Sometimes, we require investment that required less volatility compare to equity fund but gives higher return compare to time deposits and money market fund. This is where Bond funds come in.
Bond fund is more efficient way in investing in bonds as it allows investors diversify corporate and government bonds under one account. When investing in bonds individually , to diversify, you may require 6 digit figure portfolio. Mostly, bonds require higher capital requirement to participate compare to equities, this is why investing in a bond fund is a good strategy to help you lower your risk while diversifying.
How it works
Bonds is mostly an IOU of companies
Most fund managers buy and sell based on market condition and rarely hold the position until maturity date.
Most of the bond fund interest realizes monthly and may reflect the mix of all fund. This means income distribution may vary on monthly basis.
The negative side
All types of investment has its own throwback, bond fund is not inception. These are some things you need to consider before investing.
monthly income fluctuates as the underlying change. Compare to a bond, it is hard for a bond fund to forecast how much you will get as fund managers trade bonds consistently.
Some bond fund use leverage, it allows the fund managers to hold more volume however it may result to bigger returns, on the downside, it may also expose clients to bigger risk as well.
Administration cost and other management cost are realize by the investors.
The good side
Compare to the bad side, there are lots of good benefits in investing in a bond fund
Less monitoring and research. Fund managers, research analyst and administrators are mostly the one who will do the work for you. It gives you less stress and less hassle doing all fundamentals and due diligence when investing.
Easily diversified.Because it is a pooled fund, it is easier for you acquire different bonds by just getting the fund itself.
May perform higher compare to investing in a single bond. As the fund managers liquidate assets and transfer to other bonds, there is a possibility that you gain exponential growth compare to a fixed annual rate that may take longer.
Smaller capital needed compare in buying bonds. Some bonds ay require hundreds thousands of pesos to start and may require millions to fully diversify your risk.
In summary
There are pro’s and con’s in investing in any type of invested. As long as it is a calculated risk and you know how to design your portfolio based on time, risk , age, financial goals and other financial factors, diversifying to bond funds are perfect to counter not only inflation but also lower the risk and volatility of your portfolio.
Ready to invest?
It will be best to talk to our licensed financial advisor or talk to our Registered financial planner if you need help design the right mix and portfolio for you.
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