Macaulay Duration — Mutual Fund Term Explained

The weighted average time to receive all cash flows from a bond. The basis for Modified Duration calculations.

Macaulay duration is the weighted average time period for a bondholder to receive all cash flows (coupons + principal). Longer duration bonds are more sensitive to interest rate changes.

Formula

Macaulay Duration = Σ[t × PV(CF_t)] ÷ Bond Price

Related terms

• Modified Duration — For debt funds: the approximate % change in NAV for a 1% change in interest rates. Higher = more sensitive to rate changes = more interest rate risk.
• YTM (Yield to Maturity) — The annualised return if a bond is held to maturity. Used as a proxy for expected future returns of a debt fund.
• Debt Fund — A mutual fund investing in fixed income securities — bonds, G-Secs, commercial paper. Lower risk than equity but also lower returns.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.