BUYING BONDS INDIRECTLY

If you are still feeling a little gun-shy about investing in bonds, a more conservative option to explore is a unit investment trust, or UIT. A UIT gives you the opportunity to buy a wide variety of bonds in a portfolio that never changes. Some unit investment trusts also specialize in only one type of bond.

The benefit of a UIT is that you know exactly how much you will earn from the trust when the bonds mature. You earn interest during the life of the trust on the amount you initially invest as well as on the trust's income. The bonds in the trust remain fixed until your initial investment is completely returned to you when the bonds mature. A trustee supervises the bonds in the trust, but the trustee cannot sell or add new bonds.

Another way to invest in bonds is through a bond mutual fund. A bond mutual fund is a portfolio of bonds managed by an investment professional.

The big advantage to a bond fund is that your investment buys shares of a diversified, managed portfolio of bonds, which lowers your overall risks. Interest dividends and capital gains from a bond fund can be paid to you or reinvested into the fund.

Open-end funds let you buy into or sell out of the fund whenever you wish.

Bonds are actively added and sold from the fund by the fund manager. There is no maturity date to a bond fund. Most funds charge a modest manager's fee and some charge for buying or selling fund shares.

Now let's summarize what you have learned in this tutorial on buying bonds.