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Good times are here for debt funds

The RBI is likely in the last leg of its interest-rate hikes and might start easing rates somewhere down the line. But higher portfolio yields on account of past interest rate hikes make debt funds suitable in the current environment.

December 07, 2022 / 02:43 PM IST
Buzzing Stocks, Slideshow

Buzzing Stocks, Slideshow

When we think of the attractiveness or otherwise of an investment and gauge it, we usually refer to past performance. We look at, say, the past year’s performance or five-year returns and mentally extrapolate that. Nothing wrong with that.

However, in debt funds, looking at past performance and then trying to figure out the best or even the right investment is futile. Current market conditions may offer better clues. While timing the market is futile, this is not about timing the market. This is about a gauge that is better than just past returns, to shape future expectations. Moreover, in debt funds there is a higher degree of predictability than in equity, hence current parameters need to be looked at.

Relevance of YTM

While investing in debt funds, one parameter that is crucial is Yield to Maturity (YTM).