In common parlance, when we say a company is big, one concludes the bigness is on account of the number of employees it employs, its turnover, its market share in its industry, but in the stock market universe what determines size is the market capitalization. Market capitalization (or commonly referred to as Market Cap) which is nothing but the product of two components- number of shares that have been issued by the company and the current share price of the company. You multiply these two and viola you get the market capitalization.

The stock market universe can be broadly classified into three categories of stocks (refers to companies which are listed on the stock exchange). Large cap, Medium cap and Small cap companies.

Though there is no formal definition of categorization of companies into Large, Medium or Small, broadly speaking Large Cap refers to companies with large market capitalization and small- in the Indian context can be construed as companies with market capitalization between Rs 50 - Rs 150 crores and quite naturally Medium Capitalisation refers to companies that fall in between Large and Small.

The ground rule quite simply is - a large cap company is relatively much safer as compared to a company with a small-cap. Due to their small size, lack of established brand equity, minimal liquidity, small cap companies are most susceptible to economic and environmental threats.

There are relevant benchmarks that try and slot companies as per their market cap. For example, the BSE 200 is an index that comprises the top 200 listed companies based primarily on their market capitalization. The BSE 500index represents nearly 93% of the total market capitalization on Bombay Stock Exchange Limited. The BSE Mid-Cap tracks the performance of companies whose market capitalization falls between 80 -95% of aggregate total market capitalization and the BSE Small-Cap index tracks the performance of remaining 5% companies (95-100%).

All funds have a benchmark (which serves as a basis for comparison) and the investment strategy of the fund decides what kind of companies a fund would invest in.

A fund that invests in small and mid cap companies can also be diversified in the sense that it invests across various industries within the small and mid cap space.

The IDFC Classic Equity Fund is an open-ended diversified equity fund that will endeavor to invest in well-managed sustainable businesses. The portfolio of securities will be well diversified across market caps and sectors, so identified, to mitigate overall risk.

Diversification follows the maxim of not putting all your eggs in one basket. The extent of diversification can though differ. When we say the Classic Equity fund has no market cap bias, we are merely referring to the fact that the Fund selects companies irrespective of their market cap. It does so purely on the merit of the company’s current performance and future promise it holds. However the fund mindful of its motive of true diversification it would try and ensure that there is no concentration of companies belonging to a particular market cap or a particular industry/ sector.

When you travel to a foreign country it is quite natural to expect the local attire to differ from the attire at home. And the best way to gel well in a foreign country is to follow the old maxim When In Rome Do As The Romans Do.

By doing so you are merely, and most importantly, temporarily changing your external demeanor and attire but you are certainly not changing your intrinsic character or basic nature. You do so purely to gain instant acceptability and thus profit from it.

While well-managed companies do perform well in the long run, from time-to-time, there are certain themes that seem to catch investor fancy. And it is this that the Classic Equity Fund tries to capture. Carrying forward the analogy to the Classic Equity Fund, one could describe this fund as a fund that has a stable intrinsic core comprising well-managed companies that hold great promise in the future or the long-term but an adaptable exterior that seeks to dip into the current market sentiment and attempts to profit from it by investing in companies that have caught investor fancy.

For example the BSE Mid-Cap 200 Index scaled its new high in two long rallies of about seven months each between July 2003 and January 2004, and from August 2004 to March 2005. Thus it is not uncommon to hear stocks belonging to a particular sector are performing better as the market anticipates that the build-up of certain market-related, consumer preference related or economy related conditions portend better for some sectors than others.

While each of these rallies was driven primarily by the expectations of an upturn in economic activity, the underlying factors and sectoral themes that propelled them were different. First the sector focus was skewed towards pharma and software (global outsourcing story- where the world at large considered India as a cheaper base for manufacturing and delivering service and hence companies that), banking (led by the decline in interest rates) and power (based on power reforms- the power sector caught the fancy of the markets on account of the sector emerging from the regulatory haze and was driven by huge capital investments.).

More recently with the economy growing at 8-9 %, consumption (that is when consumers i.e. people like you and me spend or consume goods and services) was a dominant theme in the markets. And this purely domestic consumption story is one of the few ideas that professional investors are almost unanimously positive about

Traditionally the universe of stocks that benefited from the consumption theme was restricted to the FMCG sector but no longer. Sectors like retailing, media, tourism, alcoholic beverages, automobiles, telecom and housing too stand to gain during a consumption theme. However within this theme, the performance in the stock market over the past year has been mixed. Obvious beneficiaries of consumption, such as FMCG, retailing and hotels have been under-performers. So it not necessary that all sectors within a theme perform equally well.

The one thing to remember in such market fancies is that companies in such sectors tend to witness a sharper rise in prices in the medium term. Again it is not uncommon for markets to be in an experimental phase for the market, where sectors and stocks may catch investor fancy for a month or quarter, only to be dumped unceremoniously in the next few months.

There is an opportunity here. But deciphering these conditions much before they occur and further on the sectors within it is easier said than done. This is much like a surfer trying to predict the size of the next big wave and accordingly position himself to ride it rather than get swamped by it.

Thus a fund that seeks to do just this, that is, predict the next big wave and ride it when it actually develops can have very volatile returns in the short to medium term.

The point therefore is simple. Anticipating the dominant theme and within that the sector is something that even to most professionals is a challenge. Therefore most diversified equity funds prefer cherry-picking robust well-managed companies with a clear eye only on the long term.

Such funds therefore tend to under-perform when a particular theme is in vogue and if the stocks in the fund’s portfolio do not figure in the current market rally. So while the long term performance may look promising, it is the medium term performance that may suffer.

The Classic Equity Fund attempts to plug that and attempts to stay within a band of acceptability by attempting to ensure that a part of its portfolio stays contemporary by taking medium term exposures in sectors that have caught the market fancy.

The Classic Equity Fund does not lose its intrinsic character or basic nature of a diversified equity fund. A large part of the portfolio comprises companies that are carefully handpicked with a view on the long term but has a small portion that keeps rotating sectors by investing in those sectors and in turn companies that look promising in the medium term. The fund manager of the Classic Fund would attempt to constantly scan the environment and interpret which sectors-and in turn companies-would profit from the build –up of prevalent conditions in the near future and thus attempt to invest early on and thus attempt to profit from these investments.

Trying to mimic the Classic Equity Fund is much like investing a certain percentage of your portfolio in a core diversified fund and a certain percentage that you keep rotating across sector funds trying to capitalize on the market fancy for a particular sector. Trying to mimic this is easier said than done for often trying to decipher which sector will catch the market fancy is a challenge even to the most seasoned investment professional.

The Classic Equity Fund attempts to does this for you and does away with the need of having to maintain two different sets of funds one for the very long term and one that takes advantage of the medium term. By attempting to rotate sectors the fund is more in touch with prevalent conditions.

Copy of Offer Document / Scheme Information Document / Statement of Additional Information and Key Information Memorandum along with Application form may be obtained from the office of IDFC Mutual Fund, One India Bulls Centre, 841, Jupiter Mills Compound, Senapati Bapat Marg, Elphinstone Road (West), Mumbai – 400 013. Contact 1-800-226622 for details. Risk Factors: Mutual Funds and securities investments are subject to market risks, reinvestment risk, changes in political, economic environment and government policy and there is no assurance or guarantee that the objectives of the Scheme will be achieved. The NAV of the Scheme can go up or down depending on factors and forces affecting the Securities Market. Past performance of the Sponsor/AMC/Mutual Fund is not necessarily indicative of the future performance of the Scheme and may not necessarily provide a basis for comparison with other investments. IDFC Classic Equity Fund (IDFC-CEF) is the name of the Scheme and do not in any manner indicate either the quality of the Scheme, their future prospects or returns. The Sponsor or any of its associates is not responsible or liable for any loss resulting from the operation of the Schemes beyond the corpus of the Trust of Rs.30,000/- Investors in the schemes are not being offered any guaranteed or assured rate of return. Scheme specific risk: All equity schemes propose to invest in equity and equity related instruments which by nature are volatile and prone to price fluctuations on a daily basis due to both macro and micro factors. Trading volumes, settlement periods and transfer procedures may restrict the liquidity of these investments. Investment Objective: IDFC-CEF is an Open Ended Equity Scheme to generate long term capital growth from a diversified portfolio of predominantly equity and equity related instruments. Terms of Issue, Redemption & Load Structure:  IDFC-CEF is an Open Ended Equity scheme. The Units can be subscribed / redeemed at the Applicable NAV, subject to applicable load, on all business days during the continuous offer. Entry Load: During the Ongoing Offer Period load will be charged as follows: amount to be invested (including by way of SIP/STP) being less than Rs. 5 Crores- 2.25%, Rs. 5 Crores or more (including by way of SIP/STP) - Nil, by an FOF (irrespective of the amount of Purchase) - Nil, by way of Dividend Re-investment – Nil. A switch-in/STP may also attract an Entry Load like any Purchase however no load shall be chargeable on investments switched in by investor from any other Equity Scheme(s) of IDFC Mutual Fund (other than in case of switch-ins of less than Rs. 5 Crores from IDFC Arbitrage Fund, where entry load of 2.25% shall be applicable). Such switches may however be subject to exit load as applicable in the scheme from where the investments are switched out. Exit Load: In case of purchases of Rs. 5 Crores or more (including by way of SIP/STP) – Nil, In case of purchase of less than Rs. 5 Crores if redeemed Within 1 year from the date of Purchase(s) applying First in First Out basis (including Purchases made through SIP/STP) - 1.00%. There will be no exit load for investment made by FOF schemes irrespective of amount of redemption / switch outs. No entry load will be charged in case of direct applications received by the AMC i.e. applications received through internet, submitted to AMC or collection centre Investor Service Center that are not routed through any distributor/agent/broker It shall also be applicable to additional purchases done directly by the investor under the same folio and switch—in to a scheme from other schemes if such a transaction is done directly by the investor. Statutory Details:  IDFC Mutual Fund has been set up as a trust by Infrastructure Development Finance Company Limited (IDFC) (liability restricted to corpus of Trust of Rs. 30,000) with IDFC AMC Trustee Company Private Ltd (Company with limited liability) as the trustee and IDFC Asset Management Company Private Ltd (Company with limited liability) as the investment manager. Investors in the scheme are not being offered any guaranteed or assured rate of return.

 For other scheme specific risk factors and other details please read the Offer Document/Scheme Information Document/Statement of Additional Information carefully before investing.