Bond fund certificate What is it? Discover a safe, stable investment channel with more attractive returns than savings. Learn how to invest effectively now!
What is a bond fund certificate?
To understand clearly bond fund certificateFirst, we need to briefly understand the concept of “fund certificates”. Fund certificates are securities that confirm the investor’s ownership of a portion of the capital contribution in a public fund. When you buy a fund certificate, you do not directly own stocks or bonds, but you contribute money to a common fund operated by a professional fund management company.
Since, bond fund certificate is defined as a type of fund certificate in which the fund focuses its investments primarily (usually over 80% of assets) on various types of bonds, including government bonds, government-guaranteed bonds, local government bonds and corporate bonds.
Simply put, when buying bond fund certificate, you are indirectly owning a diversified portfolio of professionally managed bonds. The fund management company will use the money raised from many investors to buy and sell bonds with the aim of bringing stable profits and preserving capital for participants. The value of bond fund certificate will fluctuate depending on the value of the bonds in the portfolio that the fund is holding.
The nature of What is a bond fund certificate?? It is a collective investment vehicle in the debt (bond) market, providing convenience, diversification and professional management for individual investors.
What is a bond fund certificate?
Distinguishing between stocks, bonds and bond fund certificates
The financial markets have many different types of assets, and it is understandable for new investors to get confused between them. To make the right choice, you need to clearly distinguish between them. stocks bonds fund certificates. So what is the difference between What are stocks, bonds, and fund certificates??
What are stocks?
- Nature: A stock is a certificate of ownership of a portion of the capital of a joint stock company. When you buy a stock, you become a shareholder, that is, one of the owners of that company.
- Income: Shareholders can receive income from dividends (a portion of the company's profits shared) and/or from the price difference when selling shares (capital gains).
- Risk and Return: Stocks have the highest potential for return, but they also come with the highest risk. Stock prices fluctuate widely based on the company’s performance and the general market. If the company goes bankrupt, shareholders are usually the last to receive any remaining capital.
What is a bond?
- Nature: A bond is a type of debt security that acknowledges the obligation of the issuer (government or corporation) to repay the bondholder (bondholder). When you buy a bond, you are lending money to the issuer.
- Income: Bondholders receive periodic fixed or floating interest payments and are repaid the principal when the bond matures.
- Risk and Return: Bonds are generally considered safer than stocks, providing more stable income. However, there is still interest rate risk (bond prices fall when market interest rates rise) and credit risk (the issuer defaults on its debt).
Bond Fund Certificates – The Core Difference
- Nature: As defined, this is a certificate that certifies partial ownership of a bond-focused investment fund. You don't own any bonds directly, but rather a portion of a portfolio of many bonds.
- Income: Comes from the interest on the bonds in the portfolio and may have capital gains if the fund value increases. Profits are reflected in the increase in the price of the fund certificates.
- Risk and Return: Lower risk than investing in one or several individual bonds due to diversification. Expected returns are usually higher than savings deposits but lower than stock investments. Relatively safe and stable.
- Compare: Unlike stocks (ownership of a company) and bonds (creditor rights), bond fund certificate represents fractional ownership of a professionally managed bond portfolio. It combines the stability of bonds with the benefits of diversification and professional management.
Understanding What are stocks, bonds, and fund certificates? help investors identify the type of asset that suits their goals and risk tolerance.
Advantages of investing in bond fund certificates
Advantages of investing in bond fund certificates
Bond fund certificate increasingly attracting investors thanks to the following outstanding benefits:
Effective portfolio diversification
- Instead of buying many different types of bonds yourself (which requires large capital and specialized knowledge), with just one investment in bond fund certificate, you indirectly own a portfolio of many different types of bonds (in terms of maturity, issuer, interest rate...).
- This diversification helps spread risk. If one bond in the portfolio experiences a problem (e.g. credit risk), the impact on the entire fund will be less severe than if you held just that bond.
Professionally managed by experts
- Investment funds are managed by a team of experienced financial experts from reputable fund management companies.
- They conduct market analysis, select potential bonds, monitor portfolios, and execute trades to optimize returns and control risks.
- Individual investors, especially those without a lot of time or expertise, will benefit from this professionalism.
More stable and predictable profits
- Main source of income bond fund certificate comes from the coupon interest rate of the bonds in the portfolio. This interest rate is usually more stable than the dividends of stocks.
- Although fund values fluctuate with the market, bond funds are generally less volatile than stock funds, providing relative stability for investors.
- Expected returns are often higher than bank savings over the same period of time.
Relatively good liquidity
- Compared with holding individual bonds (especially unlisted corporate bonds), buying and selling bond fund certificate often easier and faster.
- Most open-end funds allow investors to make transactions (buy, sell, convert) on the fund's regular trading days (usually daily or weekly) at the net asset value (NAV) on that trading day.
Easy access with low initial investment
- Buying bonds directly, especially corporate bonds, sometimes requires a fairly large initial investment.
- With bond fund certificate, you can start with just a small amount of money (a few million VND or even lower depending on the regulations of each fund), suitable for the financial capacity of most individual investors.
Risks to note with bond fund certificates
Risks to note with bond fund certificates
Although considered a relatively safe investment channel, bond fund certificate There are still some potential risks that investors need to identify and consider:
Interest rate risk
- This is one of the main risks that affect the value of bonds and bond fund certificate. Bond prices and market interest rates have an inverse relationship.
- As market interest rates rise, newly issued bonds will have more attractive interest rates, reducing the appeal and value of the fund's older, lower-yielding bonds. This causes the fund's NAV to fall.
- Conversely, when interest rates fall, the value of existing bonds in the fund's portfolio will increase.
Credit Risk (Default Risk)
- This risk occurs when the bond issuer (corporate or organization) is unable to pay interest or repay the principal on time.
- Although the fund is diversified to minimize this risk, if a significant proportion of the bonds in the portfolio have credit problems, the value of the bond fund certificate can still be negatively affected. Funds that invest in corporate bonds typically have higher credit risk than funds that invest in government bonds.
Inflation risk
- Inflation is an increase in the general price level, which reduces the purchasing power of money.
- Fixed income from bond interest may not be enough to offset high inflation rates, causing investors' real returns to decline or even become negative. This is a particular risk to be aware of during periods of high inflation.
Liquidity Risk (Although Lower Than Individual Bonds)
- In spite of bond fund certificate Funds are generally liquid, but during periods of extreme market volatility or crisis, reselling fund units can become more difficult.
- The need for a mass sell-off can put pressure on fund managers to sell assets to meet withdrawal demands, leading to low prices or temporary trading suspensions in rare cases.
Fund management costs
- To operate the fund, the fund management company will collect fees such as management fees, fund certificate purchase/sale fees, monitoring fees, etc.
- These costs will reduce the actual return received by the investor. Therefore, it is necessary to carefully consider the fund's fee schedule before deciding to invest in it. bond fund certificate.
Guide to choosing and investing in effective bond fund certificates
To the investment journey bond fund certificate To get good results, you need to have a clear preparation and strategy:
Clearly define investment goals and risk appetite
- Are you investing short term (less than 1 year), medium term (1-3 years) or long term (over 3 years)? What is your expected profit target?
- How much volatility can you tolerate in your fund's value? Do you prioritize capital preservation or are you looking for a slightly higher return?
- Answering these questions helps you figure out the right type of bond fund (for example, short-term bond funds are typically less volatile than long-term bond funds).
Learn about the fund and the fund management company
- Fund investment strategy: Does the fund focus on government bonds (high safety, low yield) or corporate bonds (higher yield, higher risk)? What is the average investment duration of the portfolio?
- Past performance: Consider the fund's returns over the past 1, 3, and 5 years compared to peers and the benchmark index. Note that past performance does not guarantee future returns.
- Reputation and experience of the fund management company: Learn about the management team, assets under management, track record and market reputation.
Read the Prospectus and Fund Charter carefully.
- These are important legal documents that provide detailed information about the investment objectives, strategies, types of risks, rights and obligations of investors, and especially types of costs.
- Don't ignore the costs (purchase fees, sales fees, annual management fees, etc.) because they directly affect your investment profits. bond fund certificate.
Compare bond funds of the same type
- Don't just look at one fund. Compare several funds. bond fund certificate potential based on criteria such as: performance, risk level (expressed through NAV volatility), main investment asset type, total cost (TER – Total Expense Ratio).
- Investment platforms or financial websites often provide this comparison tool.
Where to buy bond fund certificates?
- Directly at the fund management company: Visit the website or go to the office of the issuing fund management company.
- Through distributors: Including securities companies and commercial banks that are partners of fund management companies.
- Through online investment platforms/applications: Many fintech apps now allow for purchases fund certificate investment easy.
Monitor and review your portfolio regularly
- Investing is not a one-time thing. Monitor your fund's performance periodically (e.g. monthly, quarterly).
- Consider whether the fund is still consistent with your original goals.
- Update the Market News economic, macro-financial, especially interest rate developments, as they may affect the value bond fund certificate yours. Portfolio adjustments may be needed if circumstances change or your goals change.
Compare bond fund certificates with other investment channels
For a better overview, compare bond fund certificate with some other popular investment options:
Compared to Bank Savings
- Safe: Savings are considered the safest (with deposit insurance according to limits). Bond fund certificate The risk is slightly higher but still relatively low, especially government bond funds.
- Profit: Expected return of bond fund certificate are often higher than savings rates, especially in low interest rate environments.
- Liquidity: Both have good liquidity, but premature withdrawal of savings often loses all interest, while selling fund certificates at NAV can result in profit or loss depending on the time.
Compared to Stock/Equity Fund Investment
- Safe: Bond fund certificate significantly safer than stocks/stock funds due to less price volatility.
- Profit: Stocks/equity funds have much higher potential for long-term returns, but also carry a greater risk of loss. Bond fund certificate bring more stable profits.
- Fit: Bond fund certificate Suitable for investors who prioritize stability and capital preservation. Stocks are suitable for those who accept high risks to seek breakthrough profits.
Compared to Gold/Real Estate Investment
- Investment capital: Bond fund certificate The initial capital requirement is much lower than real estate investment and often gold (if purchased in bulk).
- Liquidity: Bond fund certificate often has better liquidity than real estate and can be better than gold (buying and selling physical gold is sometimes time consuming and costly).
- Fluctuation: Gold and real estate prices also have their own cycles of increase and decrease, sometimes fluctuating strongly. Bond fund certificate usually more stable in the short term.
- Income: Bond fund certificate generates passive income from interest, while gold does not generate cash flow, and real estate generates cash flow if rented out (but comes with management and maintenance costs).
Conclude
Bond fund certificate is an investment channel worth considering in your portfolio, especially if you are looking for stability, relative safety and higher expected returns than savings. With the advantages of diversification, professional management and easy accessibility, it is suitable for many types of investors, from beginners to those who want to rebalance their portfolio with a high proportion of stocks.
However, no investment channel is completely risk-free. Investors need to be aware of the interest rate, credit, inflation and cost risks associated with bond fund certificate. Thorough research, choosing the right fund for your goals and risk appetite, along with regular monitoring are the keys to successful investing. Hopefully this article has provided useful knowledge and insight into bond fund certificate. For more in-depth analysis and updates Market News finance, you can refer to reputable sources of information or seek advice from experts. Platforms such as HVA also regularly provides valuable analysis and information to support investors.
