PGIM India Small Cap Fund

Gain from experience

PGIM INDIASMALL CAP FUND (An open-ended equity scheme predominantly investing in small cap stocks)

NFO begins on: July 09, 2021 NFO closes on: July 23, 2021

This product is suitable for investors who are seeking*:• Capital appreciation over a long period of time. • Investment in equity and equity related instruments of small cap companies. • Degree of risk – VERY HIGH

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

Investors understand that their principal will be at very high risk

The Product labeling assigned during the NFO is based on internal assessment of the scheme characteristics or model portfolio and the same may vary post NFO when actual investments are made.

Why SmallCaps?

3

Small Caps: Potential to create wealth and generate alpha

PGIM India Small Cap Fund Source: AceMF, PGIM India. Small Cap Funds Composite is an equal weighted index of regular plans of all Small Cap funds in the industry with an Aum of atleast 500 crores as of April 2021. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

• Actively managed funds within the Small Cap space have delivered alpha in the past

• Due to the under-researched nature of the Small Cap segment, opportunity for stock picking continues to exist • Historically, actively managed funds have also been

able to contain downside in tough times, compared to the Small Cap index

Actively managed Small Cap funds have created wealth (Feb 2005-Apr 2021)

02000400060008000

100001200014000

Nifty Small Cap 100 - TRI Small Cap Funds Composite

3 years rolling returns (Feb 2005-Apr 2021)

-30%-20%-10%

0%10%20%30%40%50%60%

Nifty Small Cap 100 - TRI Composite NAV

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Nifty Small Cap100 TRI Index

Small Cap FundsComposite

No of Observations 159 159Observations for negative returns 42 18

% observation in negative return 26% 11%

Minimum return -18.7% -14.9%Maximum return 48.7% 41.9%Average return 8.5% 13.9%

CAGR 16.9%

CAGR 13.0%

4PGIM India Small Cap Fund

Source: Niftyindices. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the security. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

Small Caps: Can take meaningful exposure to sectors whereLarge Caps have less presence

• Within the Small Cap segment there are many sectors where larger companies don’t have a significant presence

• This provides a style diversification opportunity to investors

• Examples of such industries could be chemicals, textiles, paper, sugar, home improvement businesses, barring a few mid caps the overall auto ancillary businesses, construction, to name some

• Small Caps provide some unique opportunities:- Market share gain from established players e.g.

Kajaria Ceramics- Ability to scale rapidly e.g. Bajaj Finance- Niche business / emerging business – e.g Metropolis-20.42

-12.04-4.52

-3.47-0.63

0.550.620.720.761.361.561.971.972.412.783.10

3.985.15

6.217.92

IT

Financial ServicesOil & Gas

Automobile

TelecomHealthcare Services

PowerCement & Cement Products

Paper And JuteConstruction

Fertilisers & PesticidesMetals

Consumer GoodsMedia & Entertainment

TextilesConsumer Services

ServicesPharma

ChemicalsIndustrial Manufacturing

Relative weightage of Nifty Small Cap 100 index over Nifty 50


Small Caps: Niche or Emerging Business and Opportunities.How We Assess them?

While analyzing any secular opportunities in emerging businesses, we try and assess mainly three things, among other factors:

• The size of the overall opportunity which is scalable and sustainable over long term (e.g., online coaching industry may not be a sustainable trend, once school reopens)

• Enough listed players to play the theme, where we are reasonably confident of strong execution. (e.g., e-commerce industry in India doesn’t have listed players)

• Visible triggers and catalyst which can lead to above average growth (e.g., urbanization theme in India can see a reversal or atleast a slowdown post Covid, for various factors)

Source: Media reports. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the security. The Scheme may or may not invest in these stocks.


Source: media reports. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the security. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

Small Caps: Niche or Emerging Business and Opportunities.How We Assess them? (Cont’d)

• The diagnostic industry has emerged as an attractive play in India's growing healthcare sector and is one of the fastest growing services in the country.

• There is a rising trend of preventive testing in India and this trend has accelerated post Covid and has significant potential for rising penetration.

• The Indian diagnostic industry is highly fragmented and under-penetrated despite the presence of over 1 lakh labs. Diagnostic chains command ~16% market share.

• The 4 major players (Dr Lal PathLabs, Metropolis Healthcare SRL Diagnostics and Thyrocare Technologies have a share of ~6%). So, there is a huge opportunity for national players to consolidate and for organic expansion.

• The domestic diagnostic industry is estimated at USD9bn (around INR 675bn) and is expected to grow at a compounded annual growth rate (CAGR) of ~10% over the next 5 years.

• India’s huge ageing population, rising income levels, focus on preventive and wellness spends, rise in chronic and lifestyle diseases, increasing market share for organized players and also rising health insurance penetration are all long-term structural triggers.

Healthcare Service

Providers / Diagnostics

7

Small Caps: Under-researched and Under-owned

PGIM India Small Cap Fund

Source: Bloomberg. Data as on 5-May-2021.

• Proprietary research becomes important as one goes down the capitalization curve, as number of analyst tracking Small Cap is relatively less

• PGIM India has a proven track record in identifying bottom-up stock ideas, with an experienced research team

• Foreign institutional ownership reduces beyond top 100 stocks

• As companies grow their revenue and profitability in the long run, the interest from institutional investor tends to rise, leading to potential re-rating

(The ownership data also includes any ADR/GDR)

22.220.4

15.412.4

14.312.6 11.7 11.2

8.9 7.5

0

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1-50 51-100 101-150 151-200 201-250 251-300 301-350 351-400 401-450 451-500

Stocks grouped as per market capitalization

3428

22

1613

8 7 7 74

05

10152025303540

1-50 51-100 101-150 151-200 201-250 251-300 301-350 351-400 401-450 451-500

Aver

age

No. o

f Ana

lyst

Stocks grouped as per market capitalization

Average number of analysts tracking the stock Average FPIs Holding (%)

• Staying invested over the full recovery / growth phase to benefit fully from the market cycle is important

• Superior stock selection can lead to above average returns over longer term

8

Small Caps of today can become Mid Caps or Large Capsof tomorrow

PGIM India Small Cap Fund Source: ACE Equity. Out of top 480 companies ranked by market cap in FY2013, the companies are divided into largecap,midcap and Small Cap as top 100, next 150 and beyond 250th stock respectively

• 140 companies out of 230 Small Cap companies in 2013 became Mid or Large Cap companies in FY18

There was an overall expansion in the market and the cutoffs for different market cap bucket also grew rapidly

For e.g the Small Cap cutoff was approx. 1300 crs in 2013 and 8900 crs in 2018

Based on actual Market Cap cutoff in respective year (FY2013-FY2018)Large Cap in

FY2018Mid Cap in

FY2018Small Cap in

FY2018Acquired/Delisted

Total no. of stocks

Large Cap in FY2013 100

150

230

Mid Cap in FY2013

Small Cap in FY2013

Based on 2013 marketcap constant cutoff in both yearsLarge Cap in

FY2018Mid Cap in

FY2018Small Cap in

FY2018Acquired/Delisted

Total no. of stocks

Large Cap in FY2013 100

150

230

Mid Cap in FY2013

Small Cap in FY2013

• Out of 230 Small Cap companies at the end of FY2013, 19 companies became a midcap company in FY18

4

74

199

74

10

0

22

66

19

94

68

13

5

75

127

0

0

12

1

7

78

0

0

12

3 years rolling Standard Deviation (Apr 2005-Apr 2021)

Nifty Small Cap 100 - TRI NIFTY 50 - TRI

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Drawdowns (Jan 2004-Apr 2021)

-100%-90%-80%-70%-60%-50%-40%-30%-20%-10%

0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Nifty Small Cap 100 - TRI NIFTY 50 - TRI

• During periods of contraction, Small Caps in general witness a greater drawdown compared to laregcaps

• However, Small Caps are also quick to recover as and when the economy revives

• Small Caps are more volatile compared to their largecap counterparts

• Investors should have an appropriate risk appetite before investing in this segment

9

Historically Small Caps have been more volatile. Thus,investor’s risk appetite should be aligned


Source: AceMF. Data as on 5-May-2021.

Why SmallCaps Now?

11

Small Caps: Potential to outperform during economic recovery/growth phase


Source: AceMF. Above charts rebased to 1000. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

• Historically, during periods of recovery and growth phases, Small Caps have outperformed other segments of the market

Indices movement from CY 2004-CY 2007 Indices movement from CY 2013-CY 2017

01000200030004000500060007000

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ay/2

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ay/2

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/201

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Sep/

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500

1000

1500

2000

2500

3000

Nifty Small Cap 100 - TRI NIFTY 50 - TRI Nifty Small Cap 100 - TRI NIFTY 50 - TRI

CAGR 57.5%

CAGR 36.1%

CAGR 20.5%

CAGR 13.5%


Source: AceMF. Above charts rebased to 1000. Data as of 5-May-2021. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

• Small Caps have relatively underperformed Large Caps since 2018

• As the current recovery rally gets more broad based, Small Caps have the potential to relatively outperform going forward

Movement from Dec 2017-June 2021

0200400600800

10001200140016001800

Nifty 50 TRI Nifty Small Cap 100 TRI

Dec/

2017

Mar

201

8

Jun

2018

Sep

2018

Dec

2018

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201

9

Jun

2019

Sep

2019

Dec

2019

Mar

202

0

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2021

Small Caps: Potential to outperform during economic recovery/growth phase (Cont’d)

CAGR 14.9%

CAGR 4.5%

13

Small Caps: Comfortable Leverage and Cashflows


Source: Spark Capital, Capitalline. Large, mid and Small Cap companies which are part of S&P BSE 500 index (ex-financials) have been considered for above analysis.

• Financial leverage for Small Caps as a segment has been going down

• This leads to confidence in resilience of smaller companies to see through this difficult economic cycle

• Smaller companies witnessed resilient operating cashflow in FY20 even though revenue declined marginally

• As the economic recovery picks up pace in subsequent years, Small Caps can be beneficiary of stronger operating leverage

Gross Debt/Equity Operating Cashflow/Sales

0.70

0.901.01

0.73

0.89 0.89

0.71

0.860.830.79

0.890.810.83

0.950.85

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Large cap Mid cap Small cap201603 201703 201803 201903 202003 201603 201703 201803 201903 202003

Large cap Mid cap Small cap

14%13%

8%

14%12%

10%12% 12%

9%10% 10%

6%

13%12%

9%

0%2%4%6%8%

10%12%14%16%18%20%

Small Cap category’s overall gross D/E is now comparable to Large Caps

14

Small Caps: Comfortable relative valuations


Source: Bloomberg. Small Cap represented by Nifty Small Cap 100 index and largecap represented by Nifty 50 Index, based on adjusted P/E considering companies with only positive earnings. Data as on 14-June-2021.

• Small Cap valuations relative to Large Caps is lower than the previous peak

• Although the gross debt/equity is almost at similar levels for both Large Caps (0.83x) and Small Caps (0.85x), the discount in relative valuations provide comfort

0.970.82

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0.20

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0.60

0.80

1.00

1.20

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Small Cap valuation relative to Large Caps - Adj P/E ratio

(An open-ended equity scheme predominantly investing in small cap stocks)

PGIM IndiaSmall Cap Fund

Presenting

16

PGIM India Small Cap Fund - Characteristics


*List published by AMFI on a half yearly basis. For more details on Asset allocation, investment strategy, please refer scheme information Document

• Minimum 65% allocation to Small Cap stocks

• Small Caps defined as stocks beyond top 250 as ranked by market cap*

• Market Cap allocation range for Small Caps – Below Rs 8369 crs. (current market cap of 251st stock. Source: AMFI)

• Growth at reasonable Price (GARP)

• Fundamentals driven, bottom-up stock picking approach

• Focus on ROE, Growth, FCF and leverage ratios

• Upto 35% of the portfolio can be allocated across Large, Mid and Small Cap, debt and money market instruments

AssetAllocation

PortfolioConstruct

InvestmentApproach

AssetAllocation

17

PGIM India Small Cap Fund: Investment Framework


*In companies with less than 10 years of data available, at least 70% of the years should have generated positive operating cash flows.

Operating Cash Flow positive for 7 out of 10 years*

Debt to Equity ratio < 3

Demonstrated Corporate Governance

Assessing the ablility to survive the cycles. Three factors to inclusion in investment universe.

Competitive Advantage

Companies strong on either are in focus for evaluation

Abundantly available in India

Capital

Technology

Land

Labor


PGIM India Small Cap Fund: Investment Framework (Cont’d)

Respect forCapital

Strong focus on Return on Capital Employed (RoCE) & Return on Equity (RoE)

OperatingLeadership

A leader or competent challenger in its operating space

SectorDominance

• Favour industries gearing up for consolidation• Avoid industries slated for fragmentation

Solid Financials• Conservative debt• Positive operating cash flows• Strong projected cash flow generation

Governance

• Ongoing evaluation based on ESG factors for all companies in the universe.

• Active monitoring of the alignment of minority shareholder interest with majority shareholders

19

PGIM India Small Cap Fund: Investment Approach


• Stock price over the medium to long term, track the fundamentals of the company

• Companies which are backed by good management and demonstrate the ability to scale are generally rewarded by investors

• Investors generally are willing to pay a higher multiple for higher expected growth in the future, leading to re-rating of the stock

+ =Re-ratingEarningsGrowth

Market CapExpansion

20

Investment Approach - Past example: PI Industries


Source: Bloomberg. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the security. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). CSM – custom synthesis. CRAMS – contract research and manufacturing services.

Find companies with sector dominance, solid financials, operating leadership and respect for capital

• Company operating in pesticides / agri chemicals sector

• Expertise in specialise molecule manufacturing in India. Decades of experience in innovation

• One of the leading players in the Indian and the Global market

• The company has around 50+ years of experience with 20+ Global Innovators and strong pipeline molecules based on crop solutions and Indian needs. On the distribution and scale front, the company has 28 stock points, 10,000+ distributors and 70,000+ retail points.

• Leading distribution company in India with dominant market share in certain crops. India’s largest CRAMS company with over 90% Revenue from patented products.

Secular, long-term runway of growth

Growing population and rising per capita income are strengthening demand for food grain: from 192 million tonnes in 2000 to an estimated 355 million tonnes in 2030, making it imperative for food grain production to increase 5.5 million tonnes annually to address growing domestic requirements.

Differentiators• Unique business model in the Agri-chem space of providing an innovative solution to its customers from R&D

to Distribution.• The company has been consistently investing in R&D (3.5% of sales: Rs 115mn) to build a robust pipeline of

novel molecules (closed FY20 with 60 molecules in the pipeline) and endeavours developing next generation, technology and processes.

• Pharma Contract Research And Manufacturing Services (CRAMS) business that could add another leg to growth. Business model ready to go beyond Ag-Chem

• Present across the global Ag-chem value chain with a partnership approach


Investment Approach - Past example: PI Industries (Cont’d)

Source: Bloomberg. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the security. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s). CSM – custom synthesis. CRAMS – contract research and manufacturing services.

Operating Cashflow (Rs Crs) Debt/Equity (x)

21104 102

219 184

367 339 319391

698

0100200300400500600700800

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

1.13

0.77

0.41

0.18 0.13 0.130.07 0.04 0.02

0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Example: PI Industries

22

Earning Growth + Re-rating = Market Cap expansion


Source: Bloomberg. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the securities. The charts have been rebased. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

0

200

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600

800

1,000

1,200

1,400

0

1,000

2,000

3,000

4,000

5,000

Mar-11 May-12 Jun-13 Aug-14 Sep-15 Oct-16 Dec-17 Jan-19 Mar-20 Apr-21

PI Industries Stock returns: 41xTrailing PE Expansion: 4xEarnings Growth: 12x

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800

1,000

1,200

0

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2,000

3,000

4,000

5,000

6,000

7,000

8,000


Aarti IndustriesStock returns: 75xTrailing PE Expansion: 10xEarnings Growth: 7x

0

500

1,000

1,500

2,000

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000


Astral Poly TechnikStock returns: 107xTrailing PE Expansion: 15xEarnings Growth: 7x

0

500

1,000

1,500

2,000

0

2,000

4,000

6,000

8,000

10,000


Bajaj FinanceStock returns: 73xTrailing PB Expansion: 5xBook Value Growth: 16x

Price (LHS) TTM PE (RHS) TTM EPS (RHS)Price (LHS) TTM PE (RHS) TTM EPS (RHS)

Price (LHS) TTM PE (RHS) TTM EPS (RHS)Price (LHS) TTM PE (RHS) TTM EPS (RHS)

23

Earning Growth + Re-rating = Market Cap expansion contd…


Source: Bloomberg. Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the securities. The charts have been rebased. The Scheme may or may not invest in these stocks. Investors are requested to consult their financial, tax and other advisors before taking any investment decision(s).

The effect of consistent earning growth coupled with valuation re-rating can have a multiplier effect on stock prices

0

100

200

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600

0

500

1,000

1,500

2,000

2,500


Price (LHS) TTM PE (RHS) TTM EPS (RHS) Price (LHS) TTM PE (RHS) TTM EPS (RHS)

Price (LHS) TTM PE (RHS) TTM EPS (RHS) Price (LHS) TTM PE (RHS) TTM EPS (RHS)

CoforgeStock returns: 19xTrailing PE Expansion: 4xEarnings Growth: 4x

0

100

200

300

400

500

600

700

800

0

500

1,000

1,500

2,000


Info Edge IndiaStock returns: 15xTrailing PE Expansion: 7xEarnings Growth: 2x

0

100

200

300

400

500

600

700

800

0

200

400

600

800

1,000

1,200


EscortsStock returns: 9xTrailing PE Expansion: 3xEarnings Growth: 3x

0

500

1,000

1,500

2,000

0

1,000

2,000

3,000

4,000

5,000


Minda IndustriesStock returns: 38xTrailing PE Expansion: 10xEarnings Growth: 4x

24

Experienced Fund Management Team


Mr. Srinivas Rao RavuriCIO, Equities

Over 24 years of experience in Indian financial markets, primarily in equity

research & fund management

• July 2019 onwards - PGIM India Asset Management Pvt Ltd. – Chief Investment Officer – Equities

• October 2004 to June 2019 - HDFC Asset Management Company Ltd. Last Position Held - Senior Fund Manager - Equities.

• July 2003 to September 2004 - Motilal Oswal Securities Ltd. Last Position Held - Senior Analyst

• December 1996 to July 2003 - Edelweiss Capital Ltd. Last Position Held - AVP-Equity Research

• November 1994 to November 1996 - Securities Capital Investments (I) Ltd. - Last Position Held - Investment Analyst

• Funds managed – PGIM India Long Term Equity Fund


Experienced Fund Management Team

Mr. Aniruddha NahaSenior Fund Manager, Equities

Over 19 years of experience in the equity and debt market

• From April 2018 - PGIM India Asset Management Pvt Ltd.– Senior Fund Manager – Equity

• May 2016 to March 2018 - Portfolio Manager - Avendus Wealth Management Pvt. Ltd.

• April 2013 to March 2016 - Fund Manager – IDFC Asset Management Company Ltd.

• August 2010 to February 2013 - Portfolio Manager - Mirae Asset Global Investments (Hong Kong) Ltd.

• February 2008 to June 2010 - Fund Manager – DSP BlackRock Investment Managers Pvt. Ltd

• Funds managed – PGIM India Midcap Opportunities Fund, PGIM India Flexi Cap Fund, PGIM India Balanced Advantage Fund

26

Annexure: Fund Facts


Scheme Name: PGIM India Small Cap Fund

Type of scheme An open-ended equity scheme predominantly investing in Small Cap stocks

Investment objective

To achieve long term capital appreciation by predominantly investing in equity and equity related instruments of small cap companies.

However, there can be no assurance that the investment objective of the Scheme will be achieved. The Scheme does not guarantee/ indicate any returns.

Plan / Options

The Scheme shall offer two plans viz. Regular Plan and Direct Plan.

Each Plan has two Options, viz., Growth Option and Income Distribution cum Capital Withdrawal Option. Income Distribution cum Capital Withdrawal Option has the following two facilities:

i. Payout of Income Distribution cum Capital Withdrawal facility (IDCW - Payout) i. Payout of Income Distribution cum Capital Withdrawal facility (IDCW - Payout)

ii. Reinvestment of Income Distribution cum Capital Withdrawal facility (IDCW - Reinvestment).

Exit Load

• 10% of the units allotted may be redeemed/switched-out to debt schemes/PGIM India Arbitrage Fund without any exit load within 90 days from the date of allotment;

• Any redemptions/switch-outs in excess of the abovementioned limit would be subject to an exit load of 0.50%, if the units are redeemed/switched-out to debt schemes/PGIM India Arbitrage Fund within 90 days from the date of allotment of units;

• Nil - If the units are redeemed/ switched-out after 90 days from the date of allotment of units;• No exit load will be charged for switches and STP into any open-ended equity scheme, hybrid scheme (except

PGIM India Arbitrage Fund) and fund of funds scheme.

Fund Manager• Mr. Aniruddha Naha is the equity fund manager for the scheme. • Mr. Kumaresh Ramakrishnan is the debt fund manager for the scheme and Mr. Ravi Adukia will manage the

overseas investments for the scheme.

Benchmark Index Nifty Small Cap 100 TRI Index

27

Annexure: Who should invest in PGIM India Small Cap Fund?


• Investors with an investment horizon of atleast 5 years or more

• Investor looking to complement their existing core equity portfolio, with a potential to earn higher risk adjusted return

• Investors having a commensurate risk appetite associated with Small Cap segment


Source: AceMF. Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments.

Annexure: Long term SIPs in Small Cap index at higherindex levels may be preferred

Assumptions:• SIP of Rs 10,000 made on

the 1st of each month for 3 years

• Lumpsum investment of Rs. 360,000 on the 1st of each month and held for next 3 years

3 years rolling investment value

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Value of Investment - Lumpsum (LHS)Value of Investment - SIP (LHS) Nifty Small Cap 100 - TRI (RHS)

Lumpsum outperformed SIPs between 2008-2011 period and 2013-2016

period i.e. investment made at market bottom after a major decline

SIPs started at market peaks of 2007 and 2017 outperformed lumpsum, as markets declined

and recovered again

Stocks mentioned are for illustration purpose only and not meant as a recommendation to buy or sell the securities. 29PGIM India Small Cap Fund

Annexure: Why Small Caps now?- Common Objections/Concerns

Small Cap / Micro Cap investing is for professional investors only It is for all classes of investor. However, it is not advisable for core holding for most, and should complement an existing equity-oriented portfolio

Small Caps are very riskyFunds based on Small Cap investing have historically managed to curb drawdowns compared to direct stock exposure and also the index

Small Caps stocks have seen a run-up already. Not an appropriate time to make incremental allocationMarkets have been polarized in the last couple of years. Small Caps indices have not deviated significantly away from their previous peak achieved in early 2018. Relatively, Small Cap segment is still trading at a reasonable valuations compared to other segments of the markets

Liquidity continues to be a challenge in Indian markets when it comes to Small CapsA fresh portfolio will be better able to manage liquidity concerns as it gradually builds up scale

There are numerous instances of permanent loss of capital in this spaceA diversified mutual fund portfolio structure is best suited to mitigate risk as far as possible, compared to direct stock investing, particularly in the Small Cap space

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• Twin drivers of returns viz. high growth and valuation re-rating. This can translate to above average returns over long term

• Smaller companies many a time are driven by talented founders and entrepreneurs managed with passion and zeal. Thus, investor get an opportunity to invest in a PE style of investing in these companies at a relatively early stage of their business cycle, without undertaking disproportionate risk

• Smaller companies provide opportunity to invest in emerging themes and sectors, where bigger players have not made an entry or impact yet

• Smaller companies have the ability to grow at a faster pace compared to their established counterparts, because of significant operating leverage

• Traditional metrics of valuations may not fully assess the growth potential of a company

• Small Cap segment continues to be under-researched and under-owned. Thus, inefficiencies in price discovery exist

• Much larger universe of companies and sectors. Number of profitable companies are growing. New age companies are looking to list publicly providing newer opportunities.

Annexure: In Summary - Why Small Caps?

This product is suitable for investors who are seeking*:• Capital appreciation over a long period of time. • Investment in equity and equity related instruments of small cap companies. • Degree of risk – VERY HIGH

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

(An open-ended equity scheme predominantly investing in small cap stocks)SMALL CAP FUND PGIM INDIA

Investors understand that their principal will be at very high risk

The Product labeling assigned during the NFO is based on internal assessment of the scheme characteristics or model portfolio and the same may vary post NFO when actual investments are made.

3

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Document Date: June 23 , 2021 Document Number: C76/2021-22

The information contained herein is provided by PGIM India Asset Management Private Limited (erstwhile known as DHFL Pramerica Asset Managers Pvt. Ltd.) (the AMC) on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance* (or such earlier date as referenced herein) and is subject to change without notice. The AMC has no obligation to update any or all of such information; nor does the AMC make any express or implied warranties or representations as to its completeness or accuracy. There can be no assurance that any forecast made herein will be actually realized. These materials do not take into account individual investor's objectives, needs or circumstances or the suitability of any securities, financial instruments or investment strategies described herein for particular investor. Hence, each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard. The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein. The stocks referred in this documents are for illustration purpose only and should not be construed as an advice for dealing in these stocks in any manner. The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary. © 2020 Prudential Financial, Inc. (PFI) and its related entities. PGIM, the PGIM logo, and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. The PGIM logo and the Rock symbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.

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