Introduction India’s National Stock Exchange (NSE) is one of the world’s most dynamic value markets, advertising speculators introduction to a wide cluster of sectors—from data innovation and pharmaceuticals to buyer merchandise and budgetary administrations. As the Indian economy proceeds to develop, numerous retail and organization financial specialists ponder which stocks merit a put in their portfolios. Whereas there is no one ‑ size ‑ fits ‑ all reply, a taught approach that centres on essentials, valuation, and macro ‑ economic patterns can offer assistance you recognize high ‑ quality companies with solid development prospects. Understanding the NSE Scene Metric What It Means for Investors Market Capitalization Large ‑ cap stocks (₹10,000 crore +) tend to be more liquid and less volatile, while mid ‑ caps and small ‑ caps can offer higher growth but come with greater risk. Liquidity (Average Dail...
If you are looking to invest in a
mutual fund for a short term goal which is less than 5 years away, what kind of
debt fund would you choose? The simple answer to the above question is to
follow our recommendations and you are done. But to be fully confident about
your selection of fund it is better that you know what the 2 most important criteria
is when it comes to selecting debt schemes.
Two important parameters for choosing
the right category of debt funds are – AVERAGE MATURITY & MODIFIED DURATION
1. AVERAGE MATURITY
The average maturity of a debt mutual
fund indicates the tenure or the time to maturity of all the assets held by the
mutual fund. A debt mutual fund invests in various fixed income instruments
such as government bonds, corporate papers, CDs, etc. each of these instruments
has its own maturity date.
The average maturity does not
indicate when the scheme matures. Open-ended schemes do not mature.
Higher the average maturity of the
portfolio, greater would be the interest rate risk. The NAV of the portfolio
with the higher average maturity will fluctuate more in case of sharp movement
in interest rate than those with the lower average maturity.
2. MODIFIED DURATION
The modified time span (not to be
confused with maturity) is the measure of price sensitivity of the fund to
change in interest rates. Funds with a prolonged reform duration would be more
sensitive to a given change in interest rates. For example, a bond/fund with a
reform duration of 4.9 years can be expected to undergo a 4.9% change in price
for each 1% movement in interest rates.
Higher the average maturity higher
would be the reform duration!
Higher the reform duration higher
would be the interest rate risk!
Funds with the higher duration tend
to give a higher return in a falling interest rate scenario, but in case of
rising interest rate scenario, it can generate a negative return.
So it is always better to create your
portfolio with the schemes that suit the interest rate cycle keeping in mind
the reform duration of the fund.
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