How does one evaulate bond investments without YTM? I am given Par, Coupon Rate, and years to maturity.
According to me, it is possible to evaluate the bond investments without YTM with the help of:
Inflation rates
A bond can be evaluated as good only if the rate offered by it is more than the rate of inflation. If at any point of time, the inflation rate exceeds the bond rate. The bond is of no use.
Government Bonds offering tax benefits
Any bond offered by the Government with tax benefits has the faith of the investors because of guarantee of the Central Bank.
Credit spread of the Corporate bonds:
There is an opposite relation between the credit rating and the credit spread. If a bond is enjoying a higher credit rating, there will be a lower credit spread too.
Default Risk
If any company has defaulted on the interest payment, it is considered as a bad investment and vice-versa.
Considering the latest example of the closure of the debt mutual fund scheme of Franklin Templeton Mutual Fund in India, the fund has shut down at least its four debt mutual fund schemes on account of default by:
Essel Infraprojects Limited
Future Group
Rivaaz Trade Ventures
All the above mentioned companies are corporate sector companies in India. No body would invest the debt mutual fund schemes of Franklin Templeton mutual fund because of the default by these companies and lack of proactiveness on the part of the fund.
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