Days of delivering sub-par returns may soon come to an end for debt funds

The YTM of most debt funds tops 6.5%, indicating that they can at least do better than FDs in the near future

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The elevated YTMs come as a relief for debt funds after their poor performance and heightened interest rate risk led to high redemptions in the last one year.

Abhishek Kumar Mumbai
Debt funds' performance struggle may be coming to an end. After delivering sub-par returns the past few years-- due to the low interest earned on their debt holdings and the sustained hike in key RBI rates--debt funds are finally at a stage where they can outpace inflation and deliver slightly higher returns than bank fixed deposits (FD).

The spate of rate hikes has pushed the yield-to-maturity (YTMs) of debt funds to 6-7 per cent for shorter duration funds like liquid funds and 7-8 per cent for longer-duration funds like corporate bond funds. Even if fund management expenses are taken into

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First Published: Oct 19 2022 | 5:50 PM IST

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