Multiple choice

To reduce interest rate risk a debt mutual fund investor should invest in

  1. funds having higher yields

  2. funds having lower average maturity

  3. funds having higher average maturity

  4. funds with lower expense ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Lower average maturity means the fund's portfolio has securities with shorter time horizons. Shorter-maturity securities are less sensitive to interest rate changes, so the fund's NAV will fluctuate less when rates move. Higher maturity funds (option C) have greater interest rate risk, while yield and expense ratio (options A and D) don't directly affect interest rate risk.

Keep practicing — related questions