Posted by: Labdhi Mehata on Jun 22, 2020, 11.20 AM IST
1. A debt instrument is issued at a fixed coupon which depends on the market situation at the time of the issue and is paid regularly until maturity.
2. When interest rates fall, the value of the debt securities held will go up, leading to a mark-to-market gain.
3. When interest rates go up, the value of debt securities held will go down, leading to a mark-to– market loss.
4. Debt mutual funds have to show notional losses or gains on their debt holdings even if the gains or losses are not actually realised. This is known as markto-market or MTM risk.
5. The extent of MTM risk of a fund depends on the type of debt securities in its fund portfolio.
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