tips fund question

K

ksda

I have two questions regarding bond mutual funds that I was hoping someone could answer for me. I was looking at VISPX, Vanguard Inflation Protected Securities Fund, and I saw that there were times in the past when the share price of the fund went down. I don't however understand how this can be since if you own TIPS individually you can never make less than what you originally invest. So how can the price of VISPX go down?

My second question is the following. Does there even exist any bond mutual funds where the share price can't go down?
 
I don't know much about these products.Check to see if the dates that this went down coincide with x-div dates for the fund. The answer to your other question is simple. "Does there even exist any bond mutual funds where the share price can't go down?" The answer is no. Over a short period of time, even money market funds can go down.
 
ksda said:
I was looking at VISPX, Vanguard Inflation Protected Securities Fund, and I saw that there were times in the past when the share price of the fund went down. I don't however understand how this can be since if you own TIPS individually you can never make less than what you originally invest. So how can the price of VISPX go down?
More...
TIPS are just bonds of a different flavor - they can go up and down in price for many of the same reasons normal bonds do: changes in expectations about future interest rates, inflation prospects, government intervention, etc. There is no guarantee that a TIPS fund will hold to maturity, and if they buy more tips at high prices or sell at low prices (possibly due to investor fund flows), they will realize a permanent loss.
 
So there doesn't exist a bond fund out there where as a matter of policy that they hold all there TIPS to maturity and don't try sell them? Surely if they did this their share price couldn't go down.
 
ksda said:
So there doesn't exist a bond fund out there where as a matter of policy that they hold all there TIPS to maturity and don't try sell them? Surely if they did this their share price couldn't go down.
More...

The share prices of all of these bond funds are basically "marked to market". A simplified explanation is if you bought a bond and held it to maturity and it paid all the coupons with no problems, at no point did you lose any money. But if you checked everyday how much the market was willing to pay for your position that never lost you any money, you would find that it fluctuates up and down based on the factors listed off by MoreLeverage.
 
You must log in or register to reply here.
Back
Top