InvestorQ : What's the difference between buying bonds and buying bond funds?
Nikita Damle made post

What's the difference between buying bonds and buying bond funds?

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Moii Chavate answered.
1 year ago
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There are some key differences between buying bonds and buying bond mutual funds-

1) A distinguishing feature of individual bonds is their commitment to pay out a defined amount of income at regular intervals, usually twice a year. This income is generally expressed through the coupon—which in most cases is fixed. The bond’s principal is returned to you when the bonds mature.

2) Another key differentiator of individual bonds is that they give you the ability to buy into a fixed rate of return, or “yield,” at the time of purchase.

3) In terms of bond funds, Whether the fund’s mandate is broad or narrow, bond funds invest in many different securities, so it’s an easier way to achieve diversification even with a small investment. Income payments are made monthly and reflect the mix of all the different bonds in the fund and the payment schedule of each. As such, the distribution will likely vary from month to month.

4) When you sell shares in a fund, you receive the fund’s current net asset value (NAV), which is the value of all the fund’s holdings divided by the number of fund shares, less any redemption fee, if applicable. It’s important to remember that bond funds buy and sell securities frequently, and rarely hold bonds to maturity. That means you can lose some or all of your initial investment in a bond fund.

5) As an investor, it’s important to remember that while investing in individual bonds and holding them until maturity or the call date enables you to effectively manage interest rate or market risk, it does heighten the importance of scrutinizing the credit risk of each individual issuer while carefully assessing your own liquidity needs.

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