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What is the importance of yield-to-maturity in debt funds?

Dhirendra Kumar sheds light on what yield-to-maturity denotes and how should investors look at it

What is the importance of yield-to-maturity (YTM) while investing in a corporate bond fund? How should I use it to decide on investing in a particular fund?
- Arun Kochhar

Simply put, yield-to-maturity is the return when you buy a bond and hold it till its maturity. If the yield-to-maturity on a fund portfolio is eight per cent and if all the investors remain constant and the fund manager does nothing, then you can safely assume that the yield-to-maturity minus expenses will be your return on the fund.

But that is not the reality. Other investors come in, interest rate outlook changes, the fund manager makes changes in his portfolio, and there is a deduction of expense daily from the debt fund. So depending on all the variables, the return could change. But yield-to-maturity on a fund portfolio is an indication of the return of the bonds which the fund is holding as of now. Things might change, but your expectation of return from such a fund should be around that range adjusted for expenses.

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