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Originally Posted by blackcap
That is the question I have too. Rising interest rates could decimate a bond fund. Or do these funds just buy at par when a bond is issued and hold till maturity and take the interest along the way, ignoring the rise and fall in the actual value of the underlying securities?
Isn't the unit price of the fund still marked to the current market clearing price of the assets under management? So if you hold a fund with a high exposure to vanilla fixed interest bonds you'll get a capital gain when rates fall and a loss if the rates rise.
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