AS YIELDS STABILIZE, INVESTORS SHOULD FOCUS ON ACCRUAL IN DEBT PORTFOLIOS

In uncertain times, such as periods of war or heightened geopolitical tension, the basic strategy is to stay diversified across equity, debt and gold.

- JOYDEEP SEN

Returns from equity and gold depend mainly on price movements, which are inherently harder to predict with any consistency. That makes them more volatile and unpredictable in the short term.

Debt works differently. Most of the return comes from the coupon, or interest—known as accrual. In debt mutual funds, price movements can add to or reduce returns at times, but accrual remains the main and more stable driver over time. In the current environment, it is important to look at debt investments with this perspective clearly in mind.

When a central bank cuts rates, bond yields typically fall. Since bond prices and yields move in opposite directions, falling yields lead to price gains, which in turn add to accrual returns in debt funds. These gains are commonly referred to as mark-to-market gains in portfolios.