Current Yield

Current yield answers a simple question: if I buy this bond at today's price, how much annual income does it throw off relative to what I pay? You take the bond's fixed annual coupon and divide it by the current market price, not the face value.

How it works

If a bond's price rises above face value, its current yield falls below the coupon rate; if the price drops below face value, the current yield rises above it. This is the everyday reality of the relationship that bond prices and yields move in opposite directions. Only at face value are the coupon rate and the yield the same.

Current yield vs YTM

Current yield is a snapshot of income alone. It ignores any capital gain or loss you will book when the bond is redeemed at face value, and it ignores the time value of money. Yield to maturity (YTM) captures all of that, which is why it is the more complete measure. In Indian debt mutual funds, the scheme's portfolio YTM, minus the expense ratio, is the standard guide to the return you can expect if the underlying bonds are held to maturity.

In India

For a retail investor buying government securities, PSU bonds, or corporate bonds on the NSE or BSE, or through RBI's Retail Direct platform, current yield is a quick way to compare income across bonds trading at different prices. Note that the coupon interest is taxed as income at your slab rate, so a high current yield is less attractive in a high tax bracket.

Why it matters

Use current yield when income today is your priority, such as for a retiree living off coupon payments. But never rely on it alone for a buy decision. A bond trading at a deep discount can show a tempting current yield while hiding credit risk or a capital loss at maturity. Pair it with YTM and the issuer's credit rating before committing.