Article

Long Term Debt Fund
June 07 , 2012

Debt funds are often categorized based on the tenure or duration of their holdings. A long term debt fund typically holds Corporate Debentures and Government papers of five years or longer tenure. Debt funds are also known as Income funds or Gilt funds. Sometimes the tenure can be as long as 30 years.

According to debt theory, the market value of debt falls when interest rates in the market rise; and vice versa. This effect is even more pronounced when the tenure (duration) is longer. Thus, long term debt fund NAVs are sensitive to interest rates. They perform best when interest rates are falling.

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