Ch.11 · Scheme Performance Disclosure Rules · hard
A debt fund fact sheet shows 'average maturity' of 7 years and 'modified duration' of 5.2 years. If interest rates rise by 1%, the expected impact on the fund's NAV is approximately:
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EXPLANATION
Modified duration directly measures NAV sensitivity to interest rate changes. A 1% rise in rates will cause the NAV to fall by approximately 5.2% (the modified duration), not the average maturity. This is why modified duration is the more useful risk metric for debt funds.
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