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Significant of Yield to Maturity

Debt funds publish the yield to maturity in their factsheets, which captures the returns that the bonds will generate if held until maturity

I have seen many of debt funds publishing their Average Portfolio Yield and Weighted Average Maturity or Duration in their monthly performance reports. I wanted to know:

  • Whether this portfolio yield is the yield at what the underlying security was acquired or the marked-to-market number for the month-end?
  • Consolidated data of above two parameters is not easily available anywhere for comparison
  • Is it good enough to look at only these two parameters (and possibly beta and expense ratio) to make a choice about a debt fund once you have taken a call on maturity you want to invest for?

- Vitthal Kulkarni

Mutual funds usually publish the yield to maturity or YTM for all debt funds in their factsheets. The YTM is based on the current marked-to-market price of the bond, not the yield at which the security was acquired. Basically, YTM captures the returns that the bond will generate if held from current date until maturity, after factoring in all the interest received in this period. The other number that is disclosed by fund houses is the average maturity of the portfolio. This tells you the number of years to maturity for debt securities in a fund portfolio. It helps decide the NAV sensitivity to interest rate changes. Longer the average maturity, higher the NAV swings due to rate changes.

You can find the numbers on the snapshot page of the fund on our website. Here is a link for one of the funds Birla Sun Life Short Term Fund

Yes, using a combination of YTM and duration can help you gauge the return potential of a fund's portfolio as well as the kind of rate risk you may bear. But it is important too, to look at the fund's track record and expense ratio to make the choice.

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