DEBT FUND ANALYSIS

1. DEBT FUND ANALYSIS Jun 16, 2008 – Jun 30, 2008

2. Debt Market Outlook • It has been observed that in reporting weeks liquidity is ample. Considering the current scenario, liquidity is expected to be sufficient. This can result in some buying in G-Secs • Two factors that will influence bond market direction are: • Dollar movement: Any inflationary number or comment in the US is expected to result in dollar appreciation, which can push INR/USD close to the 43-level. The RBI will have to intervene to sell the dollar, thus tightening liquidity • Ease in crude prices: This will provide some relief and push up bond Debt Market Update • Market movements • Liquidity was tight and to make the situation worse, the RBI hiked the repo rate by 25bps • RBI increased the repo rate from 7.75% to 8%; the daily limit for open market operation in oil bonds was also raised from INR 1,000 crores to INR 1,500 crores • Annual inflation for the week ended May 31 is 8.75%. This is higher than the previous week’s number of 8.24% • Inflation has reached the seven-year high; it was at 8.77% on February 10, 2001. Liquidity/borrowings: • Liquidity was tight and the average money borrowed during the week from the repo window was INR 12,000 crores • Tight liquidity also pushed up the weighted average O/N money market rates to 7.68%, compared to the previous week’s 5.96% • G-Secs, non-SLR, and OIS yields headed north. One-year OIS moved up by 45bps, one-month CD rates have increased by 70bps, and one-year CD’s have gone up by 23bps • Debt Portfolio Strategy • Liquid Plus Funds are still a safer bet from a short term (3-6 months) horizon • Fixed Maturity Plans to offer better returns as the short term rates to yield higher 2

3. Recommended Debt MF Categories • Liquid Plus Funds: • These funds have favorable portfolio composition. These funds are expected to invest close to 40% on higher side and 25% on the lower side in Corporate Bonds with maturity above 1 year • These funds are able to take advantage of rise in Overnight rates and also increase the portfolio yield by taking call in high duration bonds. In the current scenario where overnight rates are expected to remain high and yields on corporate bond to ease slightly from current levels. These funds are better positioned to take advantage of both the scenarios • These funds provide an indirect bet on Short to Medium term bonds. In case of 100% investment in these bonds an investor can be subject to mark to market compulsion and any rise in rates is likely to hurt the return on investment. However, with investment in Liquid Plus Funds an investor can take advantage of spread investment strategy of these funds • These funds are treated as an income fund and are exempt from the rise in Dividend Distribution Tax. Old rate of Dividend Distribution Tax is applicable to these funds 3

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7. Recommended Schemes in Liquid Plus Funds • Liquid Plus Funds – Retail & Institutional • DWS Money Plus Fund • ICICI Prudential Flexible Income Plan • LIC Liquid Plus Fund • Reliance Liquid Plus Fund 7

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12. Recommended Debt MF Categories • Fixed Maturity Plans: • Product with various maturities • FMPs are available with numerous maturity options –1 month, 3 months, 6 months, 1 year, 3 years and 5 years. One can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows on maturity • Minimal risk • Unlike debt funds, which are exposed to three kinds of risks viz. interest rate, credit and liquidity risk, FMPs are a better option • FMPs are least exposed to interest rate risk as the fund manager holds the instruments till maturity getting a fixed rate of return. Thus FMP can manage to get a specific interest on these instruments and investors have a fair idea about it. This helps investors tailor their investments as per their future cash requirements • They primarily invest in AAA, P1+ or such kind of good rated credit instruments with maturity profile of the securities in line with the maturity of the plan so there is also low credit risk with minimal liquidity risk involved • Tax Efficient Returns • FMPs yield competitive & tax efficient returns as the tax rates on a FMP are comparatively lesser than the tax rates in other debt funds 16

13. Please find linked here the Edelweiss Fund Tracker file. Please find linked here the Edelweiss Fund Tracker file. Please find linked here the Edelweiss Fund Tracker file. 17

14. Contact Details Edelweiss Securities Ltd 11th Floor, 1101 A&B Godrej Coliseum Off Eastern Express Highway, Sion (E) Mumbai – 400022 Ph: +91 22 4088 5757 Edelweiss Securities Ltd 10th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi - 110001 Ph: +91 11 4367 1111 Edelweiss Securities Ltd 2nd Floor, Savitri Towers, 3A Upper Wood Street, Kolkata – 700017 Ph: +91 33 4010 4646 Edelweiss Securities Ltd 1st Floor, Plot No. 4009, 100 ft Road, HAL II Stage, Bangalore – 560008 Ph: +91 88 4150 1214 Edelweiss Securities Ltd 10th Floor, Arcadia, Nariman Point, Mumbai – 400021 Ph: +91 22 4097 9400 Information/Sales: +91 22 4097 9400 wealthmanagement@edelcap.com 18

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