Yield to Maturity (YTM) is the total annualised return a bond (or debt fund's portfolio) will deliver if held until all bonds mature — it's the expected return for debt fund investors.
For a single bond, YTM is the discount rate that makes the present value of all future cash flows (coupons + principal) equal to the current market price. For a debt mutual fund, the portfolio YTM is the weighted average YTM of all bonds in the portfolio. It represents the gross annualised return the fund should deliver if all bonds are held to maturity, coupons are reinvested, and there are no defaults. YTM minus TER gives the approximate net return an investor should expect.
YTM is the 'advertised return' for a debt fund — the return you'd earn if you held all the bonds to maturity. If a debt fund's portfolio YTM is 7.5% and its TER is 0.4%, you'd expect approximately 7.1% net return. YTM is not guaranteed (bonds can default; interest rate changes can cause you to sell before maturity at a loss), but it's a reasonable expectation for hold-to-maturity investors.
YTM accounts for bond price, face value, coupon rate, and time to maturity.
A bond bought at a discount (below face value) has a higher YTM than its coupon rate.
A bond bought at a premium (above face value) has a lower YTM than its coupon rate.
Debt fund factsheets disclose portfolio YTM monthly — use YTM − TER as the return estimate.
Rising interest rates: existing bonds fall in price (yield rises); falling rates: existing bonds rise (yield falls).
YTM ≈ [Coupon + (Face Value − Price)/n] ÷ [(Face Value + Price)/2]