A Bond Fund is an MPF fund that invests in bonds or debt instruments issued by governments, public organizations, banks, commercial organizations or supranational agencies like the World Bank. The acquired bonds must meet the credit rating or listing requirements stipulated in the MPF legislation. Returns are generated by recurrent interest earned from the underlying bonds and any profit earned from trading the bonds in the market.
Bond Funds are generally considered to be a lower-risk investment. Bond prices, and thus fund prices and returns, may be adversely affected by:
- fluctuations in interest rates (when interest rates rise, bond prices may drop and may result in a drop in the fund price);
- fluctuations in exchange rates (if the fund invests in bonds denominated in a foreign currency, the depreciation of that foreign currency may lead to a drop in the price of the fund); and
- changes to the credit ratings of a bond (if the fund invests in a bond whose credit rating is downgraded, the bond price will normally drop, which may lead to a drop in the price of the fund).
for an overview of the different types of MPF funds or learn more about the five major types of MPF funds with a visit to the MPF Investment Education Website