222) Does Bond Fund Move Opposite to Equity Fund?

First, let's understand the basics of a bond and a bond fund.

A bond is a fixed income instrument that represents a loan made by an investor to a borrower.

The borrowers (bond issuers) are mostly companies and governments. The main purpose is to raise money to finance their new projects, maintain on-going operations or refinance existing debts.

The lenders (bond buyers/holders) are investors that has large amount of money and wants to get fixed income from the borrowers.

The Coupon Rate is the return rate of holding the bond.

The Maturity Date is when the bond issuer will return the borrowed money to the bond holder. It can be many years depending on the requirement. For example 10, 20 or even 30 years later.

A Bond Fund is a managed pool of money that Bond Fund Manager used to buy and trade bonds. A Bond fund normally does not have equities.

An Equity Fund is a managed pool of money that Equity Fund Manager used to buy and trade equities. An equity fund normally invested mostly into equities, but also has a small percentage of bonds.

An equity fund is volatile as it is reflected by the volatility of the stock markets. The stock prices move up and down throughout the time. When the economy is improving, the stock prices go higher. When the economy is perceived to be getting worse in the future, the stock prices drop.

Bond market is less volatile than the stock market. A Bond fund receives regular fixed income from the bond issuer. A Bond fund has many bonds with different payments dates, coupon rates and maturity dates. A bond fund value increases steadily over the years.

The main factor that affects the bond prices is the interest rate. When the interest rate increases, bond prices will drop. When the interest rate drop, bond prices will increase.

Here's a typical graph on how a bond fund price move compared to an equity fund.

At certain times, the stock market is up and the bond fund price is also up. At other times, the stock market is down, but the bond fund price still go up.

In conclusion, a Bond Fund price moves differently from the Equity Fund. 

Here is another comparison of 1 Bond fund and 3 Equity Funds.

Different Equity Funds normally will move together as stock markets are more related to one another.



For more related articles:

239) Bond Specification & Calculationhttps://highlevelrules.blogspot.com/2020/03/239-bond-specification-calculation.html

230) Differences between investing into Bond Market vs Bond Fundhttp://highlevelrules.blogspot.com/2019/07/330-bond-market-vs-bond-fund.html

222) Does Bond Fund Move Opposite to Equity Fund?
http://highlevelrules.blogspot.com/2019/03/222-does-bond-fund-move-opposite-to.html
22) Bond Price Moves Opposite to Bond Yields
https://highlevelrules.blogspot.com/2017/06/bond-price-moves-opposite-to-bond-yields.html

48) Money Market Fund vs Bond Fund
http://highlevelrules.blogspot.com/2017/07/money-market-fund-vs-bond-fund.html

61) Unit Trust Bond Fund Vs Fixed Deposit
http://highlevelrules.blogspot.com/2017/07/unit-trust-bond-fund-vs-fixed-deposit.html

46) Why You Should Diversify Into Different Fund Types?
http://highlevelrules.blogspot.com/2017/07/why-you-should-diversify-into-different.html