Bond funds

Insurance cover, liability and regulatory fines act as incentives for companies to comply with legislation or even adopt beyond-compliance practices [230, 231]. A new approach in improving compliance with environmental legislation comes in the form of performance bonds , which is a variation of environmental liability [232], The amount of a bond is based on the potential future environmental damages that could be attributed against a chemical producer. If damages occur, the bond funds environmental remediation otherwise it is returned with interest or traded. 

Boyd, G. V. The ene reaction. Chem. Double-Bonded Fund. Groups). 1989, 477-525... 

According to the Bond Attitude portion of the study, confusion about bonds apparently prevents many from actually investing in bonds and bond funds. Almost 30 percent of investors indicated that they avoid bonds because they are difficult to understand, and 31 percent indicated that they would not invest in a bond mutual fund for the same reason. 

It is surprising that bond-fund buyers are not fully aware of the inverse relationship between interest rates and bond prices, considering that short-term interest rates are at their lowest levels in four decades. The interest rates on some types of bonds are likely to increase whenever the economy eventually rebounds from the current slump. 

And in a period of rising rates, as bond prices fall, some types of bond funds may actually post negative returns. "It can happen. 

The fact that investors are snapping up bond funds now, after sharp drops in interest rates, is evidence that "people don t have a very good understanding of bonds and bond funds," says Ian MacKinnon, a managing director in the bond-fund area at Vanguard Group, Malvern, Pennsylvania. 

The year 2001 was a good one to own bonds, with returns on fixed-income funds in the plus column as declining rates pushed prices of some bonds up. Through October 2001, the average taxable bond fund returned 5.59 percent and the average tax-exempt municipal-bond fund returned 5.31 percent, according to Upper,- meanwhile, the average diversified U.S.-stock fund fell 19.38 percent. 

You don t need this government bond fund I m selling you. 

Warning This "low risk" bond fund can be hazardous to your wealth. 

With fund managers under pressure to beat their competitors and the overall market, some may pursue riskier investments— even in bond funds. Government bond funds, for example, might be invested in riskier mortgage-backed bonds such as Ginnie Maes to get better returns. While these bonds are backed by the government, they add volatility and sensitivity... 

A bond and a bond mutual fund are totally different animals. Bond funds values fluctuate because the funds are portfolios of different securities that you have not individually scrutinized. There are also a number of management and marketing fees associated with bond funds. When you buy a bond individually, you can analyze risk factors and credit quality by yourself to make a decision. 

Bond funds offer monthly income, portfolio diversification, and professional money management. A bond fund is usually made up of individual bonds similar in maturity, quality, and type of issuer, as such, buying into a bond fund is a good way for the small investor to tap into a specific sector or objective without committing a large exposure. 

And, of course, the most attractive feature of investing in bond funds is "daily liquidity"— bond funds have no set maturity date—the investor typically has the option to sell on any business day at the next available net asset value (usually the end of the day). Plus, many bond funds offer a check-writing option on the balance in addition to allowing the investor to automatically reinvest income dividends and to make additional investments at any time. 

Investing in bond funds rather than individual bonds might also carry less risk and help to diversify a portfolio. Individual bond investors stand to lose all of their money if the issuer defaults. In contrast, a bond fund holds hundreds of different bonds from different issuers, reducing the effect if one issuer fails to pay interest or principal. 

In 2000, according to the Investment Company Institute, net assets of all mutual funds amounted to 6,969 trillion. Of this total, roughly 57 percent, or 3,963 trillion, was held in equity mutual funds. Bond funds, on the other hand, witnessed 811 billion invested, or 12 percent of the total. However, with investor demand for bond funds remaining flat for a number of years, a number of fund companies have merged or liquidated a small number of bond funds. The total number of bond funds in 2000 fell to 2,222 from 2,261 the previous year. (See Figure 10.1.)... 

It s even easier than this Morningstar has a special bond section (http //www.morningstar.com/centers/bonds.html7hsection =bondsc), offering their "Quicktake" reports on the top 15 bond funds (available via a drop-down menu), as well as links to articles and message boards (the "Bond Squad") on bond mutual fund-related issues. 

Lipper has roughly 100 different objectives in its classification system for bond funds, compared with 40 for equity funds. History of assets for funds tracked by Lipper goes back 40 years. 

Figure 10.3 Morningstar snapshot for Vanguard High-Yield Corporate Bond Fund.

The second argument for individual bonds is that if they are bought and held until maturity, interest rate risk is avoided. Changes in interest rates affect the price of both individual bonds and bond mutual funds. However, if investors do not need access to their funds for a certain amount of time, they can invest in individual bonds with maturities appropriate for their liquidity needs—without having to worry about interest rate fluctuation. This situation does not apply to bond mutual funds. If interest rates go up, a decline in the NAV of share prices of bond funds will occur. Table A.l shows how total returns of bond funds generally behave contrary to those of interest rates. Another way of looking at bond mutual funds is that they never mature, which means that the possibility of loss of principal is always present. 

Is the total of my investment in cash, bonds, and bond funds less than 15% or 20% of my total investments ... 

Thau, Annette. The Bond Book Everything Investors Meed to Know about Treasuries, Municipals, GMMAs, Corporates, Zeros, Bond Funds,... 

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