Thinking of UK Index Linked Gilts

A_T

newbinvestor wrote: »

And also, is it ever possible to buy a bond fund at the start when it's just released? Because over time the price of it seems to increase, but if you got in earlier, you would save alot of money compared to buying it down the line.

I think it's already been explained that the price of a fund is irrelevant.

An example is Hargreaves Lansdown were "offering" their new growth fund at £1 a unit when it launched - but that didn't make it cheap or any kind of bargain.

[Deleted User]

The price of BOND funds are relevant because it shows what the premium/discount is compared to the £100 bond "face value".

Eg £120, you are paying £20 for the priviledge of holding that £100 you would get back if held until maturity. How do you buy it at £100?

[Deleted User]

If the bond fund is priced at £5
Or priced at £400

How on earth do you know the bond face value if held until maturity? So confusing lol

masonic

newbinvestor wrote: »

The price of BOND funds are relevant because it shows what the premium/discount is compared to the £100 bond "face value".

No it does not. A bond fund could be priced at £5 or £500 per unit and that would tell you nothing about the premium or discount the underlying bonds were trading at. In fact, two index trackers could have identical holdings and one could be priced at £5 per unit and the other at £500 per unit and there would be no reason at all to choose one over the other based on the unit price.

Eg £120, you are paying £20 for the priviledge of holding that £100 you would get back if held until maturity. How do you buy it at £100?

No, that's incorrect. If the price is £120, then you get £120 worth of bonds for your £120. Those bonds could be priced at £50 or £200. There simply is no way to infer anything about the price of the underlying bonds from the unit price of the bond fund.

newbinvestor wrote: »

If the bond fund is priced at £5
Or priced at £400

How on earth do you know the bond face value if held until maturity? So confusing lol

You don't. The price of the bond fund is irrelevant. Think of it as being chosen completely randomly.

I'm rapidly running out of different ways to explain this one point to you, but you need to understand it before considering an investment in any sort of investment fund.

Alexland

To find out what bonds are inside the fund you look at the fund managers published data. Some give you more information than others.

Linton

newbinvestor wrote: »

The price of BOND funds are relevant because it shows what the premium/discount is compared to the £100 bond "face value".

Eg £120, you are paying £20 for the priviledge of holding that £100 you would get back if held until maturity. How do you buy it at £100?

No - For example the fund may hold 1M individual bonds with a face value totalling £100M. Those bonds could have market prices ranging from say £99 to £150 with perhaps an average of £120 so the bond fund is worth £120M. If the bond fund has issued 40M units each would be priced at £3. So you cannot deduce anything simply from the price of a bond fund unit.


I believe all bonds issued by the UK government are auctioned off mainly to the major institutions. So you cant buy a bond for face value except by chance.

[Deleted User]

How do you know you're not buying £500 of a fund bond in whcih the bonds have a face value of £10?

It doesn't say on the fact sheet what the face value is. The face value will have a massive effect on the bond value.

Linton

newbinvestor wrote: »

How do you know you're not buying £500 of a fund bond in whcih the bonds have a face value of £10?

It doesn't say on the fact sheet what the face value is. The face value will have a massive effect on the bond value.

The face value of normal UK Government bonds is always £100. Its the market value that varies.



Looking at market values one bond may be worth £99 and another £120. It doesnt mean that the £99 is better for an investor. In fact the market will ensure that they are all of equal worth. The bonds will be of different market value because the % interest which is based on face value is different. So if a bond had an infinite maturity date a bond returning 10% of face value would be worth twice as much as one returning 5%. As bonds approach maturity the range narrows until at maturity a bond is worth £100 + final interest payment.

[Deleted User]

Linton wrote: »

The face value of normal UK Government bonds is always £100. Its the market value that varies.



Looking at market values one bond may be worth £99 and another £120. It doesnt mean that the £99 is better for an investor. In fact the market will ensure that they are all of equal worth. The bonds will be of different market value because the % interest which is based on face value is different. So if a bond had an infinite maturity date a bond returning 10% of face value would be worth twice as much as one returning 5%. As bonds approach maturity the range narrows until at maturity a bond is worth £100 + final interest payment.

Face value is the most important thing IMO but for ones like this, it doesn't even say. How is that possible.

https://www.fidelity.co.uk/factsheets/?id=F00000SXB3&idCurrencyId=&idType=msid&marketCode=

An investor would have no idea what they are investing in.

Linton

newbinvestor wrote: »

Face value is the most important thing IMO but for ones like this, it doesn't even say. How is that possible.

https://www.fidelity.co.uk/factsheets/?id=F00000SXB3&idCurrencyId=&idType=msid&marketCode=

An investor would have no idea what they are investing in.

But you arent buying bonds you are buying a bond fund. If the bond fund happens to hold 1M bonds with a face value of £100/ market value £120 or 2M bonds with a face value of £50/market value £60 why does it matter?


As it happens corporate bonds (bonds issued by companies rather than the Government) which is what your example fund invests in will mostly be £100.