InvestmentFinancial Glossary
Duration (Bond)
Definition
A measure of a bond or debt fund's sensitivity to interest rate changes, expressed in years. Modified duration tells you how much the bond's price will change for a 1% change in interest rates. A fund with a modified duration of 5 will see its NAV drop approximately 5% if interest rates rise by 1%.
Why It Matters
Duration is the single most important risk metric for debt fund investors. During RBI rate-hiking cycles, long-duration debt funds can suffer significant NAV losses. If you expect rates to fall, long-duration funds benefit. If you expect rates to rise, stick to short-duration or liquid funds.