Bond Funds
For medium to long-term investment in an investment horizon of 3 years and more
Bond Funds
Bond funds, as their name indicates, are mutual funds investing primarily in bond instruments. They are good for medium to long-term investments in an investment horizon of 3 years and more depending on their focus. They should be the “cornerstone” for a conservative investor. However, they are also good as a separate investment. The fluctuation rate of the investment value in a bond fund is generally higher than in a short-term investment fund and differs according to the investment strategy as defined by the Fund Statute. However, in the medium-term horizon, the higher fluctuation is balanced out by the opportunity of higher investment appraisal. Depending on the variety of bond instruments, the funds can focus on government bonds, corporate or high yield bonds, bonds issued by developed or developing countries, or a combination of these. The portfolios of these funds are then usually supplemented by money market instruments.
Your advantages
High liquidity – opportunity of quick payout of money without penalties
Opportunity of a higher yield than with very short-term investment funds if the recommended investment horizon is maintained
Wide diversification of fund portfolios up to tens of titles, reducing the risk of a decrease in the investment value
Wide selection of bond funds according to their focus and investment strategies
Opportunity of lump sum and regular investments
You should know
Bond funds should be represented in each investment portfolio with a medium and long-term investment horizon
The more conservative that a portfolio is, the higher representation of bond funds or bond instruments
Bond funds are collective investment funds
The value of investment in mutual funds can go up or down, while a return on the amount invested is not guaranteed
All information about mutual funds and the risks connected with investments in the funds, including information about the investment company managing the fund, is provided in the Fund Statute
What you should know about investments in the fund
Bond funds attempt the highest possible appraisal of funds, primarily from the interest income of bond instruments and from the capital appraisal of these instruments. Given that these funds can invest in bond instruments denominated in foreign currencies, they are usually hedged against currency risk in view of the yield potential of bond instruments.
Fluctuations in value and thus also the amount of yield of predominantly conservative bond funds depend primarily on the development and amount of interest rates.
… increasing interest rates?
In the short term, increase of rates in bond funds will have a negative impact, because this information can decrease the prices of bonds held in the fund portfolio; in the long term this is a positive situation, because the fund is invested in the portfolio of bonds with a higher yield.
… decreasing interest rates?
In the short term, decrease of rates in bond funds will have a positive impact, because in its portfolio the fund holds bonds with a higher coupon yield than the one achieved with newly issued bonds, which increases their value. In the long term, this is a negative situation, because the portfolio of the bond fund is revalued flexibly into market yields and prices. The bond fund yield then reflects the level of current (lower) market interest rates.
Terms of purchase and sale of mutual funds
Mandatory publications/NAV of Erste AM CR
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