Tuesday, October 07, 2008

Is bond fund risky?

Hi Mr. Tan,
How about Bond Funds ? Is it safe ? Its unit price keeps dropping.

I have brought S$x of Bond Fund from Maybank at S$0.99 per unit and it was at S$0.86 now. It dropped by $0.13 dropped within 6 months time.

What shall I do now ? Cut lose or hold ? I was also told by the bank staff it was safe since it was a bond and having very little risk ...

Thanks you in advance for your advice please. I know you are very busy .. a lot of people seeking advice from you ...

REPLY
I am not familiar with this bond. It is all right to keep the investment.

It is also all right to sell the investment, as you are getting the actual value of the underlying bonds. Some of the bonds may have dropped in value due to the credit crisis.

2 comments:

  1. Is it possible for your bond funds to return to your purchase price after the mature date? The stock market "may" recover after a "few" years. On the other hand, you may cut lose now and purchase something else which may give your more profit a few years later.

    ReplyDelete
  2. maybe, maybe not.

    becos the fund manager may screw up, or may not screw up.

    bonds could be traded and make or break.

    some bonds may suffer total loss, e.g. Lehman brothers, Enron

    some bonds may be downgraded (AIG)

    some bonds may be upgraded (maybe AIG 5yr later)

    finally, it's still supply vs demand

    ReplyDelete