Cincinnati's Bond Fund: Minimum Investment Requirements And More

The minimum investment for Cincinnati Asset Management's bond fund is $100,000.

Bond funds are a mutual fund or an exchange-traded fund (ETF) that buys and sells debt instruments like government and corporate bonds

For an investor, a bond fund is an alternative to buying individual bonds. The investor in a bond fund is buying shares in a fund that buys and sells many bonds. Typically, a bond fund manager buys and sells according to market conditions and rarely holds bonds until maturity.

A bond fund invests primarily in a portfolio of fixed-income securities such as municipal and corporate bonds.

Bond funds provide diversification for investors for a low required minimum investment.

Due to the inverse relationship between interest rates and bond prices, a long-term bond has greater interest rate risk than a short-term bond.

Bond funds can be sold at any time for their current market net asset value (NAV), which may result in a capital gain or loss. Individual bonds can be harder to unload.

From a tax perspective, some investors in higher tax brackets may find that they have a higher after-tax yield from a tax-free municipal bond fund investment rather than a taxable bond fund investment.

There is a wide variety of bond funds to choose from. They include funds that invest in California municipal bonds, U.S. or international government bonds, investment-grade corporate bonds, and tax-exempt bonds. Funds may invest in short-term, medium-term, or long-term bonds.

Bond funds are an alternative to buying individual bonds

Buying Individual Bonds

Pros

• You have total control over what you own.
• You can better plan and control your income stream, as you will know the maturity and coupon payment dates.
• You can look at the exact details of what you own at any time.

Cons

• Requires significant research and ongoing monitoring.
• Requires a greater initial investment amount.
• Less liquid.

Investing in Bond Funds

Pros

• Requires less research.
• Offers greater diversification with a lower dollar commitment.
• Offers daily liquidity.

Cons

• Offers less control over what you own.
• Offers less transparency.
• May be subject to management fees.

Bond funds do not have a maturity date for the repayment of principal, so the principal amount invested may fluctuate from time to time

Bond funds, unlike individual bonds, do not have a maturity date. This means that the principal amount invested in bond funds may fluctuate from time to time. Bond funds are managed by a fund manager who decides which securities to invest in, in accordance with the fund's stated investment goals.

Bond funds can be actively managed, where the fund manager invests according to what they think are the best opportunities, or indexed, where the fund manager seeks to track the composition and performance of the underlying bond index. Bond funds typically charge expense ratios, which cover the costs of management and research and are levied on an ongoing basis.

Bond funds are marked to market daily, and investors will see this volatility in the value of their holdings. This means that when interest rates rise, investors may see a decline in the value of their investment, and when interest rates fall, investors may see a gain in value. Bond funds do not have a defined maturity date, and the investor chooses when to purchase and when to sell. As prices fluctuate due to interest rate changes and other factors, it is possible that an investor may receive less principal back than initially invested.

Bond funds can make it easier to achieve broad diversification with a lower dollar commitment, but they offer less control. They are marked to market daily, and investors will see this volatility in the value of their holdings. This means that when interest rates rise, investors may see a decline in the value of their investment, and when interest rates fall, investors may see a gain in value.

Bond funds are generally broadly diversified among hundreds or even thousands of issuers. This means it may be possible to build a well-rounded fixed income portfolio with just one fund, or a few funds. Some bond mutual funds require minimum initial investments of a certain amount, such as $1,000 or more, while others have no minimum requirements.

Bond funds offer daily liquidity. Investors can place a trade to redeem some or all of their shares anytime, with trades typically executing after the next market close. There may be transaction or redemption fees associated with selling shares, but investors do not have to sell any individual bonds themselves or wait for any bonds to mature if they need to cash out.

Bond funds can be a good option for investors who want to build a portfolio but don't have the time or financial resources to do the research and monitoring required for investing in individual bonds.

Bond funds are an attractive option compared to buying individual bonds. They provide greater portfolio diversification than an individual investor could manage independently

Bond Funds vs Individual Bonds

Benefits of Bond Funds

Bond funds offer a convenient, low-cost way to access a diversified portfolio of bonds. They are professionally managed and provide access to a wide range of bonds, including government, corporate, municipal, and high-yield bonds. Bond funds also offer greater liquidity and lower minimum investment requirements than individual bonds.

Benefits of Individual Bonds

Individual bonds offer greater control and transparency over your investment. You know exactly what you own, when the bond will mature, and the coupon payments you will receive. Individual bonds can also be a good option for investors with a specific future liability to meet, such as college tuition or retirement.

Risks of Bond Funds

Bond funds are subject to interest rate risk, credit risk, and liquidity risk. When interest rates rise, bond prices fall, and bond funds may experience volatility. Bond funds also carry the risk of default by the bond issuer, which can result in losses for investors. Additionally, bond funds may have management fees and expenses that can reduce returns.

Risks of Individual Bonds

Individual bonds may require more time and financial resources to manage and typically have higher minimum investment requirements. They are also less liquid, meaning it can be difficult to sell them before maturity. Individual bonds are also subject to interest rate risk and credit risk. If you hold an individual bond to maturity, you are exposed to the risk of default by the bond issuer.

Cincinnati Asset Management Funds: Broad Market Strategic Income Fund

Cincinnati Asset Management Funds offer a bond fund with a minimum investment of $5,000. The fund seeks to achieve a high level of income, consistent with a secondary goal of capital preservation. The fund invests primarily in U.S. dollar-denominated securities, including fixed-income securities, preferred stock, master limited partnerships, and exchange-traded funds. The fund targets an average credit rating of BBB or better and maintains an average maturity of 6-8 years.

Bond funds that invest in riskier bonds offer higher returns along with a higher risk of default by the bond issuer

Cincinnati Asset Management offers an investment-grade corporate bond fund with a minimum investment of $100,000. The fund is designed for the more conservative investor interested in an intermediate, investment-grade corporate strategy that provides a premium yield to Treasury securities. Bonds must be rated investment-grade by at least one of the credit rating agencies to be considered for purchase. The fund's average credit rating is A3 minimum, and BAA/BA bonds are purchased to a maximum of 30% to enhance cash flow, reduce interest rate sensitivity, and provide greater potential capital appreciation.

In contrast, investing in individual bonds means choosing and buying them one by one, as you might if you were buying a portfolio of individual stocks. This gives you total control over what you own but also comes with the responsibility of managing that portfolio. It requires significant research and ongoing monitoring to assemble a diversified portfolio. Buying individual bonds may entail transaction costs when you purchase or sell investments, but unlike bond funds, individual bonds generally don't entail any ongoing management fees.

Bond funds typically charge expense ratios, which cover the costs of management and research and are levied on an ongoing basis. They can make it easier to achieve broad diversification with a lower dollar commitment but offer less control. They are an attractive option compared to buying individual bonds as they provide greater portfolio diversification than an individual investor could manage independently.

Frequently asked questions