Laddering
Holding bonds with staggered maturities so that a portion matures each year.
How it is identified
Test: the portfolio is divided across n maturity rungs, with roughly equal amounts maturing in each successive period
Unit
qualitative
In depth
A ladder spreads reinvestment across time, so no single decision about rates has to be right — some money is always being reinvested at whatever the prevailing rate is. It also produces a predictable stream of maturing principal, which suits an investor with known future needs. The average duration of a ladder stays roughly constant as rungs roll, so its interest rate sensitivity is stable rather than shortening. It gives up the chance of getting the rate call right in exchange for never getting it badly wrong, which is a sensible trade for anyone who cannot forecast rates.
Worked example
₹5,00,000 split across five rungs of ₹1,00,000 maturing in years one to five. Each year ₹1,00,000 matures and is reinvested at the then five-year rate, so one-fifth of the portfolio reprices annually.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Laddering” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.