The average time for the maturity of securities held by a mutual fund.
Average Maturity is also called Weighted Average Maturity.
Changes in interest rates have a greater impact on funds with longer average maturity.
Average maturity is treated as a variable rather than constant.
It indicates the dynamic nature of average maturity.
In a nutshell, the longer the average maturity, the higher the risk associated with a bond fund and, consequently, the higher the volatility.
WAM computes the percentage value of each mortgage or debt instrument in the portfolio.
The number of months or years until the bond’s maturity is multiplied by each percentage, and the sum of the subtotals equals the weighted average maturity of the bonds in the portfolio.