SBI D i B d F dSBI Dynamic Bond Fund

December 2010

Bond yields: Two-way and differential movements instead of lasting trends

Yield Movement

From secular to two-way moves

11

12

13

Yield Movement

9

10

11

rcen

tag

e

6

7

8Pe

Source: Bloomberg

5

Jan-0

8

Feb-0

8M

ar-0

8

Apr-

08

May

-08

Jun-0

8

Jul-

08

Aug-0

8

Sep

-08

Oct

-08

Nov-

08

Dec

-08

Jan-0

9

Feb-0

9M

ar-0

9

Apr-

09

May

-09

Jun-0

9

Jul-

09

Aug-0

9

Sep

-09

Oct

-09

Nov-

09

Dec

-09

Jan-1

0

Feb-1

0M

ar-1

0

Apr-

10

May

-10

Jun-1

0

Jul-

10

Aug-1

0

Sep

-10

Oct

-10

Nov-

10

Dec

-10

G sec 10 yr AAA10yr

This could be an opportunity for investors looking for higher returns through dynamic portfolio management while sticking to the risk profile of debt markets

Outperformance of different curves at different times

During 5 yr Gsec 5 yr Corp 10 yr Gsec 10 yr Corp Best returnDuring 5 yr Gsec 5 yr Corp 10 yr Gsec 10 yr Corp Best return

Nov-10 0.36% 0.67% 0.93% 0.71% 0.93%

Oct-10 0.07% 0.17% -1.17% -0.33% 0.17%

Sep-10 0.63% 0.71% 1.40% 1.44% 1.44%

A 10 0 43% 0 33% 0 10% 0 95% 0 95%Aug-10 0.43% 0.33% -0.10% 0.95% 0.95%

Jul-10 -0.49% -0.26% -1.15% 0.00% 0.00%

Jun-10 0.60% 0.49% 0.55% 0.42% 0.60%

May-10 0.73% 0.75% 3.83% 1.42% 3.83%

Apr-10 0.94% 2.34% -0.43% 1.44% 2.34%

Mar-10 1.07% 0.72% 0.76% 0.66% 1.07%

Feb-10 -1.03% -0.61% -1.39% -0.65% -0.61%

Jan-10 1.05% 1.01% 0.62% 0.71% 1.05%

Dec-09 -0.52% -0.39% 0.14% -0.10% 0.14%

Nov-09 1.12% 1.38% -0.85% 2.54% 2.54%

Oct-09 0.30% 1.23% -0.39% 0.43% 1.23%

Sep-09 0.96% 1.04% 2.50% 1.15% 2.50%Sep 09 0.96% 1.04% 2.50% 1.15% 2.50%

Aug-09 -1.33% -0.04% -1.42% 0.52% 0.52%

Jul-09 -0.33% -0.86% -0.41% -0.68% -0.33%

Jun-09 0.32% 2.11% -1.64% 1.66% 2.11%

May 09 1 21% 2 16% 2 85% 1 54% 1 21%

Approximate absolute returns calculated based on FIMMDA/Bloomberg curves

Returns shown only for the purpose of comparison

May-09 -1.21% -2.16% -2.85% -1.54% -1.21%

Apr-09 3.49% 4.71% 6.28% 5.15% 6.28%

SBI Dynamic Bond Fund – Investment objective and proposed asset allocation

Investment objective: To actively manage a portfolio of good quality debt as well as money market instruments so as to provide reasonable returns and liquidity to the unit holders

Proposed allocation in As % of Net Assets(Min – Max.)

Risk Profile

Debt# Instruments including Government Securities and Corporate Debt

0-100% Medium

Money Market Instruments 0-100% Low

#Debt Instruments may include securitized debt up to 40% of the net assets

* h h h b f h h ll b h d*There is no guarantee or assurance that the investment objective of the scheme will be achieved. The scheme does not assure or guarantee any returns.

Investment process at SBI Funds Management Pvt. Ltd.

Investment bj i &

Duration Yield Curve

Top Down Analysis

Portfolio

Sector

objective & Internal guidelines

Quantitative Analysis

Credit Trading

Portfolio Construction

Bottom up Security Selection

Risk Management

PHILOSOPHY

Focus on Fundamental research & Risk management

Focus on consistent above average

– Fundamental research based approach and focus on risk management to generate consistent above average g

risk adjusted returns

Fundamental research based

h

returns

– Capturing inefficiencies in the Fixed income markets that give rise to multiple sources of alpha through disciplined

approach

Focus on risk management

g p p g prisk taking

– Risk management is crucial to achieving the investment objective and is an integral part of portfolio management and is not just a tool for post investment analysis

Identifying multiple sources of alpha

j p y

– Sharper focus on credit research: credit cycles will be shorter and lack of liquidity pose another challenge

Interest rate movements in November, 2010

R t * i % 30th N ’10 31st O t’10 31 t M h’10Government securities

Rates* in % 30th Nov’10 31st Oct’10 31st March’10

1 yr T-bill 7.26 7.16 5.14

5 yr G-sec 7.90 7.83 7.53

10 G 8 07 8 11 7 85

• G-sec market continued to remain broadlybearish despite RBI comforting the markets onfurther rate hikes in the November review ofcredit policy as liquidity stayed tight, volumesdropped on the back of declining trader interestand good growth data emerged A lack of follow 10 yr G-sec 8.07 8.11 7.85

1 yr CD 9.00 8.50 6.40

3 yr Corp 8.58 8.45 7.70

and good growth data emerged. A lack of followup OMOs from RBI after their OMO in earlyNovember / Government’s reluctance to reduceG-sec / Tbill auction sizes also aggravated thebearishness in the market.

• Despite the current bearishness, G-sec market

5 yr Corp 8.66 8.65 8.54

10 yr Corp 8.82 8.82 8.80

1 yr IRS 6.80 6.71 4.98

offers a good investment opportunity in thelonger durations as RBI had signaled in theNovember policy, its intention to keep liquiditydeficit in a manageable proportion, that is about1% of NDTL. This could prove to be favourable forG-sec market as RBI’s OMOs could swing thedemand supply balance in the remaining months

5 yr IRS 7.32 7.20 6.88demand-supply balance in the remaining monthsof the year in favour of demand.

Credits

• The current liquidity crisis is proving to be one of the worst for corporate papers and in particular forBanks. The huge rollover pressure on Banks and the liquidity tightness with Mutual Funds continues to

h th h t t t hi h d hi h 3 th CD t h t h d 8 75% hil 1 tpush the short term rates higher and higher. 3 month CD rates have touched 8.75% while 1 year rateshave crossed 9%. This will continue to put pressure on the entire corporate bond curve, particularly inDecember, when system is faced with further liquidity outflows in the form of advance tax payments.

• Spreads continue to remain attractive only in the <1 year segment. However, given the relative valueoffered by G-sec yields and the continuing liquidity tightness and issuance from Banks, corporate bondcurve is not expected to yield significant gains for some time. While RBI has shown an intent to address

*Source: Bloomberg & Internal analysis

curve is not expected to yield significant gains for some time. While RBI has shown an intent to addressthe extreme liquidity deficit, any meaningful softening in yields is expected only towards the end of thisquarter

However, December brought changes…

• As 10-year G-sec yields touched the 8.20% mark, 3 month CDs touched the 9% mark and 1year CDs touched the 9.50% mark in response to tight banking system liquidity, thin marketvolumes and market’s disappointment at RBI’s piecemeal OMOs, RBI swung in to action byannouncing a slew of OMOs spread over December and January Government also respondedannouncing a slew of OMOs spread over December and January. Government also respondedby showing its willingness to reduce auction sizes as demand waned.

•With this comfort, bond markets are expected to revive as liquidity comes in, trading entitiesre-enter the market and FIIs step up their purchases. There could be interesting opportunitiesgoing forward, for the very near term though, G-sec market looks very attractive given thehuge OMO support from RBIhuge OMO support from RBI.

•In the coming months, markets expected to show good two-way movements in response toGlobal economic growth prospects, domestic inflation scenario, RBI’s stance on liquidity andrate hikes, FII activity and market’s estimates of government borrowing programme for thenext year.

•Bond markets warrant a dynamic approach with selective curve play based on the abovefactors

SBI Dynamic Bond Fund would aim to generate better returns by actively managing the portfolio based on the evolution of the above factors

Dynamic management of fixed income portfolio essential

Govt. Inflation Global

factors & Evolution

of liquidity borrowing for next FY

Inflation trajectory

factors & FII

activity

of liquidity and RBI stance

Duration adjustment

Choice of instruments

Bond markets warrant a dynamic approach with selective curve play based on the above

Portfolio Analysis*

AUM Rs. 13.37 Crore

Benchmark Crisil Composite Bond Fund Index

74.62%

70%

80%

Asset Allocation

40%

50%

60%

centa

geTOP HOLDINGS

Issuer % of NAV

GOI 8.08% 02.08.2022 37.4718.04%

7.35%10%

20%

30%Per

GOI 8.26% 02.08.2027 37.14

ALLAHABAD BANK CD 10.98

CORPORATION BANK CD 7 06

0%

G Sec CD NCA

CORPORATION BANK CD 7.06

Total 92.65

*as on December 31, 2010

Performance Report*

1Y 3Y 5Y S.Inc

SDBF7.54% 1.83% 2.19% 2.23%

SDBFCrisil Composite Bond Fund Index

4.96% 5.85% 5.65%4.74%

Past performance may or may not be sustained in future. Returns are CAGR and are for growthoption. NAV (Growth) as on 30/12/2010 is Rs. 11.53. Date of inception is 09.02.2004.

*as on December 30, 2010

Thank you

DisclaimerRisk Factors: Mutual Funds and Securities Investments are subject to market risks andthere is no assurance or guarantee that the objective of scheme(s)/plan(s) will beachieved. As with any other investment in securities, the NAV of the Units issued underthe scheme(s)/plan(s) can go up or down depending on the factors and forces affectingthe securities market. Past performance of the Sponsor/AMC/MutualFund/Scheme(s)/Plan(s) and their affiliates do not indicate the future performance of theFund/Scheme(s)/Plan(s) and their affiliates do not indicate the future performance of thescheme(s) of the Mutual Fund. Investment Objective: SBI Dynamic Bond Fund (An Open-Ended Income Scheme): The investment objective will be to actively manage a portfolio of goodquality debt as well as Money Market Instruments so as to provide reasonable returns and liquidityto the Unit holders. However there is no guarantee or assurance that the investment objective of thescheme will be achieved. The scheme doesn’t assure or guarantee any returns. SBI Dynamic Bondscheme will be achieved. The scheme doesn t assure or guarantee any returns. SBI Dynamic BondFund is only the name of the scheme and does not in any manner indicate either thequality of the scheme, its future prospects and returns. Statutory Details: SBI Mutual Fundhas been set up as a Trust under The Indian Trusts Act, 1882. State Bank of India (‘SBI’), thesponsor is not responsible or liable for any loss resulting from the operation of the schemes beyondthe initial contribution made by it of an amount of Rs. 5 lacs towards setting up of the Mutual Fund.Asset Management Company- SBI Funds Management Private Limited (A joint venture with SBIand Société Générale Asset Management). Trustee Company: SBI Mutual Fund Trustee CompanyPrivate Limited. Please read the Scheme Information Document carefully before investing.

This presentation is for information purposes only and is not an offer to sell or a solicitation to buyany mutual fund units/securities These views alone are not sufficient and should not be used for theany mutual fund units/securities. These views alone are not sufficient and should not be used for thedevelopment or implementation of an investment strategy. It should not be construed as investmentadvice to any party. All opinions and estimates included here constitute our view as of this date andare subject to change without notice. Neither SBI Funds Management Private Limited, nor anyperson connected with it, accepts any liability arising from the use of this information. The recipientof this material should rely on their investigations and take their own professional advice