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

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