Have you heard this popular narrative? “Rising interest rates impact bonds/fixed income funds negatively, and so should be avoided in such an environment" Well, well. While this appears intuitive, the reality can be different.
Let’s consider that you have bought a fixed income fund with a maturity of 10 years and a modified duration of six years. Let’s say, the yield to maturity (YTM) of the fund when you bought it was 6.5%, and your investment horizon is five years. If nothing happens to interest rates over five years, ₹100 invested will become roughly ₹137 after five years (6.5% compounded over five years, and no capital loss or gain as there was no change in rates).
