Yield

Yield is the income generated by an investment expressed as a percentage. It is most commonly associated with fixed-income instruments (bonds, fixed deposits, government securities) but also applies to equity (dividend yield) and real estate (rental yield). Yield is distinct from total return, which includes both income and capital gains.

For bonds and fixed-income instruments, several yield measures exist. Coupon yield is the annual interest payment divided by the face value. Current yield is the annual interest divided by the current market price. Yield to Maturity (YTM) is the most comprehensive measure — it accounts for the coupon payments, the difference between the purchase price and face value, and the time to maturity, representing the total annualised return if the bond is held to maturity.

In India, the benchmark yield is the 10-year Government of India bond yield, which typically ranges between 6.5-7.5% and serves as the reference rate for the entire fixed-income market. Corporate bonds yield a spread above government bonds depending on their credit rating — AAA-rated bonds might yield 50-100 basis points above the G-Sec, while lower-rated bonds carry wider spreads. {{Treasury-bill}} yields represent the short-term risk-free rate.

Dividend yield for equities is calculated as annual dividend per share divided by the current share price. Indian blue-chips like Coal India, Power Grid, and NTPC are known as high dividend yield stocks (3-6%). Growth companies like Infosys or Avenue Supermarts typically have lower dividend yields (under 1%) as they reinvest profits for expansion. Dividend yield funds are a SEBI-defined mutual fund category that invests in high-yield stocks.

The relationship between yield and price is inverse for fixed-income instruments. When bond prices rise, yields fall, and vice versa. This relationship is crucial for understanding how RBI policy rate changes affect bond portfolios. A 50-basis-point rate cut can cause a meaningful capital gain on long-duration bonds, while a rate hike causes capital losses. Duration measures a bond's sensitivity to yield changes.