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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection

While selecting a debt mutual fund for an investor who wants low interest-rate risk and may need the money in about 3 months, which feature of the scheme is most relevant to check?

The portfolio's duration or average maturity is the most relevant feature, because it measures how sensitive a debt fund's NAV is to interest-rate changes. An investor with a three-month horizon and low risk appetite needs a very short-duration portfolio.

  1. AMacaulay duration or average maturity of the portfolioCorrect
  2. BNumber of folios in the scheme
  3. CName of the fund manager's previous employer
  4. DFace value of the units

Explanation

Interest-rate sensitivity of a debt fund depends on the duration or average maturity of its portfolio. A short-horizon, low-risk investor should choose a short-duration portfolio such as a liquid or overnight fund. Folio count, manager background and face value say nothing about interest-rate risk.

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