Hello and welcome to the latest episode of Fidelity’s “Smart Guide to Pension Investments” series.
I am James, an MPF secret agent. The code name for today’s operation is “Bond” and I will get to the bottom of the Bond Fund. So, what is a Bond Fund?
A Bond Fund invests in bonds or debt instruments issued by governments, public organisations, banks, commercial organisations or supranational agencies. It provides a stable source of income and offers long-term capital appreciation.
This type of fund derives a stable income from interests or coupon rates, and makes profits from bond trading. This type of fund only invests in bonds that have met the minimum credit rating or listing requirements prescribed by the MPFA.
There are three major fund types in Hong Kong’s MPF market:
1) Hong Kong Bond Fund, which mainly invests in bonds issued by the Hong Kong government, and other governments or financial institutions. They are denominated in Hong Kong dollars.
2) Global Bond Fund, which mainly invests in the global bond market, such as bonds issued by global governments and government-approved organisations.
3) Renminbi (RMB) Bond Fund, which is issued or distributed outside Mainland China.It invests primarily into RMB-denominated debts and money market instruments. It is popularly known as “dim sum” bond.
Remember that no matter which fund you choose, including bond funds with relatively low risks, all investments carry risks.
What are the risk factors that may impact fund prices?
1) Changes to the bond credit rating. If the fund invests in a bond whose credit rating is downgraded, the bond price may drop and could cause the fund price to decrease.
2) Volatiles interest rates. When interest rates rise, bond prices may drop and adversely impact the fund price.
3) Fluctuating exchange rates. If the Bond Fund invests in bonds denominated in a foreign currency, the depreciation of that foreign currency could cause the fund price to drop.
Combining these three factors with the emergence of new markets and political, economic and social instability could affect the performance of the fund.
The Bond Fund is best for those who are moderately conservative and are less willing to bear risks or for those who want to pursue steady returns over the medium to long term.
Before making an investment decision, investors should consider their risk tolerance level, investment goals and personal needs.
Hopefully, you can make the best investment decision!
For more MPF information, please visit Fidelity Website. If you have any questions, please feel free to call the Fidelity Investor Hotline.