NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Selection
While selecting a debt mutual fund scheme for an investor who wants to minimise interest rate risk and has a horizon of about three months, which category is generally the most suitable?
A Liquid Fund is most suitable because it invests in instruments maturing within 91 days, which keeps interest rate risk very low. Long duration, 10-year gilt and dynamic bond funds can see sharp NAV swings over a short three-month horizon.
- ALong Duration Fund
- BGilt Fund with 10-year constant maturity
- CLiquid FundCorrect
- DDynamic Bond Fund
Explanation
Liquid funds invest in money market and debt securities with maturity up to 91 days, so their sensitivity to interest rate changes is very low. Long duration and 10-year gilt funds carry high interest rate risk. Dynamic bond funds shift duration and can be volatile over three months.
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