Default risk is the possibility that a bond issuer does not make a required payment of interest or principal, or breaches an obligation that triggers a default under its documents. A bond is a promise to pay—not an insured deposit. The real question for investors is what happens to that promise if the issuer’s finances deteriorate. Default is a process, not just a missed coupon A corporate bond ordinarily gives its holder a contractual right to receive scheduled interest and principal according to the terms. A payment default may occur when an amount is unpaid after any applicable grace period. Other events can sometimes trigger default: insolvency, failure to comply with a financial covenant, or certain defaults on other material debt. The wording differs markedly between securities. An issuer can be under serious financial pressure without yet being in formal default, and a default can be remedied or waived without immediate insolvency. This distinction matters because headlines...
Illustrative stock photo: Pexels · Free-use licence Legally Insightful · Australian explainer Quick answer: An exchange-traded fund, or ETF, is a managed investment that trades on a stock exchange. Buying one unit gives exposure to a fund portfolio, not direct ownership of each underlying share or bond. The value and distributions can rise or fall. How one trade buys a portfolio An ETF pools money from investors according to an investment strategy. It may track an index of Australian shares, hold international securities, invest in bonds or pursue an active strategy chosen by a manager. A broker allows investors to buy or sell ETF units during market hours. The traded unit price can differ slightly from the net asset value of the underlying holdings, particularly when markets are volatile or the assets are less liquid. Diversification has limits A broad share-market ETF may hold hundreds of companies. A narrow thematic ETF might depend heavily on a few businesses or one indust...