Modified Duration
The percentage change in a bond's price for a one-percentage-point change in yield.
Formula
Modified Duration = Macaulay Duration / (1 + Yield to Maturity / Number of Coupons per Year)
Unit
years
In depth
Modified duration is the working number for estimating price changes, and it is the figure Indian debt funds disclose. It is a linear approximation, so it is accurate for small yield changes and increasingly wrong for large ones — convexity is the correction term that captures the curvature. Because the relationship is convex rather than straight, duration overstates the loss from a rate rise and understates the gain from a fall, which works in the bondholder's favour. It is additive across a portfolio when weighted by market value, which is what makes it practical for fund-level risk management.
Worked example
A Macaulay duration of 4.31 years at a 9.23% annual yield gives modified duration of 4.31 / 1.0923 = 3.95. A one-point rise in yields would cut the price by roughly 3.95%.
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 “Modified Duration” 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.