If you were to decide that it was time to make an investment, and thought that...

If you were to decide that it was time to make an investment, and thought that a bond or a mutual fund consisting of bonds was a good idea… where would you go to get started?

Expert Solution

Bonds being fixed income security are the safest investment vehicles among the variety of asset classes ,

However if one is to decide between bonds and mutual fund consisting of bonds . It is advisable to go with mutual fund consisting of bonds being a good idea for the investment purposes .

· Bonds have different risk ratings with the probability associated with default , from AAA+ being best TO D or default category bond.

· The issuer of the bond gets the instrument rated before issuing and the highest rated bonds have the least probability of default .

· Thus bonds which are rated low , have high yield on the investment and vice versa , i.e bonds which are rated high have the least yield .

· For new investors thus it is tedious to determine which bond to purchase provided the risk return trade-off

Mutual funds of bonds acts as a portfolio or collection of bonds of various yields and allocates a portion of the total investment into different bond classes giving a stable yield .

The various types of bonds in mutual funds of bonds are

· Government bond

· Corporate Bonds

· Municipal bonds

· Foreign bonds

· Masala and Junk bonds which are high yielding bonds

Hence Mutual fund of bond safeguards the overall investment into different bond classes and provide an optimal risk adjusted return .

jeff jeffy answered 2 years ago

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