New Delhi, Sept. 21 -- Debt mutual funds may appear less volatile than equity funds, but their NAV is not immune to market movements. A change in interest rates can affect the market value of the bonds held by a fund, with the impact generally larger when the portfolio has a longer duration. This means investors in debt funds can face interim gains or losses even when they are not taking equity-like exposure.

Understanding duration risk is therefore important, particularly for investors considering medium- or long-duration debt funds. Sanjiv Bajaj, Joint Chairman & Managing Director, BajajCapital Ltd, explains how changes in bond yields affect a debt fund's NAV, what modified duration tells investors and which other factors they should c...