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IN Hongkong, bonds constituted about 20 to 25 per cent of all funds offered to investors in the territory and people tended to be ignorant about them, according to Ada Mak, the associate director of Fidelity Investments Management (Hongkong).

  One of the most attractive features of a bond fund was that its income potential was generally higher than money market funds, Ms Mak said.

  ''A bond fund's total return takes into account its yield, as well as the amount its share price appreciates or depreciates.

  ''But, historically, bond funds have offered a higher degree of price stability than most higher-returning stock funds.''   While bonds had a good degree of predictability, they did not offer the same rate of return that an equity fund did, she said.

  ''But, when you sell shares, they may be worth more or less what you initially paid for them as their prices are not fixed. Since the market is very sensitive to downside, bonds do look attractive now,'' she said.

  In general, bond prices tended to fall when interest rates increased - in short, the price of bonds was governed by interest rate trends.

  So, the shorter a bond's maturity, the smaller degree of uncertainty over future interest rates. Those who invested in short-term bonds would tend to face minimal price fluctuations.

  On the other hand, longer-term securities generally offered higher yields than shorter-term securities of comparable quality to compensate for the uncertainty about future interest rates.

  Ms Mak said investors should not blindly choose their investments based on anyone's interest rate forecast.

  She offered a rule of thumb to investors to match maturities with their investment time horizon.

  ''If you need your principal in a matter of months, a good investment choice might be a money market fund,'' she said.

  ''But if you need your principal in one to five years, a short-term bond fund looks more attractive.

  ''Likewise, an intermediate-term bond fund might prove to be a good choice if an investor needs the principal in about five to 10 years.

  ''A long-term bond fund may be more appealing if the principal is only needed after more than 10 years.''   Last month, Fidelity launched the Income Plus Fund, which invested mainly in short-term bonds and maintains a portfolio of bonds with an average maturity of three years or less.

  ''The fund will invest mainly in investment grade fixed-income securities which are rated BAA or higher by Moody's, or BBB or higher by Standard's and Poor,'' Ms Mak said.

  ''The Fidelity Income Plus Fund seeks to obtain a high level of current income, together with preservation of capital by investing primarily in a wide range of corporate and government bonds.''   The fund aimed to build on the proven track record of Fidelity Adviser Short Fixed Income Portfolio (FASFIP) by following its investment strategy.

    FASFIP offered an annual compound return of 9.52 per cent for one year, 10.06 per cent for three years and 8.90 per cent for five years.

  ''When you invest in the Income Plus Fund you need not pay any sales charge or redemption fee.

  ''In addition, you will also have easy access to your money. When you need money, we will make payment into your bank account within 48 hours,'' Ms Mak said.

  Some of the other bond funds offered by Fidelity are the European, international, sterling, US dollar and yen bond funds.



Bonds offer high returns, low risk