Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • mameha
    • By mameha 14th Sep 18, 2:01 PM
    • 64Posts
    • 14Thanks
    mameha
    How does Yield work in mutual funds?
    • #1
    • 14th Sep 18, 2:01 PM
    How does Yield work in mutual funds? 14th Sep 18 at 2:01 PM
    I am trying to choose a mutual fund for my kids JISA.
    There's about 7 years left.
    I am looking for something lower risk than an index tracker.

    I am attracted to these Bond/Gilt funds that have a yield of 4-5%, but I am confused how they work.

    Example:
    Historic yield = 4% paid monthly
    Growth = 2% over last 12 months

    If I had invested 1000 12 months ago in this fund, would I now have +2% (1020) or +6% (1060)?

    The above example is based on this fund, I have simplified the numbers:
    https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/baillie-gifford-high-yield-bond-class-b-accumulation
Page 1
    • dunstonh
    • By dunstonh 14th Sep 18, 3:12 PM
    • 95,753 Posts
    • 63,451 Thanks
    dunstonh
    • #2
    • 14th Sep 18, 3:12 PM
    • #2
    • 14th Sep 18, 3:12 PM
    Mutual funds is an American term. Some have tried to introduce that term here but its generally not used by most.

    I am looking for something lower risk than an index tracker.
    An index tracker is an investment style. it doesn't have any impact on risk. What you invest in carries the risk. So, an index tracker in emergigng markets will be very diferent in reisk to a an index tracker in Gilts.

    Single sector investing (which is what a tracker will usually be) is bad quality investing. A multi-asset fund is more likely to be suitable.

    I am attracted to these Bond/Gilt funds that have a yield of 4-5%, but I am confused how they work.
    Use of one of these would be that single sector investing that is considered bad. They are designed to be held in a portfolio of other single sector funds to build the portfolio you are after. Hence why multi-asset funds would be better.

    If I had invested 1000 12 months ago in this fund, would I now have +2% (1020) or +6% (1060)?
    Unit price has gone down, as expected. Income compensates a little. So, total return over 12 months has been 1.68%.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • mameha
    • By mameha 14th Sep 18, 4:04 PM
    • 64 Posts
    • 14 Thanks
    mameha
    • #3
    • 14th Sep 18, 4:04 PM
    • #3
    • 14th Sep 18, 4:04 PM
    "total return over 12 months has been 1.68%."

    That part I dont understand at all.
    How is that calculated? Are you thinking about platform fees etc?
    • dunstonh
    • By dunstonh 14th Sep 18, 4:15 PM
    • 95,753 Posts
    • 63,451 Thanks
    dunstonh
    • #4
    • 14th Sep 18, 4:15 PM
    • #4
    • 14th Sep 18, 4:15 PM
    "total return over 12 months has been 1.68%."

    That part I dont understand at all.
    How is that calculated? Are you thinking about platform fees etc?
    Originally posted by mameha
    That does not include platform charges. So, you need to take those off.

    Returns come from the change in the unit price (which will go down as well as up) and the income.

    What has happened is that the unit price has fallen. i.e. the value of the investments has gone down. However, the income has come in and covered the loss leaving only a little left over as profit.

    There is up and down movement every day. Income is not consistent. We are coming off the top of a cycle where unit prices on bond funds are falling and expected to continue to fall.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • cogito
    • By cogito 14th Sep 18, 4:20 PM
    • 3,749 Posts
    • 10,582 Thanks
    cogito
    • #5
    • 14th Sep 18, 4:20 PM
    • #5
    • 14th Sep 18, 4:20 PM
    Someone described bonds as 'return free risk'. I wouldn't touch them with a bargepole at present.
    • mameha
    • By mameha 14th Sep 18, 4:26 PM
    • 64 Posts
    • 14 Thanks
    mameha
    • #6
    • 14th Sep 18, 4:26 PM
    • #6
    • 14th Sep 18, 4:26 PM
    Why is the bond price surely going to come down?
    • dunstonh
    • By dunstonh 14th Sep 18, 4:45 PM
    • 95,753 Posts
    • 63,451 Thanks
    dunstonh
    • #7
    • 14th Sep 18, 4:45 PM
    • #7
    • 14th Sep 18, 4:45 PM
    Why is the bond price surely going to come down?
    Originally posted by mameha
    Interest rates are low and starting to rise.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Alexland
    • By Alexland 14th Sep 18, 7:15 PM
    • 3,585 Posts
    • 2,905 Thanks
    Alexland
    • #8
    • 14th Sep 18, 7:15 PM
    • #8
    • 14th Sep 18, 7:15 PM
    Going entirely into bonds carries its own risk so have you considered a low cost target withdrawal date fund such as Vanguard Target Retirement 2025 which will gradually reduce the equity exposure as the withdrawal date approaches? It's currently 62% equities and 38% bonds.

    https://www.vanguardinvestor.co.uk/investing-explained/what-are-target-retirement-funds

    https://www.vanguardinvestor.co.uk/investments/vanguard-target-retirement-2025-fund-accumulation-shares

    Still if the markets remain healthy you might want to start moving some into cash to de-risk further once you get down to less than 5 years as it's questionable whether the child would still have an investment timeframe as sometimes both equities and bonds drop concurrently.

    Alex.
    Last edited by Alexland; 14-09-2018 at 7:20 PM.
    • FatherAbraham
    • By FatherAbraham 14th Sep 18, 8:15 PM
    • 914 Posts
    • 679 Thanks
    FatherAbraham
    • #9
    • 14th Sep 18, 8:15 PM
    • #9
    • 14th Sep 18, 8:15 PM
    I am trying to choose a mutual fund for my kids JISA.
    There's about 7 years left.
    I am looking for something lower risk than an index tracker.
    Originally posted by mameha
    Seven years left until what, exactly?

    The JISA investment can continue indefinitely, until withdrawal is needed.

    It doesn't have to be liquidated at the age of 18.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,623Posts Today

8,974Users online

Martin's Twitter
  • Major new guide... Brexit, what it means for you and your finances: M mortgages, savings, flights, consumer rights? https://t.co/SXCMG2qXwX

  • Have you haggled on the high street in the last year? If so who with and did you succeed? Please vote in this week? https://t.co/fdzmmFfA4u

  • Warning: Energy price comparisons are now WRONG due to the price cap - it needs fixing - my letter to Ofgem alerti? https://t.co/vE9IHyM58X

  • Follow Martin