Home >Money >Personal Finance >Macaulay Duration may help match your investing period with debt MFs

Macaulay Duration gives the time (in years) in which the investor will be able to recover the price of the bond paid in the forms of interest payments and principal repayment. The Macaulay Duration of a debt fund is the weighted average Macaulay Duration of the debt securities held in its portfolio.

Sebi has used Macaulay Duration to classify funds in seven debt categories in order to help investors choose a debt fund in line with their investment horizon.

When interest rates rise, bond prices fall and vice-versa. Funds with higher duration are more sensitive to interest rate changes than short-duration funds. The NAV of a fund holding higher maturity papers is, hence, more volatile. An investor will have to stay longer with funds having higher Macaulay Duration to even out the negative impact on the NAV due to rise in rates.

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