Macaulay and Modified duration in bond and debt mutual funds

Mon, 18 May 2026 00:00:00 +0000

Macaulay duration is the weighted-average time to receipt of cash flows from a bond portfolio. Modified duration measures the bond-price sensitivity to interest-rate changes. Both are critical metrics for evaluating debt mutual funds and their rate-cycle positioning.

Macaulay duration

Definition

Macaulay duration = Sum of (Time × Present Value of Cash Flow) / Total Bond Price

It represents the weighted-average time (in years) for which the investor must wait to receive the bond’s cash flows.

Modified duration in debt mutual funds

Tue, 12 May 2026 00:00:00 +0000

Modified duration is a measure of the price sensitivity of a fixed-income instrument (or a debt mutual fund’s portfolio) to a change in interest rates (yield). It quantifies the approximate percentage change in bond price (or fund NAV) for a 1 percentage point (100 basis points) parallel shift in the yield curve. Modified duration is the primary interest rate risk metric disclosed in Indian debt mutual fund factsheets.

A debt fund with a modified duration of 5 years will see its NAV fall by approximately 5 per cent if yields rise by 1 percentage point, and rise by approximately 5 per cent if yields fall by 1 percentage point. This makes modified duration the single most important number for assessing interest rate risk in a debt fund.

Modified Duration on WebNotes

Macaulay and Modified duration in bond and debt mutual funds

Macaulay duration

Definition

Modified duration in debt mutual funds