How do inflation protected bond funds work

The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation. You also can buy TIPS through a bank or broker. Want e-mail notification of auction results and upcoming auctions? Sign up for our mailing list. Department of the Treasury, Bureau of the Fiscal Service.

You can hold a TIPS until it matures or sell it before it matures. This may not be a huge deal if payments end up being more than expected, but during periods of lower inflation or deflation, you could end up with less money coming in than you need. Anticipatory taxes. You can combat this by holding your TIPS in tax-advantaged retirement accounts.

Treasuries before their maturity date. During periods of unstable inflation, you also may end up selling your TIPS at a loss, especially if their par value has been adjusted to lower than what you paid. CPI may not match your personal inflation rate. TIPS may not keep up with your personal rate of inflation.

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That's true for all investment areas, including inflation-protected bonds. Aside from differences in taxation, inflation-protected bond ETFs function largely the same as mutual funds. An ETF manager controls the basket of securities held within the ETF, and investors buy into the fund for a share of exposure to those securities.

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