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Weighing up the best option for you: Buying bonds directly or via a fund?

by , 13 May 2015

Including bonds in your investment portfolio helps to add some stability and lower its overall risk. Plus, you'll have regular interest payments to look forward to.

So what's the best way to invest in bonds? Should you buy into bonds directly or through a bond fund?

Let's take a closer look…


The pros and cons of investing directly in bonds


You can invest directly in bonds through your stock broker or through RSA Retail Savings Bonds.

Here’s the advantages and disadvantages of investing in bonds directly…

Pros

  • You know what your returns will be if you hold your bonds until they mature.
  • You can invest in RSA Retail Saving Bonds from as little as R1,000. This is also a very easy way of buying bonds.
  • You don’t have to pay management fees unlike investing in a fund such as a unit trust.

Cons

  • By investing directly in bonds, you have less diversification compared with investing in a bond fund.
  • You need to decide what bonds to invest in. But you could use an advisory stock broker to help you, but this comes at a cost.
  • Investing in bonds directly through your stock broker requires a large lump sum. If you don’t already have an account with a stock broker, you’ll have to open one.


The pros and cons of investing in bond funds


You can invest in unit trust funds and exchange traded funds which invest in bonds.

Here are the advantages and disadvantages of investing in bond funds…

Pros

  • You get good diversification from one investment.
  • You don’t have to worry about choosing which bonds to invest in.
  • You can invest from around R300 upwards on a monthly basis.
  • You can invest in bond funds easily, either online or over the phone.

Cons

  • Your income and capital growth can fluctuate over time.
  • You pay management fees with bond unit trusts.

Your decision will ultimately come down to your experience with bonds and how much you want to invest.

So there you have it. How to weigh up whether buying bonds directly or via a fund is the best option for you.

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Weighing up the best option for you: Buying bonds directly or via a fund?
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