How Interest-rate risk works
Bond prices generally move opposite to yields, with longer duration producing greater sensitivity. Holding to maturity can change the investor's experience, but a fund continuously values and trades a portfolio at market prices.
An example
At modified duration five, a one-point yield rise implies roughly a 5% price fall as a first-order estimate, assuming other factors stay unchanged.
Why it matters for your family
Money needed soon should not carry more duration risk than the family can absorb. Credit quality alone does not make a long-duration fund stable.
Questions people ask
- What does Interest-rate risk mean?
- Interest-rate risk is the possibility that changing market yields alter the price of a bond or debt portfolio.
- Why does Interest-rate risk matter for a family?
- Money needed soon should not carry more duration risk than the family can absorb. Credit quality alone does not make a long-duration fund stable.
- Where can I verify information about Interest-rate risk?
- Start with SEBI Investor, linked on this page, and the current official document for the product or tax year involved.