This is the fourth article in a series of articles on simplifying debt mutual funds. In this post, we will discuss about the concept of Yield To Maturity or YTM.
Read the first part “Part 1 – Debt Mutual Funds Basics“, the second part “Part 2 – Debt Mutual Funds Basics“ and the third part “Part 3 – Debt Mutual Funds Basics“.
In my last post, I explained the concept of the interest rate risk of bonds and how it will impact investors. In this post, as I mentioned in my earlier post, let us try to understand the concept of Yield To Maturity or YTM.
For a new bond investor, yield to maturity in a simple way say is the return on investment if he holds the bond till maturity. You know that when you buy a bond, then you will get interest at a certain interval (in the majority of bonds) and at maturity, you will get back the face value of the bond.
Let us assume that a 10-year bond is currently trading at Rs.105, the time horizon is 10 years and the coupon (interest rate) is…