Yield-to-maturity (YTM) in duration funds refers to the total annualized return an investor can expect if all the bonds held in the fund are held until their maturity, assuming interest rates remain constant and all coupon payments are reinvested at the same yield. In simple terms, YTM gives an estimate of the fund’s potential return based on the current market value of its underlying securities.

In duration funds, YTM plays a key role in assessing return expectations. These funds actively manage the interest rate sensitivity of their portfolios, so the YTM reflects not only coupon income but also the impact of bond prices bought at premiums or discounts. A higher YTM usually indicates higher expected income, but it may also signal greater interest rate or credit risk.

YTM is not a guaranteed return. Changes in interest rates, credit quality, or portfolio composition can cause actual returns to differ from the stated YTM. For example, rising interest rates may lead to temporary price declines, while falling rates can boost capital gains. Fund managers may also adjust duration to take advantage of interest rate movements, which affects the YTM over time.

For investors, YTM helps compare different duration funds and evaluate whether the potential return aligns with their investment horizon and risk tolerance. When used alongside duration, credit quality, and expense ratio, YTM becomes a practical tool for making informed debt fund investment decisions.