Bond exchange traded funds are a type of exchange traded funds which are traded similar to stocks on the stock exchanges. Being more precise, all exchange traded funds which invest in bonds are called bond exchange traded funds. They have corporate or government bonds under them in the form of assets. The bond exchange traded funds are traded daily on the stock markets worldwide making their transaction value reach to billions of dollars. The bond markets have become far bigger than stock markets. Bonds were not considered very much attractive but since the time they have been attached with ETFs to make bond exchange traded funds, they have become a positive driver for investor’s portfolio.

Bond ETF’s

Bond exchange traded funds are tend to be more transparent than the bond funds themselves. Thus they attracting investors more and more. Moreover bond exchange traded funds are available at a lower fee to the investors as compared to the bond index funds. But it becomes important to note that the commission fee is charged every time one buys or sells bond exchange traded funds. As a result these funds prove beneficial for those who intend to keep them for a long time.

Against the traditional bonds, bond exchange traded funds are highly liquid and available at secondary markets like stocks and indices. Their old and current prices are disclosed very transparently.

Workings of bond exchange traded funds

Bond exchange traded funds are highly liquid despite of the fact that their underlying bonds are not. The bond ETF’s consists of the largest and most liquid bonds in the core bond index. This helps the bond exchange traded funds to imitate the index and prove to me more trader friendly.

Types of bond exchange traded funds

There are a number of types of bond exchange traded funds available to investors. Investors invest in them depending on their needs and requirements. There are international bond exchange traded funds, corporate bond ETFs and government bond ETFs etc. They can also be classified on the basis of the time for which they are held by investors. These are short term, medium term and long term bond exchange traded funds.

It is good to note that the government bond exchange trade funds outperform during times of recession as the investors pull out their money from market and invest it in government bond ETFs to ensure maximum safety of their money.

Pros and cons of investing in bond exchange traded funds

Along with providing all the advantages of an exchange traded fund, Bond ETF’s provide these additional advantages to investors:

• Bond exchange traded funds yield a sure return to the investors in form of fixed minimum interest and thus are good way of investing. This is often referred to as the Coupon.
• Most Bond ETF’s return interest on monthly dividend basis, yet the capital gains are paid yearly making the transactions much easier.

Disadvantages of investing in bond exchange traded funds are:

• They can sometimes have a high management fee and commission costs. This may eat up profits of the small scale investors though they have a negligible effect on big players.