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Market Intelligence › Basic Terminologies
The inverse relationship between interest rates and bond prices, and what the category means
Published by The Retail Trader · JUL 23, 2026 · Mutual Funds & AMC
It is common to think of a debt fund as safe. It is less volatile than equity, but it has a risk of its own that many people discover only when the NAV goes down.
When interest rates rise, the price of older bonds falls, because new bonds are paying more interest. This relationship is mechanical, not an opinion.
How much it falls depends on duration. Funds with long duration move more on a rate change, those with short duration move less.
SEBI's categories are built on the basis of duration itself:
• Overnight and liquid — the shortest duration, the least rate sensitivity.
• Ultra short, low duration, short duration — rising gradually.
• Medium and long duration — the most sensitive to the rate cycle.
• The category name itself tells you what risk it was built for.
When choosing a debt fund, the first question should be the horizon, not the return. How long you need the money for — picking a fund with a matching duration is the biggest part of this entire choice.
This article is for education only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed from time to time by the exchanges, SEBI and RBI, so verify every number yourself with your broker or an official source.