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Formula sheet/NISM Series V-A: Mutual Fund Distributors/Risk, Return & Performance of Funds
[ RISK, RETURN & PERFORMANCE OF FUNDS ]

Systematic Risk (Beta) & Weighted Average Maturity

Beta(β)=Cov(Rscheme,Rmarket)/Var(Rmarket)=ρs,m×(σscheme/σmarket)Beta (\beta) = Cov(R_{\text{scheme}}, R_{\text{market}}) / Var(R_{\text{market}}) = \rho_{s,m} \times ( \sigma_{\text{scheme}} / \sigma_{\text{market}} )
Weighted Average Maturity(WAM)=∑[Weighti×Maturityi]\text{Weighted Average Maturity} (WAM) = \sum [ Weight_{i} \times Maturity_{i} ]
Variables

Beta > 1: Aggressive scheme (swings more than market); Beta < 1: Defensive scheme. WAM: Reflects interest rate sensitivity in a debt fund. Longer WAM implies higher sensitivity to bond yield changes.

Exam note

Modified Duration = Macaulay Duration / (1 + Yield) approximates the percentage price change per 1% shift in interest rates.

Worked example
Weighted Average Maturity (WAM) of a Debt Scheme

A short-duration debt fund holds: 50% in a 2-year Corporate Bond, 30% in a 4-year G-Sec, and 20% in a 91-day (0.25-year) Treasury Bill. Calculate the Weighted Average Maturity of the portfolio.