There are so many bond funds on the market, how should we choose?

Here I would like to share with you a method, which is to look at the duration.

What does bond duration mean?

In technical terms, duration refers to the average maturity time of a bond, that is, the average time it takes for bondholders to receive back their entire principal and interest.

In bond investments, fund managers generally use duration to measure the sensitivity of bond price changes to changes in interest rates.

In other words, the shorter the duration of a bond, the bond price will be less affected by interest rates, the smaller the fluctuation, and the lower the investment risk; the longer the duration, the greater the bond price fluctuation, and the greater the investment risk.

How to read bond duration?

If you invest in a bond fund, just look at the fund name.

In the names of some bond funds, you can often see words such as "short-term bonds", "ultra-short-term bonds", and "medium- and short-term bonds". From these words, you can see the duration of the bond fund's investment portfolio.

For example, ultra-short-term bond funds or short-term debt funds generally only invest in bonds with remaining maturities of no more than 9 months (ultra-short-term bonds) and 6-12 months (short-term bonds), such as treasury bonds, local government bonds, financial bonds, etc.

These bonds have short duration, are less affected by interest rate fluctuations, and have lower risks.

Therefore, short-term debt funds generally have low volatility and relatively stable expected returns.

The bonds invested by medium and long-term bond funds generally have a remaining maturity of less than 3 years. The risks and expected returns of such funds are higher than those of short-term bond funds.

If the bond market is doing well and you can grasp the periodic basis, you can get relatively ideal expected returns by investing in medium and long-term bond funds.