SBI Dynamic Bond Fund D i B dF d

December 2010

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

Yield Movement
13 12 11 Percentage 10 9 8 7 6 5 May-08 May-09 May-10 Feb-08 Mar-08 Feb-09 Mar-09 Aug-08 Feb-10 Mar-10 Jan-08 Jan-09 Jun-08 Jun-09 Oct-08 Jan-10 Aug-09 Jun-10 Oct-09 Aug-10 Nov-08 Sep-08 Dec-08 Nov-09 Sep-09 Dec-09 Oct-10 Nov-10 Sep-10 Dec-10 Apr-08 Apr-09 Apr-10 Jul-08 Jul-09 Jul-10

From secular to two-way moves

Source: Bloomberg

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 Nov-10 Oct-10 Sep-10 Aug-10 A 10 Jul-10 Jun-10 May-10 Apr-10 Mar-10 Feb-10 Jan-10 Dec-09 Nov-09 Oct-09 Sep 09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 May 09 Apr-09 5 yr Gsec 0.36% 0.07% 0.63% 0.43% 0 43% -0.49% 0.60% 0.73% 0.94% 1.07% -1.03% 1.05% -0.52% 1.12% 0.30% 0.96% -1.33% -0.33% 0.32% -1.21% 1 21% 3.49% 5 yr Corp 0.67% 0.17% 0.71% 0.33% 0 33% -0.26% 0.49% 0.75% 2.34% 0.72% -0.61% 1.01% -0.39% 1.38% 1.23% 1.04% -0.04% -0.86% 2.11% -2.16% 2 16% 4.71% 10 yr Gsec 0.93% -1.17% 1.40% -0.10% 0 10% -1.15% 0.55% 3.83% -0.43% 0.76% -1.39% 0.62% 0.14% -0.85% -0.39% 2.50% -1.42% -0.41% -1.64% -2.85% 2 85% 6.28% 10 yr Corp 0.71% -0.33% 1.44% 0.95% 0 95% 0.00% 0.42% 1.42% 1.44% 0.66% -0.65% 0.71% -0.10% 2.54% 0.43% 1.15% 0.52% -0.68% 1.66% -1.54% 1 54% 5.15% Best return 0.93% 0.17% 1.44% 0.95% 0 95% 0.00% 0.60% 3.83% 2.34% 1.07% -0.61% 1.05% 0.14% 2.54% 1.23% 2.50% 0.52% -0.33% 2.11% -1.21% 1 21% 6.28%

Approximate absolute returns calculated based on FIMMDA/Bloomberg curves Returns shown only for the purpose of comparison

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.) 0-100%

Risk Profile

Debt# Instruments including Government Securities and Corporate Debt Money Market Instruments

Medium

0-100%

Low

#Debt

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

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

*There h

Investment process at SBI Funds Management Pvt. Ltd.

Top Down Analysis Duration Investment objective & bj i Internal guidelines Quantitative Analysis Credit Trading Sector Yield Curve Portfolio Construction

Bottom up Security Selection

Risk Management

Focus on Fundamental research & Risk management

PHILOSOPHY

Focus on consistent g above average risk adjusted returns Fundamental research based approach h Focus on risk management Identifying multiple sources of alpha

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

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

Government securities G-sec market continued to remain broadly bearish despite RBI comforting the markets on further rate hikes in the November review of credit policy as liquidity stayed tight, volumes dropped on the back of declining trader interest and good growth data emerged A lack of follow emerged. up OMOs from RBI after their OMO in early November / Governments reluctance to reduce G-sec / Tbill auction sizes also aggravated the bearishness in the market. Despite the current bearishness, G-sec market offers a good investment opportunity in the longer durations as RBI had signaled in the November policy, its intention to keep liquidity deficit in a manageable proportion, that is about 1% of NDTL. This could prove to be favourable for G-sec market as RBIs OMOs could swing the demand-supply demand supply balance in the remaining months of 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 for Banks. The huge rollover pressure on Banks and the liquidity tightness with Mutual Funds continues to push th short t h the h t term rates hi h t higher and hi h d higher. 3 month CD rates h th t have t touched 8 75% while 1 year rates h d 8.75% hil t have crossed 9%. This will continue to put pressure on the entire corporate bond curve, particularly in December, 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 value offered by G-sec yields and the continuing liquidity tightness and issuance from Banks, corporate bond curve is not expected to yield significant gains for some time. While RBI has shown an intent to address the extreme liquidity deficit, any meaningful softening in yields is expected only towards the end of this quarter *Source: Bloomberg & Internal analysis Rates* in R t *i % 1 yr T-bill 5 yr G-sec 10 yr G-sec G 1 yr CD 3 yr Corp 5 yr Corp 10 yr Corp 1 yr IRS 5 yr IRS 30th N 10 Nov10 7.26 7.90 8.07 8 07 9.00 8.58 8.66 8.82 6.80 7.32 31st O t10 Oct10 7.16 7.83 8.11 8 11 8.50 8.45 8.65 8.82 6.71 7.20 31st M 31 t March10 h10 5.14 7.53 7.85 7 85 6.40 7.70 8.54 8.80 4.98 6.88

However, December brought changes

As 10-year G-sec yields touched the 8.20% mark, 3 month CDs touched the 9% mark and 1 year CDs touched the 9.50% mark in response to tight banking system liquidity, thin market volumes and markets disappointment at RBIs piecemeal OMOs, RBI swung in to action by announcing a slew of OMOs spread over December and January Government also responded January. by showing its willingness to reduce auction sizes as demand waned. With this comfort, bond markets are expected to revive as liquidity comes in, trading entities re-enter the market and FIIs step up their purchases. There could be interesting opportunities going forward, for the very near term though, G-sec market looks very attractive given the huge OMO support from RBI RBI. In the coming months, markets expected to show good two-way movements in response to Global economic growth prospects, domestic inflation scenario, RBIs stance on liquidity and rate hikes, FII activity and markets estimates of government borrowing programme for the next year. Bond markets warrant a dynamic approach with selective curve play based on the above factors

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

Inflation trajectory

Global factors & FII activity

Evolution of liquidity and RBI stance

Govt. borrowing for next FY

Duration adjustment

Choice of instruments

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

Portfolio Analysis*
Asset Allocation
80% 70% 60% Percentage 74.62%

AUM Benchmark

Rs. 13.37 Crore Crisil Composite Bond Fund Index

TOP HOLDINGS

50% 40% 30% 20% 10% 18.04% 7.35%

Issuer GOI 8.08% 02.08.2022 GOI 8.26% 02.08.2027 ALLAHABAD BANK CD CORPORATION BANK CD Total

% of NAV 37.47 37.14 10.98 7.06 7 06 92.65

0% G Sec CD NCA

*as on December 31, 2010

Performance Report*

1Y SDBF Crisil Composite Bond Fund Index 7.54% 4.96%

3Y 1.83% 5.85%

5Y 2.19% 5.65%

S.Inc 2.23% 4.74%

Past performance may or may not be sustained in future. Returns are CAGR and are for growth option. 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

Disclaimer
Risk Factors: Mutual Funds and Securities Investments are subject to market risks and there is no assurance or guarantee that the objective of scheme(s)/plan(s) will be achieved. As with any other investment in securities, the NAV of the Units issued under the scheme(s)/plan(s) can go up or down depending on the factors and forces affecting the securities market. Past performance of the Sponsor/AMC/Mutual Fund/Scheme(s)/Plan(s) and their affiliates do not indicate the future performance of the scheme(s) of the Mutual Fund. Investment Objective: SBI Dynamic Bond Fund (An OpenEnded Income Scheme): The investment objective will be 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. However there is no guarantee or assurance that the investment objective of the scheme will be achieved. The scheme doesnt assure or guarantee any returns. SBI Dynamic Bond doesn t Fund is only the name of the scheme and does not in any manner indicate either the quality of the scheme, its future prospects and returns. Statutory Details: SBI Mutual Fund has been set up as a Trust under The Indian Trusts Act, 1882. State Bank of India (SBI), the sponsor is not responsible or liable for any loss resulting from the operation of the schemes beyond the 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 SBI and Socit Gnrale Asset Management). Trustee Company: SBI Mutual Fund Trustee Company Private 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 buy any mutual fund units/securities These views alone are not sufficient and should not be used for the units/securities. development or implementation of an investment strategy. It should not be construed as investment advice to any party. All opinions and estimates included here constitute our view as of this date and are subject to change without notice. Neither SBI Funds Management Private Limited, nor any person connected with it, accepts any liability arising from the use of this information. The recipient of this material should rely on their investigations and take their own professional advice