By Bhavana AcharyaPortfolio yields across debt fund categories have been climbing higher in last three months.
Debt funds invest in bank and corporate bonds of different maturities ultra short-term funds, for example, invest in commercial paper and certificates of deposits.
Short-term funds may invest in papers of 1-2 year maturities and so on.Across debt fund categories, their average portfolio yield-to- maturity was dropping lower through 2016.
Yield-to- maturity (YTM) is the return that the portfolio would earn if all the bonds in it were held until maturity.
It reflects the coupon or interest on the underlying papers.Rate cuts, prospects of further cuts, abundant liquidity all served to send bond yields lower.
While dynamic bond funds benefited from this due to bond price rallies, accrual-based funds saw their portfolio YTMs moving lower as interest rates moved lower.
While average YTM stayed somewhat steady, if at lower levels, in early 2017, they began moving further down from mid-2017 onwards.Many short-term and ultra short-term funds had, in fact, tried to shore up their YTMs by going in for lower-rated but higher-coupon debt papers.Portfolio yields are improvingIn the short-term category, for example, more than half the funds sport portfolio YTMs above 8 per cent.
The last time short-term funds had an 8 per cent -plus average was in June 2016.
The average for the category is 8.08 per cent for February against the 7.39 per cent in November last year.Ultra short-term funds had an average 8.01 per cent yield in February compared to 7.22 per cent in November 2017.
Even dynamic bond funds saw a lift in their portfolio YTMs as they shifted away from duration and into accrual as prospects of further bond price rallies faded.(Bhavana Acharya is a Mutual Funds Analyst at FundsIndia.com.
Views given in this article are the analyst's own and do not represent those of ETMarkets.com.
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