SBI Magnum Income Fund This product is suitable for investors who - PowerPoint PPT Presentation

SBI Magnum Income Fund

This product is suitable for investors who are seeking:  Investment in debt and money- market securities  Regular income for medium term  Moderate risk SBI Magnum Income Fund Disclaimer: Investors should consult their financial advisors if in doubt whether this product is suitable for them.

Performance against benchmark 16.0 14.0 12.0 SBI Magnum Income Fund - Reg Plan - 10.0 Growth 8.0 6.0 Scheme Benchmark: - Crisil Composite Bond Fund Index 4.0 2.0 Additional Benchmark: - Crisil 10 Yr Gilt 0.0 Index 31-Mar-2016 to 31-Mar-2015 to 31- 31-Mar-2014 to Since Inception 31-Mar-2017 Mar-2016 31-Mar-2015 Since Inception 31-Mar-2016 to 31- 31-Mar-2015 to 31-Mar-2014 to Mar-2017 31-Mar-2016 31-Mar-2015 Absolute Returns (%) CAGR Returns (%) PTP Returns (INR) SBI Magnum Income Fund 12.71 5.86 13.09 7.86 40,132 Crisil Composite Bond Fund Index (Scheme Benchmark) 11.09 8.24 14.59 N.A. N.A. Crisil 10 year Gilt Index (Additional benchmark) 11.87 7.97 14.57 N.A. N.A. Past performance may or may not be sustained in future. Returns (in %) other than since inception are absolute, calculated for growth option of regular plan and in INR are point-to-point (PTP) returns calculated on a standard investment of 10,000/-. Additional benchmark as prescribed by SEBI for long-term debt schemes is used for comparison purposes. Data as on March 31, 2017

Broad Asset Allocation of the Portfolio Type of Instrument % of Total Corpus Risk Profile Corporate debentures & Bonds / PSU / FI / Govt. Upto 90% Low to Medium Guaranteed Bonds / Other including securitized Debt Securitized debt No more than 10% of the Medium to High investment in debt Government securities Upto 90% Low Cash and call money^ Upto 25% Low Money-market instruments* Upto 25% Low Units of other mutual funds Upto 5% Low ^ Pursuant to RBI Guidelines, presently Mutual Funds are not allowed to participate in Call Money. * Money Market Instruments will include Commercial Paper, Certificates of Deposit, Treasury Bills, Bills Rediscounting, Repos, short term bank deposits, short-term Government securities (of maturities less than 1 year) and any other such short-term instruments as may be allowed under the regulations prevailing from time to time.

Detailed Asset Allocation of the Portfolio Credit Quality CBLO/Reverse Interest Rate Sensitivity High Medium Low Repo, 6.58 ZCB, 1.41 NCA, -0.24 High Gsec, 28.94 NCD, 63.31 Medium Low NCA(Incl. The 10 year government bond yield hardened Cash,Deposits during the month while those of SDL’s, UDAY and Equity), Bonds and AAA corporate bonds rallied leading to 6.34 Below AA+, spread compression. We had built positions in 31.86 these assets during March 2017 with a view of SOV,AAA and spread compression. Currently the portfolio has Equivalent, 47.30 16% exposure to SDL’s and UDAY and 13% to AA+, 14.50 Government bonds while maintain a 6.33 year of average maturity with a portfolio yield of 7.88%. Data as on: April 30, 2017

Spreads Favoring Investments in Corporate Bonds 1.60 1.40 1.20 1.00 Percentage 0.80 0.60 0.40 0.20 0.00 3 Year Spread 5 Year Spread 10 Year Spread  Due to favourable spreads available in AAA rated Corporate Bonds, funds have been deployed in that segment to benefit from the carry.  The rest of the portfolio will be tactically deployed to Gsec to play with duration and earn capital gains. Source: Reuters/Bloomberg as on April 30, 2017

India Rates Snapshot for April 2017 Feb-17 Mar-17 Apr-17 m-o-m change (in bps) Change YTD (in bps) 1 Yr. T-Bill 6.33 6.17 6.21 31 8 3M T-Bill 6.20 6.20 6.10 40 -2 10 year GSec 6.52 6.41 6.87 28 45 3M CD*** 6.28 6.33 6.38 5 7 12M CD*** 6.63 6.55 6.93 15 13 3 Yr Corp Bond* 7.29 7.07 7.27 16 30 5 Yr Corp Bond* 7.37 7.33 7.54 14 34 10 Yr Corp Bond* 7.58 7.57 7.83 8 32 1 Yr IRS 6.19 6.20 6.42 11 34 5 Yr IRS 6.26 6.32 6.70 18 56 Overnight MIBOR Rate 6.25 6.25 6.05 -119 -7 INR/USD 67.9 67.9 66.7 0.9 5.7 # Crude Oil Indian Basket** 52.7 54.2 54.8 2.1 -0.2 # • Indian bond yields rose dramatically in February as RBI changed its monetary policy stance from accommodative to neutral and continues to stay high relative to the start of the year. • Money market rates, too, inched up a bit in April, post the RBI’s decision to suck out nearly Rs. 1 trillion worth of liquidity via the issuance of CMBs. • Crude oil prices rose 2.1% over the month but remains flat on YTD basis. • Rupee has appreciated sharply on YTD basis owing to massive FII inflows in the debt and equity market. Source: Bloomberg, PPAC, SBIMF Research; NB: **Crude oil price is average $/barrel for the month, rest of the data are % month end; *Corporate bond rate is for AAA rated bonds ,*** Refers to PSU Banks CD rate; # INR and Oil price changes are % change

Policy Rate Outlook  Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.25% in its latest meeting on 6 th April 2017.  It has however narrowed the policy corridor from 50bps on either side of the repo rate to 25bps to now. Accordingly, the reverse repo 10.00 rate stands at 6% (5.75% before) and the rate under the marginal standing facility stands at 6.5% (6.75% before). 9.00  The narrowing of the corridor has been done in response to the 8.00 benign liquidity conditions which had led short-term rates to fall below the policy rate. The rate on the 3mth T-bill rate had fallen to 7.00 almost 50bps below the repo rate in March. The narrowing of the 6.00 band will increase the lower bound of the yield curve to 6% and also lower the volatility in short-term rates. 5.00  The central bank has indicated that going forward, it will continue to 4.00 use its existing bouquet of instruments (LAF, term repos, cash Jun-05 Feb-06 Oct-06 Jun-07 Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12 Jun-13 Feb-14 Oct-14 Jun-15 Feb-16 Oct-16 management bills, MSS) to manage the excess liquidity in the near-term. Repo Rate (mth end, %)  Looking ahead, the RBI remains cautious on the inflation trajectory and believes that achieving the 4% mark will not be easy. Seemingly, the central bank remains wary of upside risks to inflation more even though it highlighted that risks are evenly balanced. On the other hand, it expects the growth to improve in FY18 on the back of government spending, higher consumer spending and transmission of earlier rate cuts.  In our opinion, given the current outlook on inflation and growth, additional policy rate cuts are unlikely in 2017. Source: RBI, CSO, SBIFM Research

Debt Market Outlook  Indian bond yields rose dramatically in February as RBI changed its monetary policy stance from accommodative to neutral and has continued to stay elevated there since.  As of April end, 10 year G-sec yield stands at 6.87%, up 45bps from 6.41% in March. Massive foreign inflow during March and April (due to attractive valuations) also led to the increased 10.00 demand for Indian G-sec and consequent fall in yields. 9.00  Going forward, as US Fed is expected to hike rates and Indian 8.00 inflation is expected to inch up, this attractiveness will likely reduce. 7.00 6.00  Further, with surplus liquidity, no RBI OMO purchases and neutral 5.00 policy stance, the yield curve would remain steeper in the coming months. 4.00 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17  For FY18 as a whole, supply-demand dynamics of the government bonds, liquidity situation of the banks once the pace 10 year GSec yield (mth end, %) Repo Rate (mth end, %) of currency withdrawal normalized, bank credit outlook and, global outlook will take prominence in guiding the bond markets trajectory.  We remain constructive, but with a slightly longer term approach as average CPI settle lower and government’s measures to widen the tax base leads to structural improvement in the fiscal balance. Accordingly, we keep taking tactical calls in duration at the opportune time (like last two months) . Source: Bloomberg, SBIFM Research

Current Investment Strategy ₌ ₊ Strategic Allocation : 30% - Tactical Allocation: 50% to Portfolio 40 % 60% The segment currently This portion of the This portion of the funds Strategic Allocation : Accruals looks attractive on portfolio provides stable is invested in 2-5 years account of comfortable returns without too much Corporate Bonds liquidity outlook. volatility Long bonds yields may remain volatile in the This portion of the The allocation to the long near term. Attractive portfolio may also be Tactical Allocation : Long Bonds bonds/ GSecs would absolute yield levels used to take defensive provide trading provide an opportunity positions as per fund opportunities from a long term managers outlook perspective. The fund manager will actively manage the duration of the portfolio based on the combination of the above two strategies