A few questions to What sorts of bonds does the fund invest in? ask before you invest How does the fund manage risk? in a bond How does the manager determine which bonds to invest in? fund Picking a fund that meets to repay its debt. Different bonds are affected differently yourneeds by changes in these two key factors. Before you invest, it’s worth making sure the company managing your bond The names of bond funds can sometimes reveal very fund has the knowledge, experience and resources to little, so it’s a good idea to get a sense of the potential monitor these challenges and make changes whenever risks of a fund by looking at the types of bonds it invests they are required. in and what the average credit rating is of its bond holdings. For example, you can choose between funds Finding out how your fund that invest purely in government bonds, funds that manager’s investment company invest in investment grade corporate bonds, or funds that invest only in high yield bonds, or you could choose researches opportunities a fund able to invest in all the different types. There are few people who would lend money to someone without knowing anything about them. Investing in Checking how the manager bonds is just the same. If your fund manager’s investment produces an income company has its own team of analysts, they can carry Income on a bond fund is produced by the regular coupons out their own in-depth research into the bonds they paid by the bonds held in the portfolio. As you probably might hold. expect, you have to pay for the management of any bond This means they aren’t relying solely on information from fund you invest in. The way these charges are handled will credit rating agencies, which is available to everyone. affect the total income you get. Some funds take their With greater insight, a well-resourced investment team charges from income before it is paid out to you, while should be able to make more informed decisions on others take it from the amount you originally invested. your behalf. Making sure you are happy with the way a fund manages risk The returns from bonds are primarily influenced by changes in interest rates and the ability of the borrower 12