India’s 1-year G-Sec is trading at 6.75% and 10-year G-sec yields 6.85%. The difference is only 0.10%.5-year G-sec is trading at 6.76%—almost at the same level as 1-year G-sec. This indicates that the yield curve is flat.There is a peculiar situation here. Usually, as the duration of any debt security increases (from the same issuer, in this case, it is GOI), the yield also goes up. Because an investor would want a premium for an investment that…
Many people rely on historical returns to estimate the expected returns on their debt mutual fund investments. Unfortunately, this is a very misleading way of evaluating debt fund returns. The historical returns vary significantly from future returns in debt funds due to changes in interest rates. The last year’s return may appear low if the interest rates on average were lower. Now if the interest rates have shot up in the last few months, it won’t reflect in the last year’s return on the debt…