Question of the Week – What is a bond fund?

A bond fun, simply put, is a mutual fund that invests solely in bonds and other debt instruments. This may include government, corporate municipal or convertible bonds and debt instruments such as mortgage-backed securities.

Investing in a bond fund is different than investing in several individual bonds. A bond fund does not have a maturity date. The bonds within the fund do have a maturity date and could be sold before reaching maturity if the fund manager decides to do so.

A bond fund allows an investor to diversify their investing by investing in many different types of bonds and bonds with different maturity dates. It also allows an investor to spread risk by investing in bonds with different risk factors, and yields. For example, a bond fund may have some low yield bonds with low risk, but could also invest in junk bonds to try and go after higher yields which also come with higher risk.

Bond funds, like bonds themselves can be sold at any time. However, a bond fund may be easier to sell then a bond, as bonds are not always in demand and may at times, be hard to sell for the value you want for them.

If you’re interested in a bond fund always make sure you know its full makeup. Check the fees it comes with, risk and past performance. Doing this research will help you decide if a bond fund aligns with your investing goals.