How Modified duration works
It is a sensitivity estimate, not a holding period. The relationship is approximately linear only for modest rate moves and assumes other factors stay unchanged.
The figure should always be read with its measurement period, product type and source. A precise-looking number can still answer the wrong question when two unlike products or time periods are compared.
An example
A modified duration of 4 implies that a one-point rise in yield may reduce price by about 4%, while a one-point fall may increase it by about 4%.
Why it matters for your family
Match duration to when the family needs the money. A high-quality bond fund can still fall sharply if its duration is long and interest rates rise.
Connect the figure to a dated goal before acting. Money for an emergency or near-term payment has different constraints from retirement money, even when the product description quotes the same statistic.
Questions people ask
- What does Modified duration mean?
- Modified duration estimates the percentage change in a bond's price for a one-percentage-point change in yield.
- Why does Modified duration matter for a family?
- Match duration to when the family needs the money. A high-quality bond fund can still fall sharply if its duration is long and interest rates rise.
- Does a good Modified duration figure guarantee a result?
- No. It is a measurement of past or assumed conditions. Its meaning depends on the period, data and products being compared, and it cannot guarantee a future outcome.
- Where can I verify information about Modified duration?
- Start with SEBI Investor, linked on this page, and the current official document for the product or tax year involved.