Consider your risk profile, not just YTM
Ability to earn market-linked returns, liquidity and transparency have made debt funds popular among investors, who were traditionally skewed towards bank deposits. But choosing a debt mutual fund is not that simple. Debt mutual funds, being market linked, do not declare the rate of return, like in the case of bank deposits. But they do declare indicators such as yield to maturity (YTM). Though YTM indicates the return that investors can get if they hold the portfolio till maturity, it is not comparable with what really the investor will get. In this article, we try to explain how YTM gives only a measure of actual returns, and other factors should be considered while investing in debt mutual funds.
In short, just considering YTM of funds can lead to a misleading and incomplete picture. Closely evaluating some of the aforementioned factors will provide a 360-degree analysis of funds. Investors should also consider their own risk profile, goals and investment horizon to make a prudent investment decision.