The duration of a debt fund is expressed in terms of a number of years/months. Duration is affected by the% of fluctuation in a fund’s value with the fluctuation in interest rates. Hence, the higher the duration, the more will be its
sensitivity to interest rate fluctuation, and the greater will be the interest rate risk. Typically, funds with a higher duration are invested in securities of longer maturities and vice versa. By this logic, short-duration funds
will be exposed to higher interest rate risk when compared to low duration fund and so on.
But this doesn’t mean that every security held by these mutual funds have the exact same duration as the portfolio duration. For example, it is not true that all the securities in a low duration debt funds will have
a Macaulay duration of 6-12 months. The duration of the fund represents the weighted average of the duration of all the securities together. So, while some bonds held by the fund may have a duration of 3 months, some can even have
a duration of 1 year.