Im a new learner in mutual fund industry. i want to know more about valuation of debt securities help me?

Valuation of debt instruments are done by the trading of currency and bonds in the pits. That is what decides the value of each bond. Cumulatively, these bonds in a portfolio make up a mutual fund.

How and why they fluctuate. You need to learn about the demand and supply rules, that will get you into currencies and interest rate related trading that occurs in trillions every day.

And, then it is all Global, so it compounds the problems.

KKP

Does this mean you are learning about mutual funds as an investor or a worker in the industry...I hope for everyone, you are looking as a would be investor.

Debt security means "bonds" They can be government bonds or Corporate bonds

To get a bond intially, you lend the institution money at a certain rate of interest, The bonds are dated for a certain period of time, interest is paid on a regular basis, and the Face value of the bond is payed at maturity.

But bonds trade on the open market , because some are written for a long time frame. People buy bonds on the secondary market to obtain a certain return.

If interest rates drop, it means that a bond is paying more interest than equal bonds issued now, so its buying cost goes up to reflect a interest return compareable to the return of today's bonds.

If today the interest rates rise, the bond prices issued in the past, will drop to make the return equal to the interest available on todays bonds.

I know this is confusing. But think of it this way, If things go as planned (no Default) any bond you buy will be redeemed at it's face value on the date specified on the bond. If you want to sell a bond before its redemption rate, you will sell it foer the price that someone is willing to buy it for.

If they are willing to buy it at a higher price than the face value, (because current interest rates are lower) you make a capital gain..If they want to pay less than face value because interest rates are higher now, if you sell, you suffer a captital loss, if you don't sell it til rememption date, you will get face value from the issuer as well as its stated interest paid along the way.

And that is how it works

Except that not all bonds carry the same risk, Government bonds pay less interest than Blue chip companies, because a gov't can always redeem their bonds. So they have no risk.
Blue chip companies pay less interest than smaller companies, because they usually have better chances to be solvent.

Bond rating companies rate different bond series according to risk, Best is AAA, Bond rated "C" or lower are not considered investment grade, because of the risk.

A debt security would be a bond and what that means is that a
bank for example is indebted to you to pay back the yield of the bond. Let's say that you used 1,000 for annual percentage yield of 5% well that would mean you cash your bond in for 1,050 at the end of a year. Now banks for example are going to change the yield of a bond depending on the interest rates that the federal government gives. I would say ultimately it is a bad time to buy bonds and bonds put you at a distinct disadvantage.

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