Curious about the connection between Bond Yield Vs Returns? Let’s explore how changes in bond yield can affect the returns of debt mutual funds together!
The inverse relationship between bond yields and bond prices is a well-known fact. However, we often struggle to fully understand how this affects our debt funds. Therefore, I will illustrate this by presenting two examples of debt funds.
Let us first look into the 10-year Gsec bond yield data from 31st December 2013 to present day of present day.
Notice the volatility. It is all because of the inflation rate and interest rate cycle changes. Accordingly, the bond yield will change.
Bond Yield Vs Returns – How does it impact debt fund returns?
Now, let’s consider the impact of this yield on our debt mutual funds. To analyze this, I have selected two funds for comparison. The first one is the SBI Magnum Constant Maturity Fund, which is categorized as a fund that must invest a minimum of 80% in G-secs. This ensures that the Macaulay…