Yield
The income generated by an investment, expressed as a percentage of its price.
For bonds, yield to maturity captures coupon plus price convergence to face value and is the number to compare across issues; the coupon alone is not comparable when bonds trade away from par.
Why Yield matters when comparing products
Yield serves as a crucial metric for investors in India to compare the potential returns of various financial instruments like bonds, equities, and mutual funds. By expressing income as a percentage of the investment price, it offers a standardised basis for evaluating different opportunities, aiding in informed decision-making regarding capital allocation across diverse asset classes available in the Indian market.
Illustrative example
Consider two bonds, both with a face value of ₹1,000. Bond A has a 6% coupon and trades at ₹950. Its current yield is (₹60 / ₹950) * 100 = 6.32%. Bond B has a 5% coupon and trades at ₹1,020. Its current yield is (₹50 / ₹1,020) * 100 = 4.90%. These yields are illustrative for comparison.