Course 103: Buying Bonds
Buying Bonds Indirectly
In this course
1 Introduction
2 Things to Consider When Buying Bonds
3 How to Buy Bonds
4 Bond Pricing Terminology
5 Bond Trading Transaction Costs
6 Buying Bonds Indirectly
7 Doing Your Homework Before Buying Bonds

Having trouble choosing the right bonds for your portfolio--or coming up with the funds to buy them all? The answer may be one of the indirect ways for investors to profit from the bond market.

The benefit of a unit investment trust is that you know exactly how much you'll earn from the trust when the bonds mature.One conservative option to explore is a unit investment trust, or UIT. A UIT gives you the opportunity to buy a wide variety of bonds in a portfolio that never changes. Some unit investment trusts also specialize in only one type of bond.

The benefit of a UIT is that you know exactly how much you'll earn from the trust when the bonds mature. You earn interest during the life of the trust on the amount you initially invest as well as on the trust's income. The bonds in the trust remain fixed until your initial investment is completely returned to you when the bonds mature. A trustee supervises the bonds in the trust, but the trustee cannot sell or add new bonds.

Another way to invest in bonds is through a bond mutual fund. A bond fund is a portfolio of bonds managed by an investment professional. The big advantage to a bond fund is that your investment buys shares of a diversified managed portfolio of bonds, which lowers your overall risks. Interest, dividends, and capital gains from a bond fund can be paid or reinvested in the fund. Open-end funds let you buy into or sell out of the fund whenever you wish. Bonds are actively added and sold from the fund by the fund manager. There is no maturity date to a bond fund. Most funds charge a modest manager's fee and some charge for buying or selling fund shares.

UITs and mutual funds offer the benefits of a bond portfolio and more affordable buy-in costs for investors who want the rewards of bonds without having to trade them directly.

Next: Doing Your Homework Before Buying Bonds >>


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