NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection
An investor wants to choose between two debt funds for a one-year horizon and is worried about interest rate risk. Which feature should the distributor check first?
The distributor should check the portfolio's modified duration. It measures how sensitive the debt fund's NAV is to interest rate changes, so a longer duration means more interest rate risk. Dividend history, folio count and launch date say nothing about that sensitivity.
- AThe fund's dividend history
- BThe fund's portfolio modified durationCorrect
- CThe fund's number of folios
- DThe fund's launch date
Explanation
Modified duration measures the sensitivity of a bond portfolio's price to interest rate changes. A higher duration means greater NAV fall when rates rise. Dividend history, folio count and launch date do not measure interest rate risk.
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