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Bond ETF

Updated on March 14, 2023

As the name suggests, Bond ETF (Exchange Traded Fund) is an ETF that invests primarily in a diverse basket of corporate, government, treasury bonds etc. which can be long as well as short term in nature. These are passive investments which allow retail investors to invest through low cost options like ETFs and can be traded on stock exchanges. Bond ETFs are more liquid than individual bonds and investors can earn regular income through these investments.

Benefits of Bond ETFs

Benefits of Bond ETFs are:
a) Bond ETFs are low cost investments and are preferred by investors for short-term goals.
b) Bond ETFs can be suitable for low risk investors and they also offer reasonable liquidity.
c) They offer a chance of earning regular income and can be structured as per the investor’s cash flow requirements.

Limitations of bond ETFs

Some limitations of bond ETFs are:
1. Bonds come with fixed tenure, a coupon rate and a maturity date-easy liquidity can be a problem.
2. Although Bond ETFs can be traded on exchanges, the low volumes and low demand makes them restricted tradeable instruments.