If you really need to buy bonds…
Are you above or at the age of 55? Last year, Bank Negara issued Merdeka Savings Bonds. The bond was sold directly to unemployed retirees through agent banks. Check the web site out and submit your questions online. I believe there will be similar issuance in the future to help the retiring community.
If you are not entitled to buy such Bank Negara bonds yet, you should consider the following factors before you buy into a bond fund.
1. Fund size
The fund size of a bond fund must be big enough to diversify risks. The smallest tradable unit of bond is RM5 million. A RM100 million fund can only buy up to maximum 20 bonds. Small funds are usually excluded from buying into many good bonds due to its limitation of size. Remember, buy bond funds with big fund size.
2. Composition of the investment.
Select those with highest proportion invested in bonds issued by government, Bank Negara or those corporate bonds rated as triple As (AAA). Investment in money market is ok. Just don’t touch those bond funds heavily invested in corporate bonds rated single A and below.
3. Track record of the fund management company. There are usually few names at the top of the bond funds table like Public Mutual, Prudential, etc. You will have to rely on their internal procedures in curbing the issue of professional integrity of fund managers.
Part 1: Buying bond funds? Read this
Part 2: Malaysian Bond Market
Part 3: Criteria of selecting a bond fund