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Does this type of bond-based fixed maturity investment product exist?
Old 05-14-2009, 03:49 PM   #1
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Does this type of bond-based fixed maturity investment product exist?

Okay, there's nothing new under the sun in the investment business, nearly every way to package assets of any kind has already been thought of, so I'm sure this already exists or it is impractical, but here goes:

There are a lot of people who like the simplicity of bond MFs and ETFs, but want the eventual security of knowing what the payout will be at the bond maturity date. At present, these people have to buy the actual bond rather than investing in a bond mutial fund. But, why couldn't an investment company create a bond MF that does mature? If they bought a pool of bonds (corporates, munis, even TIPS--there could be all kinds of different flavors of this product offered) with a maturity date of a particular month, then all the owners of the MF on the first date of that month would get a check on the last date of the maturity month (after al the bonds had paid out.). In the years between the creation of the fund and the maturity month, the MF shares would trade on the open market just as other bond MFs do.

Ideally, customers would get the simplicity of a MF (no coupons, no need to set up a Treasury Direct account or a brokerage account, etc) and also the certainty of a gauranteed payout value on maturity. Yes, they'd have to pay a management fee (which they wouldn't incur if they just bought a bond), but it doesn't seem like it would necessarily be a high one. They'd also have the benefit of diversification across many bonds.

Okay, I'm ready for the arrows.
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Old 05-14-2009, 03:50 PM   #2
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This already exists. I think you have described some form of Unit Investment Trusts. Check with Nuveen.
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Old 05-14-2009, 04:04 PM   #3
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Yes, these do exist. One difficulty is that they tend to have a lot fees stacked on them. Another is that the firm creating them has incentives to fill them up with junk that they can't readily sell otherwise.

My father had some of these in his estate. If I weren't such an easy going, tolerant man I would have gone down to his broker and introduced that gentleman's head to the commode in his executive washroom.

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Old 05-14-2009, 06:52 PM   #4
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American Century has funds like that, I think (BTFTX, BTTRX... ). They liquidate on a specific maturity date.
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Old 05-14-2009, 07:52 PM   #5
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If memory serves, there are closed end funds that have specified maturities. I seem to remember that many of them hold munis, but I haven't looked or cared in a long time, so I really don't know.
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