The Investment portfolio of a Fund is as follows: Coupon Rate (%) Purchase Rate (FV ₹ 100 per Bond) Duration (Years) GOI 2026 11.68 106.50 3.50 GOI…

10. (i) This type of Fund is a Gilt Fund as the amount of fund is invested in dated Government Securities. (ii) To calculate NAV per unit first we shall calculate of actual investment of Funds as follows: Security Purchase price Investment (₹ in lakhs) GOI 2026 106.50 532.50* GOI 2030 105.00 525.00 GOI 2035 105.00 525.00 GOI 2042 110.00 550.00 GOI 2052 101.00 505.00 Total 2,637.50 * ₹ 5 crores 100×1,00,000 x 106.50 Accordingly, the NAV per units shall be: 2637.50 Lakhs 250 Lakhs = ₹ 10.55 (iii) Suitable action to churn out investment portfolio in following scenario is to reduce risk and to maximize profit or minimize losses. Average Duration = 3.5 + 6.5 +7.5 +8.75 +13.00 5 = 39.25 5 = 7.85 years (A) Interest rates are expected to be lower by 25 basis points in such case increase the average duration by purchasing GOI 2052 and disposing of GOI 2026. Revised average duration shall be = 39.25 – 3.5 + 13 5 = 48.75 5 = 9.75 years (B) Interest rates are expected to rise by 75 basis points in such case reduce the average duration by (*) Purchasing GOI 2030 and disposing of GOI 2052. Revised average duration shall be = 39.25-13+ 6.5 5 = 32.75 5 = 6.55 years (*) Purchasing of GOI 2026 is not beneficial as maturity period is very short and 75 basis points is comparatively higher change. Thus, it can be said that the in first case the duration of portfolio is revised from 7.85 years to 9.75 years. In second case it stands revised from 7.85 years to 6.55 years.