When investing in bond mutual funds you need to decide the
type of bond fund by bond quality (default risk) and bond duration.
This can put the investor at risk because unlike a mutual fund, ETFs trade continually throughout the day, often without a complete picture of the
value of the bond fund holdings.
But the
duration of a bond fund includes not just the maturity when you get your principal back, but it also takes into account when you get the cash flows back, right.
The corporate bonds in a bond fund can be of various qualities, thus affecting the credit
risk of the bond fund.
One way that the district could support future high - quality charter options would be through equitable
sharing of bond funds with charter schools.
The growing popularity
of bond funds for investors is due to the simple fact that they are the simplest, cheapest way for investors to buy a diversified basket of bonds.
The longer the average
maturity of the bond fund, the greater will be the variation in the return on the bond fund when interest rates change.
In most other countries with which we normally like to compare our financial markets, the corporate sector makes greater
use of bond funding.
There are a wide
variety of bond funds on the market, allowing you to gain exposure to just about any debt that is out there.
For individual investors, duration is primarily used as a
measure of a bond fund's sensitivity to prevailing interest rates.
There are many different
kinds of bond funds, and an appropriate choice is based on your particular goals and situation.
You want to look into the credit rating
of each bond fund as well as the average maturity of the underlying bonds.
When investing in fixed income funds you need to decide the type
of bond fund by bond quality (default risk) and bond duration.
Broken down further, 72 percent of stock fund managers have missed the mark; 54 percent
of bond fund managers have.
Understanding the pros and
cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
A high net worth investor may consider putting the majority
of their bond fund allocation into a municipal bond fund, for the tax benefits they offer.
This is especially
true of bond funds, which can provide a safe and stable source of income as well diversification to a portfolio.
The average duration
of a bond fund says a lot about how the fund will respond to interest rates, and thus perform.
As you can see in the table, these types
of bond funds also behave a lot more like stock funds.
This is slightly more complex in the
case of a bond fund which is essentially a constant maturity bond, but the same general principles apply.
The
job of the bond fund manager is to maintain the average maturity of the fund's portfolio at the level stated in its prospectus.
The risk
profile of bond funds is, in contrast, often in a state of flux because fund managers regularly trade positions.
It is tough because most investors don't have the capital to build a diversified bond portfolio
outside of a bond fund.
Another
class of bond fund, called the international, foreign or global bond fund, also pays monthly dividends.
A similar pattern holds for variations of these portfolios that include differing
levels of bond funds — in other words 90 % equity, 80 % equity, 70 % equity and so forth.