If you want exposure to bonds, then the most common method is through investing in dedicated bond funds or as part of a ‘balanced’ fund.
These are easier ways to own bonds than directly investing in all the bonds held in a fund. By choosing to invest in a bond fund, your money is going into a professionally-managed portfolio of bonds. Because your funds are professionally managed, the fund manager will select the bonds making up the fund on your behalf. The bonds held in such funds are not always held until maturity but are often traded on the secondary market to (hopefully) secure a profit for the fund’s investors.
Regarding choice, you can choose from domestic, international and sector-based funds and ETFs.
Listed below are the domestic (SGD) fixed income ETFs:
Bond funds are simply more convenient. Many investors do not have the time (or the ability) to analyse the factors determining a bond's price (i.e. macroeconomic and industry / company news and developments). Saving time and energy by choosing a bond fund makes sense.
What’s more, you’re not just saving time in choosing the bonds. Once you’ve made your investment, you don’t have to worry about all the administrative work involved with bonds, such as a statement for every transaction. All you have to do is keep tabs on the price of the unit.
As mentioned earlier, these are professionally managed funds. It is their job to research, analyse and execute trades that they believe will generate positive returns over a period. Most people have more faith in a professional fund manager to do a better job at investing than they will, even if it means the fund management company takes a few per cent of the value of the fund to cover all costs and make a profit.
Another popular way of gaining exposure to bonds is to invest in a balanced fund, a type of mutual fund (or unit trust) that usually contains a blend of stocks and bonds.
A mutual fund, also known as a unit trust, is an open-ended vehicle that allows investors to pool their money together to purchase a range of securities, such as shares, bonds, and other financial products. Portfolio managers, who select the investments, allocate and distribute investors' money manage these funds. The funds are reasonably liquid, meaning you can easily pull your money out if you wish to.
A balanced fund typically has a specified make-up of stocks and bonds; for example, 60% stocks and 40% bonds. Balanced funds make it easy for investors to diversify without needing a massive sum of money, plus there are no complex decisions to make or paperwork to deal with. Balanced funds are ‘balanced’ due to their targeted ratios of bonds and shares or between income/safety and growth. The balance makes them a reasonably stable investment over the long term, which ultimately also means that the returns are usually nothing spectacular. A sensible investment, nonetheless.
Bonds should be a consideration for anybody looking for a regular stream of income as part of a diversified portfolio. There is no one-size-fits-all approach to bonds. You should assess whether you are suited for them in the context of the two investing objectives, risk and return.
Ask yourself whether you can bear the risk involved with the bond you are purchasing. Some bonds are riskier than others and depending on how big your overall investment portfolio is, individual bonds can make up an uncomfortably large proportion. As with any form of investment, your capital is at risk. Also, estimate what your returns will be - there is no guarantee they will be positive!
MOST COMMON WAYS OF GAINING EXPOSURE TO BONDS. COMPLETED. ✅
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