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Debt Instruments (Bond) Fund

A debt instruments fund invests at least 80% of its portfolio in fixed-income securities such as government bonds, treasury bills and corporate bonds. Bond funds aim to earn interest income and gains from bond price moves.
Contents
  1. 1.Key points
  2. 2.How it works
  3. 3.Interpretation
  4. 4.Pitfalls
  5. 5.Frequently asked questions

Key Points

  • They are classed as short, medium and long term; the longer the maturity the higher the sensitivity to rate changes (duration).
  • Long-term bond funds are favoured at the start of a rate-cutting cycle, short-term and money market funds during a hiking cycle.
  • "fixed income" does not mean the fund delivers a fixed return; it can lose money when rates rise.

How It Works

Fund return = Coupon (interest) income + Bond price change − Management fee. When rates fall bond prices rise and the fund gains; when rates rise the opposite happens. The price is usually announced same day or T+1.

Interpretation

Funds weighted in corporate bonds also carry credit risk.

Long-term bond funds are favoured at the start of a rate-cutting cycle, short-term and money market funds during a hiking cycle. The benchmark is usually a KYD government bond index.

Pitfalls

"fixed income" does not mean the fund delivers a fixed return; it can lose money when rates rise. Corporate bonds carry issuer default risk. Eurobond funds additionally carry FX risk.

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Frequently Asked Questions

A debt instruments fund invests at least 80% of its portfolio in fixed-income securities such as government bonds, treasury bills and corporate bonds.

Fund return = Coupon (interest) income + Bond price change − Management fee. When rates fall bond prices rise and the fund gains; when rates rise the opposite happens. The price is usually announced same day or T+1.

Prepared by: Yatırımcı.AI Research TeamLast reviewed: Method: MethodologyEditorial policy