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BOND FUNDS VS INDIVIDUAL BONDS, UIT's & ETF's
      Bond Mutual Funds Individual Bonds
Bond Unit Investment Trusts
 Bond ETF's
Pros   diversification; professional management; liquid bonds have higher yields; fixed maturity dates diversification; fixed maturity; fixed interest income Easy to trade; diversification
Cons   more expensive: higher costs mean lower yields;no fixed maturity date bonds are not as
liquid as funds;investor must manage		 bonds are not as liquid as mutual funds; higher sales charge than individual bonds no fixed maturity date; income streams not always predictable
Brief Definition   managed portfolio of bonds individual securities fixed portfolio held in a trust "basket" of securities typically linked to an index
Maturity Date   no date - bonds are constantly bought and sold set maturity date. Choice of 1 - 30 years. trust buys a set of bonds with fixed maturities no fixed maturity date; therefore no yield to maturity.
Income Payments   fluctuating monthly payments semiannual, except zero coupon bonds investors choice: fixed monthly, quarterly, or semiannual payments fluctuating monthly payments; not always predictable
Liquidity   sell anytime at current fund value sell bonds anytime at current market price. some bonds less liquid. sell bonds anytime at current market price.Less liquid than funds liquid;sell anytime during the day at current market price
Diversification   constantly changing portfolio individual chooses from multiple issues fixed diversity of investments instant diversification
Management   professional investor managed monitored, not managed most not managed; managed ETF's are appearing
Costs   annual management; may have a load one time charge at purchase or sale sales charge at purchase; annual fee one time charge at purchase or sale; ongoing management fee
Minimum Investment   varies among funds usually $5,000 and increments of $5,000 often $1,000 trade as shares on an exchange; prices vary
Reinvestment   dividends can be reinvested investor must do it. some trusts alow reinvestment investor must do it.
Availability   always available limited by issue can be limited by trust many ETFs for varying strategies

Bond Mutual Funds

Mutual funds pool together capital from many investors who share similar investment goals. Bond mutual funds can invest in any type of fixed income security except CDs. The major categories of fixed income mutual funds include:
  • Taxable Bond Funds. These offer a wide range of choices depending on your investment objectives. Some invest in corporate securities, some in US Government securities; some invest in high-risk, high income securities, and some invest in low-risk, lower income securities.

  • Tax-Free Bond Funds. Federal tax exempt bond funds seek to provide high after tax income and invest in a variety of municipal bonds issued within a number of different states. State-specific funds invest in bonds issued only within one state to obtain current income that is exempt from federal and state, and sometimes local, income tax.

  • Taxable and Tax-Free Money Market Funds. These provide current income while seeking to maintain a constant share price.

Unit Investment Trusts ( UIT )

A UIT is a package of income producing securities that is purchased and held in a trust until the final amount is paid. UITs invest in a wide range of issues, from Treasury to corporate to municipal bonds, and once the portfolio is assembled, the securities are monitored, but not actively managed.
UITs charge an annual fee that is deducted from the yield, and pay an initial sales charge to the sales representative. Sales charges may range from 3.5 to 5%. UITs are offered on a "dollar price" basis, with the return expressed in terms of estimated current return (net interest income divided by public offering price).

Individual Bonds

You can buy individual bonds for your portfolio similar to how you buy stocks. Unlike stocks, however, availability and the prices of bonds vary from dealer to dealer. Large dealers maintain an inventory of bonds which may not be available through other dealers.
Bonds are generally offered on the basis of yield to maturity, which can be hard to follow and compare. While some yields are quoted in financial pages of newspapers, these represent yields for only a small fraction of the available bonds, and represent rates that apply to institutional-size trades. From the yield to maturity, prices are calculated and quoted as a bid price (the price at which you sell) and the offer price (the price at which you buy). Generally, you can expect to get better prices as the size of the order goes up.

Bond Exchange Traded Funds (ETF)

ETFs, or “Exchange Traded Funds,” represent “baskets” of securities typically linked to an index, and also have the advantages of ease of execution and instant diversification. ETFs and bond funds can offer flexibility and liquidity, especially for actively managed portfolios. ETFs pay out interest through a monthly dividend, while any capital gains are paid out through an annual dividend. ETFs are suitable for particular strategies.

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