About Yield to Maturity
Yield to maturity (YTM) refers to the rate of return anticipated on a bond if it is held until the maturity date. It can be interpreted as the expected annualised returns provided that the bond is held to maturity, the bond issuer does not default and the coupons are reinvested at the same rate. The computation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity.
As a fund invests in bonds of different maturities and yields, the yield from the fund will be the weighted average of the yields on different securities, weighted by the proportion of invested sum. This weighted yield gives an indication of the attractiveness of the underlying bonds invested by the fund. However, interest rate risks, currency risks, possible defaults and reinvestment risks would affect the returns of a bond fund. In addition, fund managers may not hold bonds to maturity. Therefore, investors should not interpret the weighted YTM of a bond fund as a forecast or projection of returns for the fund.
Read “Interpreting Yields for Bond Funds” to understand more about the difference in yield to maturity on a bond and yield to maturity on a bond fund.
About Yield to Call
Some bonds are callable. They can be redeemed prior to maturity date. When interest rates have fallen to a level lower than the coupon rate, the companies that issued those bonds would find it cheaper to pay lower prevailing interest rates. This is similar to the way that a homeowner might choose to refinance (call) a mortgage when interest rates decline. As a bond holder of a callable bond, you run the risk of having your bond called before maturity. In such cases, fund managers calculate.
About Yield to Worst
Yield to Worst (YTW) represent the lower of YTM or YTC (as explained above). YTC can be the same as YTM but never higher. Schroder’s Global High Yield provides YTW figures as the fund invests significantly into bonds with callable features.
Disclaimer on using Yield to Maturity
YTM does not represent and should not be taken as the historical, expected or actual returns on investment in any mentioned bond funds. Further, it is not a forecast or projected yield and is not indicative of the future or likely performance for any bond funds. The YTM on a bond fund is not equivalent to and cannot be compared with the yield on bonds that are held to maturity.
This information is intended for reference only and does not constitute investment advice or a recommendation or an offer or solicitation, and is not the basis for any contract to purchase or sell any security or other instrument, or for the relevant fund manager or its affiliates to enter into or arrange any type of transaction as a consequence of any information contained.
All applications for investments must be made on the application form accompanying the prospectus, which can be obtained from the relevant fund manager or its approved distributors.
In the event that an investor chooses not to seek advice from a financial adviser, the investor should consider whether the unit trust(s) is suitable for him.