| As interest rate climb, most bond owners are shaking | | | | company defaults, senior loans must be paid back |
| their heads. The price of existing bonds falls when | | | | before bond holders are. You may not receive enough |
| rates are on the rise. There is a way to offset the | | | | to cover your initial investment, but something is better |
| decline. You can invest in bank loan funds, also known | | | | than the nothing you could receive with a high-yield |
| as floating rate funds. There is a risk to these funds, | | | | bond. Typically, in the case of default, the investors will |
| but they can be a rewarding alternative to traditional | | | | recover 75 to 80 cents on the dollar.The change of |
| fixed-income investments.Bank loan funds are made | | | | losing principal is reduced because the interest rates on |
| up of loans made by banks or other financial institutions | | | | the loans reset very quickly. Short-term interest rates |
| to companies. They are often below investment grade. | | | | rise and fall in response to the Federal Reserve. That, |
| They aren't really fixed income; there is the potential of | | | | combined with the short terms of the loans, makes for |
| losing money. The funds can provide a return equal to | | | | a fund that responds quickly to the rise and fall of |
| or better than high-yield money market accounts. The | | | | interest rates.Many brokerages, including Merrill Lynch |
| loans that make up the funds are short-term. This | | | | and Eaton Vance, sell bank loan funds. In certain asset |
| allows the lenders the opportunity to frequently raise | | | | classes there may be a high expense ration. Make |
| the interest rate. This helps the funds keep pace with | | | | sure that you check every fund out carefully.Many |
| interest rate changes and helps keep the principal | | | | funds in this group allow investors to buy shares at |
| more stable than with a typical bond fund.According to | | | | any time. There are some funds that will allow you |
| many portfolio managers, the way the loans are | | | | redemptions at any time, while others will restrict you |
| structured removes a lot of the risk to investors. The | | | | to monthly or quarterly redemptions.Martin Lukac ( |
| loans are secured by cash or assets. The funds are | | | | represents and a finance web-company specializing in |
| not independently rated, but experts say the bank | | | | real estate/mortgage market. We specialize in daily |
| should be able to show you the performance of the | | | | updates, rate predictions, mortgage rates and more. |
| fund. The bank will | | | | Find low home loan mortgage interest rates from |
| package the loans and sell them, and the funds come | | | | hundreds of mortgage companies! |
| into play.Ban loan funds are senior loans. If the | | | | |