Do you consider ‘Yield to Call’ while investing in bonds/debentures?

You might hear Yield to Maturity (YTM), which is annual pre-tax rate of return (IRR) one would receive on a bond if it is held till its maturity (of course assuming Issuer of bond does not default on its obligations). Yield to Call (YTC) is slight variation of YTM, which is applicable in case of callable bonds. Sometimes bonds can be callable (i.e. can be redeemed by Issuer of bond before its original maturity date as per terms of Prospectus). Issuer usually exercises this option if it can refinance existing bonds with new bonds having lower interest rate. On a different note, usually callable bonds carry bit higher interest rate than non-callable bonds.

In case of these type of bonds, one need to consider Yield to Call, which considers returns till its specific call date only. This is very important in case of secondary market purchases when the bond you are trying to purchase is trading on exchanges at premium [i.e. (Market price-accrued interest)-call price>0] and call date is in near future. If one just goes by YTM without considering YTC, there is chance of incurring loss on bond investment.

Unfortunately exchanges (BSE/NSE) does not display YTC of bonds being traded on them (though BSE displays YTM). To know YTC of a particular bond, one may

a) use YTC calculators available on internet or

b) refer any new age bond platforms which show YTC or

c) manually calculate YTC.

To know if a bond is callable or not, you may find out info on NSDL IndiaBondInfo portal or refer new age bond platforms