Funds

Myrmidon_J

purch wrote: »

It is the fixed (known) maturity of a Bond that gives it a lower risk.

By using a Fund you the investor loses that fixed maturity which increases the risk factor.

True - but investing in just one bond dramatically increases credit risk.

The yield on corporate bonds may be attractive, but typically if the underlying company folds then little to no capital is recovered. Most corporate bond funds, however, hold less than 3% in any one company - so credit risk decreases with diversification.

sabretoothtigger

I saw a bond fund rated at AAA but it was yielding only 5%

Does a bond fund always return the original capital 100%

Lokolo

purch wrote: »

It is the fixed (known) maturity of a Bond that gives it a lower risk.

By using a Fund you the investor loses that fixed maturity which increases the risk factor.

Using a Fund to invest in Fixed Interest Securities is perfectly fine as long as you understand this, and don't fall for some of the incorrect "hype" that touts these Funds as low risk when sometimes they can be anything but.

If you wanted a regular income surely a Bond fund could be good for this because there would be income coming in at all points, then given out on dividend date?

Also I would have thought a fund would be a lot less risky because you are investing over 50 bond funds rather than just 1 if you bought it inidividually?

purch

Does a bond fund always return the original capital 100%

No.........and that's not the idea.

The added risk element of not having a maturity date, is that as prices of Bonds fluctuate in the market, then so does the price of the Fund you are invested in, so on that basis it is not really different to an Equity Fund.

True - but investing in just one bond dramatically increases credit risk

I would have thought a fund would be a lot less risky because you are investing over 50 bond

Of course that is true, but that default risk is a wholly different risk, and in a Corporate Bond Fund investing in investment grade Bonds, then the risk of default is pretty much the same as if you held the same 'blue chip' shares in an equity fund, other than the liquidity issues.

The point I am making is that holding funds in a Fund with no maturity is a more riskier investment than the industry as a whole often try's to portray it.

As an example, Investing in a Gilt fund now would in my opinion be quite high risk, as the prices of Gilts are unlikely to go much higher, and could quite easily go much lower very quickly. So whilst the Gilts themselves are extremely low risk as default chances are tiny, in the current environment and at current levels the Fund itself could be quite risky.

earlgrey_3

Does anyone have an explanation for why the valuations of some fixed interest funds are so volatile?

This one for instance has been going up and down up to 5% a day throughout December.

December

All 2008

Lansdowne

earlgrey wrote: »

Does anyone have an explanation for why the valuations of some fixed interest funds are so volatile?

This one for instance has been going up and down up to 5% a day throughout December.

December

Must be that the fund manager's only sober on a Tuesday and Wednesday.

The_Fiddler_2

Lansdowne wrote: »

Must be that the fund manager's only sober on a Tuesday and Wednesday.

RFLOL :rotfl:

The_Fiddler_2

If interest rates go negative are funds a viable option?