What are bond ETF?

[Njau]

Explain to me what are bond ETF.

[Faraz]

Bond ETF are exchange-traded funds that solely deal in bonds. Bond ETF and bond mutual funds are similar in that they have a variety of bonds meant for different techniques. You can hold both of them for a short or long period, and the main aim of dealing with them is to make profits.

Bonds exchange-traded funds trade like stock ETF on the stock exchange market; their management is also passive. Them being passively managed helps increase the stability in the market since they add liquidity when the market is not performing well.

Different from individual bonds where you sell them by over-the-counter through brokers, you can trade bond ETF the whole day from a centralized platform.

It is challenging to get a traditional bond with a favorable price. However, in bond ETF, you will probably get an attractive price for trading since they can trade on a key index such as the New York Stock Exchange.

Investing in bond ETF is an excellent opportunity to get a disclosure of the market and make it easy for you to trade.

The liquidity in bond ETF is better than that of mutual funds and individual bonds. These other bonds typically have one trading price for the whole trading day. When the market is unstable, you can trade bond ETF no matter how bad the market prices may be.

You will get interested when you invest in bond ETF that usually come in the form of a monthly dividend. In a case where you get capital gains, you will receive them in the form of annual dividends. These dividends are taken as income or capital gains during taxation. You can get bond ETF anywhere in the world.

Getting a regular interest in bond ETF is one aspect that is similar to individual bonds. This is one of the most significant benefits of bond ETF. They will pay you a coupon rate every single month, unlike there before where you would get the payment after six months from the traditional bonds. This coupon rate, however, varies from one month to another.

You trade bond ETF as their expiration date approach. The big challenge here is to effectively track the benchmark so that you will not incur so many costs. Usually, you cannot actively trade bond ETF since you have to hold them until they mature.