Not all bond funds are the same



Not all bond funds are the same

Fixed income bonds range from investment grade to junk and naturally this affects the overall risk profile of the investment or indeed the fund that is selling those bonds. There is no substitute for investors doing their own due diligence on the kind of bonds the fund manager invests in.

There are two kinds of bonds funds can invest in – government and corporate bonds. Each has its own distinct risk profile and potential investors need to keep this in mind when choosing what’s right for them.

Check the Product Disclosure Statement (PDS) and call the funds to find out what type of bonds the fund invests in and the risk grade of the mix.

Funds rated by CANSTAR mostly invested in AAA & AA rated assets. Credit ratings can be used as an indicator to determine if the issuer of a security has the ability to meet its financial obligations. As such, credit ratings should not be used as investment recommendations, they merely indicate the “probability” of default.

Article updated 07/06/2012