Individual Zero Coupon Bonds vs Zero Coupon Mutual Funds

Zero coupon bonds can be purchased individually or through a zero coupon mutual fund. Here are a few things to consider about both methods of purchase.

Individual Zero Coupon Bonds

When you invest in zero coupon bonds individually, you are going to need to set up an account with a bond broker. Typically, you are going to have to invest at least $5000 to open an account with them. You will have to pay your broker a commission each time that you make a purchase. It can take some time to make a purchase because the bond broker has to find a bond that meets your investment criteria. When you invest in individual bonds, you are not going to be able to make anything until that bond matures. You also have to pay the taxes on the interest that is accruing before you get paid.

Zero Coupon Mutual Funds

When investing in a mutual fund, it is going to be much easier for you to buy and sell. You can purchase shares through any brokerage account. You will have some sales charges and management fees with this method of purchase. Typically, you can get involved with a much smaller initial investment than if you were investing by yourself. You will also get the benefits of having a diversified portfolio with many different bonds.

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