with a requirement of regular income could opt for SWAP under growth option of dividend yield fund; thus paying a lower tax on regular income compared to direct investment in stocks.

Dividend Income from direct equity taxed in the hands of Shareholders at

Dividend received at MF scheme level is tax free. Mutual Fund Income is taxed in the hands of Resident Individual/HUF at

30%* plus surcharge at 10% or 15% plus 4% cess = 34.32% or 35.88%

15% + Surcharge$ as applicable + 4% Cess = 17.94% or 17.16%

STCG

LTCG ## 10% without indexation + Surcharge$ as applicable + 4% Cess = 11.96% or 11.44%


HDFCDividend YieldFund

Presenting

16

Investment Strategy

The Fund aims to:

Invest minimum 65% of its assets in dividend yielding companies* at the time of investment or companies that chooses to do a buyback in addition of payment of dividend or in lieu of dividend

Preference will be given to build portfolio with stocks having: (a) consistent track record of paying dividends at the time of investment (b) Paying higher dividend yield than NIFTY 50 Index

Be sector and market cap agnostic


The Scheme will consider dividend yielding stocks which have paid dividend (or done a buyback) in atleast one of the three preceding financial years*

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An IT Company

Dividend Yield % Free Cash Flow (Rs mn) (RHS)

517

Data Source: Bloomberg

High Cash Flow Generating Companies

Dividend pay-outs require cash flows which cannot be manipulated

Companies that pay consistent dividend usually have consistent and higher cash flows from their operations

Considering Dividend payout as one of the factors in investing is a more reliable strategy

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00.20.40.60.8

11.21.41.61.8

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A FMCG Company

Dividend Yield % Free Cash Flow (Rs mn) (RHS)

The above should not be construed as an investment advice or a research report ora recommendation by HDFC Mutual Fund/HDFC AMC to buy or sell the stock or any other security covered under the respective sector/s.


18

Companies with High Dividend Yield tend to reward shareholders in the long term

Dividend Yield - A Good Valuation Indicator

A specialty drug company was trading at 4-5% dividend yield between 2010-13

Post 2013, we saw a growth in market cap with stock price doubling over a period of 4 years

Data Source: BloombergThe above should not be construed as an investment advice or a research report or a recommendation by HDFC Mutual Fund/HDFC AMC to buy or sell the stock or any other security covered under the respective sector/s.

A two wheeler company was trading at dividend yield of 5-6% in 2010-11

Market rewarded patient investors in the ensuing period as the market cap of the company almost doubled over a period of 6-7 years


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Example 2: A Two Wheeler Company

Dividend Yield (%) Mcap (Rs mn) (LHS)

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Example 1: A Specialty Chemical Company

Dividend Yield (%) Mcap (Rs mn) (LHS)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

19

Wide Array of OpportunitiesOut of 500 companies in NIFTY 500 Index, 135 companies have dividend yield higher than the dividend yield ofNIFTY 50 Index while 440 companies have paid dividend in at least one out of last three fiscal years.

Dividend yielding stocks are present across 11 sectors and 56 industries

*As on 30th Sep 2020; 43 companies had not declared dividends in FY 19-20

Large

Mid

Small

Total

94

145

201

440

Market Cap No. of Companies Communication ServicesConsumer DiscretionaryConsumer StaplesEnergyFinancials

Health Care

Industrials

Information Technology

Materials

Real Estate

Utilities

>3%

1.5% to 3%

<1.5%

Total

73

62

305*

440

Dividend Yield* No. of Companies

Present across Sectors and IndustriesMarket Cap Break-up

Dividend Yield Break up


20

About the Benchmark and ConstituentsThe NIFTY Dividend Opportunities 50 Index is designed to provide exposure to high yielding companies listed on NSE while meeting stability and tradability requirements. The methodology employs a yield driven selection criteria that aims to maximize yield while providing stability and tradability. Currently the index comprises of 50 companies listed at the National Stock Exchange (NSE).

Source: www.nseindia.com; As on 30th Oct’20NSE Disclaimer: All information contained herewith is provided for reference purpose only. NSE Indices Limited (formerly known as India Index Services & Products Limited-IISL) ensures accuracy and reliability of the above information to the best of its endeavors. However, NSE Indices Limited makes no warranty or representation as to the accuracy, completeness or reliability of any of the information contained herein and disclaim any and all liability whatsoever to any person for any damage or loss of any nature arising from or as a result of reliance on any of the information provided herein. The information contained in this document is not intended to provide any professional advice.

Tata Consultancy Services Ltd.Infosys Ltd.Hindustan Unilever Ltd.ITC Ltd.Nestle India Ltd.Tech Mahindra Ltd.Power Grid Corporation of India ltd.NTPC Ltd.Bajaj Auto Ltd.Hero Moto Corp Ltd.

10.5110.349.859.465.534.543.963.833.393.28

Company’s Name weight(%)

Top constituents by weightageConsumer GoodsITOil & GasPowerAutomobileMetalsFinancial ServicesIndustrial ManufacturingTelecomPharmaMedia & EntertainmentConstructionServices

27.3327.2011.979.857.705.895.741.801.430.390.380.180.15

Sector Weight(%)

Sector Representation


At the time of rebalancing of shares/ change in index constituents/ change in investible weight factors (IWFs), the weightage of the index constituent (where applicable) is capped at 10%.

21

Portfolio Construct

Companies with stable business models

Companies with growing dividends

Buyback opportunities

Companies trading at attractive dividend yields

Low Capital intensive businesses

Stable cash-flows and share price/market cap movement

Companies with growing profits

Ability to increase dividends

Opportunity across sectors

Companies with surplus cash

Dividend Yield at 1x to 2x of 10 Year G-Sec yields


22

Risk Reward Profile

Dividend yielding stocks are companies which are rich in cash generation from its operations and have stable operations; it results in fair amount of stability and are relatively lower risky than other type of funds in medium to long run.

Product Risk

Hybrid Funds

Large CapFunds

HDFCDividendYield Fund

Large & MidCap Funds

Multi CapFunds

Mid Cap/Small Cap Funds

Sectoral/Thematic Funds

Prod

uct R

etur

n

In view of individual circumstances and risk profile, investors are advised to consult their professional advisor before taking investment decisions.Refer Disclaimer on page 26

23

Suitability

Looking for a diversified portfolio of dividend yielding stocks with an objective to provide capital appreciation over long term

Aiming for investment in equities with fair amount of stability andrelatively lower risk (than other equity funds) over medium to long term

Who aim to take advantage of tax arbitrage via mutual fund route compared to direct investing in dividend yielding stocks

Who have an investment horizon of 3 years or more

The Fund is suitable for investors:


24

Sources of Risk & Mitigation

Overinvestment e.g. more than 5x investment of annual cash flow in capex which may lead to inability of the company to service debt, diversification and promoter related issues like leverage etc.

Mature businesses require capital investment for growth and high global and domestic economic growth

Government policies

Cyclical businesses are subject to business cycle and macro risks

Change in tax structure or any other regulatory change

Sources of Risk

Overcapacity and slower growth combined with changes in regulation affects the profitability of businesses and thus their dividend paying capacities. We will study the businesses with the help of our research team and take appropriate portfolio action.

Mitigation


25

Product Features

For further details, refer Scheme Information Document and Key Information Memorandum and addenda thereto available on www.hdfcfund.com and at Investor Service Centres of HDFC Mutual Fund. $ Dedicated fund manager for overseas investments Mr. Anand Laddha

Name HDFC Dividend Yield Fund

Type of Scheme An open ended equity scheme predominantly investing in dividend yielding stocks

NFO Period November 27, 2020 to December 11, 2020

Investment Objective To provide capital appreciation and/or dividend distribution by predominantly investing in a well-diversified portfolio of equity and equity related instruments of dividend yielding companies. There is no assurance that the investment objective of the Scheme will be realized.

Fund Manager(s)$ Gopal Agrawal

Investment Plans Direct Plan Regular Plan

Investment Option Under Each Plan: Growth & Dividend. The Dividend Option offers Dividend Payout and Reinvestment facility

Minimum Application Amount Purchase: Rs. 5,000 and any amount thereafter(Under Each Plan /Option) Additional Purchase: Rs. 1,000 and any amount thereafter

Load Structure Exit Load: In respect of each purchase/switch-in of units, an Exit load of 1% 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

In respect of Systematic Transactions such as SIP, GSIP, Flex SIP, STP, Flex STP, Swing STP, Exit Load, if any, prevailing on the date of registration / enrolment shall be levied.

Benchmark NIFTY Dividend Opportunities 50 TRI (Total Returns Index) .


The presentation dated 17th November, 2020 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 given is for general purposes only. Past performance may or may not be sustained in future. The current investment strategies are subject to change depending on market conditions. The statements are given in summary form and do not purport to be complete. The views / information provided do not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. The information/ data herein alone are not sufficient and should not be used for the development or implementation of an investment strategy. The statements contained herein may include statements of future expectations and other forward-looking statements that 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. Stocks/Sectors referred in the presentation are illustrative and should not be construed as an investment advice or a research report or a recommended by HDFC Mutual Fund / AMC. The Fund may or may not have any present or future positions in these sectors. HDFC Mutual Fund/AMC is not guaranteeing any returns on investments made in the Scheme(s). The data/statistics are given to explain general market trends in the securities market, it should not be construed as any research report/research recommendation. Neither HDFC AMC and HDFC Mutual 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.

Disclaimer

26

Thank You

(an open ended equity scheme predominantly investing in

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