A bond mutual fund sells shares in the fund to investors and uses the money it raises to invest in a portfolio of bonds to meet its investment objective - typically to provide regular income.
The appeal of bond funds is that you can usually invest a much smaller amount of money than you would need to buy a portfolio of bonds, making it easier to diversify your fixed-income investments.
Unlike individual bonds, however, bond funds have no maturity date and no guaranteed interest rate because their portfolios aren't fixed. Also unlike individual bonds, they don't promise to return your principal.
You can choose among a variety of bond funds with different investment strategies and levels of risk. Some funds invest in long-term, and others in short-term, bonds. Some buy government bonds, while others buy corporate bonds or municipal bonds. Finally, some buy investment-grade bonds, while others focus on high-yield bonds.
- Browse Related Terms: Bond fund, Bond rating, Currency, Duration, Fallen angel, Gold standard, High-yield bond, Investment grade, Junk bond, Moody's Investors Service, Inc., Rating, Rating service, Risk premium
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